S-1/A

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As filed with the Securities and Exchange Commission on January 31, 2005

Registration No. 333-113937

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 9
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

FAIRPOINT COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware
(State or Other Jurisdiction
of Incorporation or Organization)
4813
(Primary Standard Industrial
Classification Code Number)
13-3725229
(I.R.S. Employer
Identification Number)

521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
(704) 344-8150
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Shirley J. Linn, Esq.
Senior Vice President and General Counsel
FairPoint Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
(704) 344-8150
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Marie Censoplano, Esq.
Jeffrey J. Pellegrino, Esq.
Paul, Hastings, Janofsky & Walker LLP
75 East 55th Street
New York, New York 10022
(212) 318-6000 Peter J. Loughran, Esq.
Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
(212) 909-6000

Approximate date of commencement of sale of the securities to the public:
As soon as practicable after this registration statement becomes effective.

        If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

        If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

        If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  o

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a) of the Securities Act of 1933, may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JANUARY 31, 2005

PROSPECTUS

25,000,000 Shares

Common Stock

        This is an initial public offering of common stock of FairPoint Communications, Inc. We anticipate that the public offering price per share of common stock will be between $18.00 and $20.00.

        Our common stock has been approved for listing on the New York Stock Exchange under the trading symbol "FRP", subject to official notice of issuance.

Investing in our common stock involves risks. See "Risk Factors" beginning on page 10.

	Per Share	Total
Public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to FairPoint Communications, Inc.	$	$

        Certain of our stockholders have granted the underwriters an option to purchase up to 3,750,000 additional shares of common stock at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments, if any. We will not receive any of the proceeds from any sale of shares by the selling stockholders.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

        The underwriters expect to deliver the shares of common stock to purchasers on or about                        , 2005.

Morgan Stanley Goldman, Sachs & Co.

Banc of America Securities LLC Deutsche Bank Securities

Credit Suisse First Boston Wachovia Securities

The date of this prospectus is                        , 2005.

Table of Contents

	Page
Prospectus Summary	1
Risk Factors	10
Forward-Looking Statements	24
Dividend Policy and Restrictions	25
The Transactions	35
Use of Proceeds	36
Capitalization	37
Dilution	38
Selected Financial Data	40
Management's Discussion and Analysis of Financial Condition and Results of Operations	43
Business	63
Regulation	73
Management	80
Certain Relationships and Related Party Transactions	94
Principal and Selling Stockholders	96
Shares Eligible for Future Sales	98
Description of Certain Indebtedness	100
Description of Capital Stock	106
Certain United States Federal Tax Considerations	112
Underwriters	116
Legal Matters	121
Experts	121
Where You Can Find More Information	122
Index to Financial Statements	F-1
Index to Pro Forma Financial Statements	P-1

Prospectus Summary

The following is a summary of the principal features of this offering of common stock and should be read together with more detailed information and financial data and statements contained elsewhere in this prospectus.

Our Company

Overview

        We are a leading provider of communications services to rural communities, offering an array of services, including local and long distance voice, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural communities, and we are the 17th largest local telephone company, in each case based on number of access lines. We operate in 17 states with approximately 272,691 access line equivalents (including voice access lines and digital subscriber lines) in service as of September 30, 2004.

        We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. We have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 access lines. All of our telephone company subsidiaries qualify as rural local exchange carriers under the Telecommunications Act of 1996.

        Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because rural local exchange carriers primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high.

Our Competitive Strengths

        We believe we are distinguished by the following competitive strengths:

•

Consistent and predictable cash flows and strong margins.    We have the leading market position in the rural communities we serve, with limited competition. Demand for telephone services from our residential and local business customers has historically been very stable despite changing economic conditions. Additionally, our telephone companies operate in generally supportive regulatory environments. These factors have permitted us to generate consistent cash flows and strong margins.



•

Geographically diversified markets.    We currently operate 26 rural local exchange carriers in 17 states, clustered in four regions, enabling us to capitalize on economies of scale and operating efficiencies and enhance our cash flow stability by limiting our exposure to competition, local economic downturns and state regulatory changes.



•

Technologically advanced infrastructure. Our advanced network infrastructure enables us to provide a wide array of communications services, including digital subscriber lines. As of September 30, 2004, approximately 96% of our exchanges were capable of providing broadband services.



•

Broadest service offerings in our markets. We believe that, as a result of our advanced network and switching infrastructure, we offer the only comprehensive suite of communications services in our markets, including local and long distance voice, data and Internet services.

1

•

Management team with proven track record.    Our experienced management team, which has an average of 21 years of experience working with a variety of telephone companies, has successfully integrated 30 business acquisitions since 1993, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings.

Our Strategy

        The key elements of our strategy are to:

•

Increase revenue per customer.    We are focused on increasing our revenues by introducing innovative product offerings and marketing strategies for enhanced and ancillary services and successfully cross-selling broadband and value-added services, such as digital subscriber lines, long distance, Internet dial-up, voicemail and other services, to our customers.



•

Continue to improve operating efficiencies and profitability.    We intend to continue to increase our operating efficiencies by consolidating various administrative functions and implementing best practices across all of our regions.



•

Enhance customer loyalty.    We intend to continue to build our customer relationships by offering an array of communications services and quality customer care.



•

Grow through selective acquisitions.    We will continue to evaluate and pursue acquisitions which provide the opportunity to enhance our revenues and cash flows.

The Transactions

        Concurrently with this offering, we will enter into a new senior secured $690.0 million credit facility, which we refer to as our new credit facility, consisting of a revolving facility in an aggregate principal amount of up to $100.0 million and a term facility in an aggregate principal amount of $590.0 million. While our new credit facility will permit us to pay dividends to holders of our common stock, it will contain significant restrictions on our ability to do so. See "Dividend Policy and Restrictions" and "Description of Certain Indebtedness—New Credit Facility."

        We expect to receive gross proceeds from this offering of approximately $475.0 million, assuming an initial public offering price of $19.00 per share of our common stock, which represents the mid-point of the range set forth on the cover page of this prospectus. These proceeds, together with approximately $590.0 million in borrowings we expect to receive under the term facility of our new credit facility, primarily will be used to:

•

Repay in full all outstanding loans under our existing credit facility (approximately $185.1 million at September 30, 2004).



•

Consummate tender offers and consent solicitations for our outstanding $115.2 million aggregate principal amount of 9¹/2% senior subordinated notes due 2008, which we refer to as the 9¹/2% notes; our outstanding $75.0 million aggregate principal amount of floating rate callable securities due 2008, which we refer to as the floating rate notes; our outstanding $193.0 million aggregate principal amount of 12¹/2% senior subordinated notes due 2010, which we refer to as the 12¹/2% notes; and our outstanding $225.0 million aggregate principal amount of 11⁷/8% senior notes due 2010, which we refer to as the 11⁷/8% notes.



•

Repurchase all of our series A preferred stock (together with accrued and unpaid dividends thereon) from the holders thereof. The series A preferred stock was initially issued in May 2002 in exchange for debt of one of our subsidiaries whose operations we discontinued.



•

Repay in full all of our subsidiaries' outstanding long-term debt (approximately $13.6 million at September 30, 2004).

2

•

Repay in full a $7.0 million unsecured promissory note issued by us in connection with a past acquisition.



•

Pay fees and expenses, including tender premiums and consent payments.

        In this prospectus, we refer to this offering, our new credit facility and the transactions described above collectively as the transactions. For additional information concerning the transactions, see "The Transactions," "Use of Proceeds," "Capitalization" and "Description of Certain Indebtedness."

Our Investors

        Our issued and outstanding capital stock currently consists of series A preferred stock, class A common stock and class C common stock. The series A preferred stock is held by one of our equity sponsors and by certain former institutional lenders to one of our subsidiaries. The class A common stock is held primarily by our equity sponsors, our directors, our founders and current and former employees (which includes certain of our executive officers named in our management table). The class C common stock is held by certain institutional investors. Upon the closing of this offering, all of our shares of class C common stock will be converted, on a one-for-one basis, into shares of our class A common stock and all of our shares of class A common stock will be reclassified into shares of our common stock.

        Upon the closing of this offering, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 11.8% and 10%, respectively, of our common stock. Kelso & Company and certain of our other stockholders have granted the underwriters an option to purchase up to 3,750,000 additional shares of our common stock at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus, to cover over-allotments. If the over-allotment option is exercised in full, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 11.8% and 0%, respectively, of our common stock.

Where You Can Find Us

        We were incorporated in New York in 1991 and reincorporated in Delaware in 1993 as MJD Communications, Inc. In April 2000, we changed our name to FairPoint Communications, Inc. Our principal offices are located at 521 East Morehead Street, Suite 250, Charlotte, North Carolina 28202 and our telephone number is (704) 344-8150. Our web site is located at www.fairpoint.com. The information on our web site is not part of this prospectus.

General Information About This Prospectus

        Throughout this prospectus, unless otherwise noted, we have assumed:

•

no exercise of the underwriters' over-allotment option; and



•

that all of the outstanding 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% notes are purchased pursuant to the tender offers for such notes.

        In addition, throughout this prospectus, unless otherwise noted, share information gives effect to a 5.2773714 for 1 reverse stock split of our class A common stock and our class C common stock effected on January 28, 2005, excludes all shares of our common stock issuable upon exercise of outstanding stock options and restricted stock units and gives effect to the following transactions which will occur simultaneously with the closing of this offering:

•

the conversion of all of our shares of class C common stock, on a one-for-one basis, into shares of our class A common stock;



•

the reclassification of all of our shares of class A common stock into shares of our common stock; and



•

the issuance of 473,716 shares of restricted stock to be awarded under our 2005 stock incentive plan, which shares will begin to vest on April 1, 2006 and will not be entitled to receive dividends for any period prior to April 1, 2006.

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The Offering

Shares of common stock offered by FairPoint Communications, Inc.	25,000,000 shares.
Shares of common stock outstanding following this offering	34,925,435 shares (34,451,719 shares excluding 473,716 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares will begin to vest on April 1, 2006 and will not be entitled to receive dividends for any period prior to April 1, 2006).
Dividends	Our board of directors will adopt a dividend policy, effective upon the closing of this offering, which reflects our judgment that our stockholders would be better served if we distributed a substantial portion of the cash generated by our business in excess of operating needs, interest and principal payments on our indebtedness, dividends on our future senior classes of capital stock, if any, capital expenditures taxes and future reserves, if any, as regular quarterly dividends to our stockholders.
	We currently expect to pay dividends quarterly at an initial annual level of $1.59125 per share for the first four full fiscal quarters following the closing of this offering, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law and by the terms of our new credit facility. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Dividends on our common stock are not cumulative. Consequently, if dividends on our common stock are not declared and/or paid at the targeted level, our stockholders will not be entitled to receive such payments in the future. See "Dividend Policy and Restrictions."
	Our new credit facility restricts our ability to declare and pay dividends based on the amount of our "available cash." Our new credit facility defines available cash as Adjusted EBITDA minus interest expense, capital expenditures (unless funded by long-term debt, equity or the proceeds from asset sales or insurance recovery events), cash taxes, repayments of our indebtedness, cash consideration paid for acquisitions (unless funded by debt or equity) and cash paid to make certain investments. In addition, we expect that our new credit facility will suspend our ability to pay dividends if a default or event of default under the new credit facility has occurred or if our leverage ratio exceeds 5.00 to 1.00 for our most recently ended fiscal quarter. For a more detailed description of "available cash," and the leverage ratio, see "Description of Certain Indebtedness—New Credit Facility."

4

Dividends paid by us, to the extent paid out of our earnings and profits as computed for income tax purposes, will be taxable as dividend income. Under current law, dividend income of individuals is generally taxable at long-term capital gains rates. Dividends paid by us in excess of our earnings and profits will be treated first as a non-taxable return of capital and then as gain from the sale of common stock. For a more complete description, see "Certain United States Federal Tax Considerations."

Listing

Our common stock has been approved for listing on the New York Stock Exchange under the trading symbol "FRP", subject to official notice of issuance.

Risk Factors

        You should carefully consider the information under the heading "Risk Factors," starting on page 10, and all other information in this prospectus before investing in our common stock.

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Recent Developments

        For the year ended December 31, 2004, we estimate that:

•

our revenues will be $252.6 million;



•

our operating expenses will be $178.5 million;



•

our capital expenditures will be $36.4 million;



•

our EBITDA will be $130.1 million;



•

our Adjusted EBITDA will be $141.1 million; and



•

our net loss will be $23.6 million and our loss from continuing operations will be $24.3 million.

        Our estimates are derived from preliminary unaudited results of operations and are subject to the completion and issuance of our year-end audited financial statements. For definitions of EBITDA and Adjusted EBITDA and the reasons we are disclosing EBITDA and Adjusted EBITDA, see "—Summary Historical and Pro Forma Financial Data," "Selected Financial Data" and "Description of Certain Indebtedness—New Credit Facility." A reconciliation of estimated unaudited net cash provided by operating activities of continuing operations to estimated unaudited EBITDA follows (in millions):

		Year Ended December 31, 2004 (unaudited and estimated)
Net cash provided by operating activities of continuing operations		$	45.8
Adjustments:
	Depreciation and amortization		(49.6	)
	Other non-cash items		(21.2	)
	Changes in assets and liabilities arising from continuing operations, net of acquisitions		0.7
Loss from continuing operations			(24.3	)
Adjustments:
Interest expense			104.3
Provision for income tax expense			0.5
Depreciation and amortization			49.6
EBITDA		$	130.1

        A reconciliation of estimated unaudited EBITDA to estimated unaudited Adjusted EBITDA follows (in millions):

	Year Ended December 31, 2004 (unaudited and estimated)
EBITDA	$	130.1
Net loss on sale of investments and other assets		0.9
Equity in net earnings of investees		(11.1	)
Distributions from investments		15.0
Realized and unrealized losses on interest rate swaps		0.1
Non-cash stock based compensation		0.2
Write-off of costs associated with an abandoned offering of Income Deposit Securities and related transactions		6.0
Deferred patronage dividends		(0.1	)
Adjusted EBITDA	$	141.1

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Summary Historical and Pro Forma Financial Data

        The following financial information should be read in conjunction with "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated historical and pro forma financial statements and notes thereto contained elsewhere in this prospectus. Amounts in thousands, except access lines and ratios.

																	Pro Forma(1)
											Nine Months Ended September 30,								Nine Months Ended September 30, 2004
		Year Ended December 31,															Year Ended December 31, 2003
		2001			2002			2003			2003			2004
											(unaudited)						(unaudited)
Statement of Operations:
Revenues		$	230,176		$	230,819		$	231,432		$	171,663		$	188,838		$	238,663	$	188,838
Income from operations			57,995			73,320			72,140			53,858			55,474			70,604		53,561
Income (loss) from continuing operations(2)			(25,422	)		(8,694	)		(8,250	)		(4,653	)		(13,597	)		44,958		35,524
Income (loss) from discontinued operations(3)			(186,178	)		21,933			9,921			9,726			671			9,921		671
Net income (loss)(2)			(211,600	)		13,239			1,671			5,073			(12,926	)		54,879		36,195
Operating Data:
EBITDA(4)		$	106,404		$	107,654		$	129,827		$	96,418		$	101,256		$	129,742	$	99,343
Adjusted EBITDA(4)			120,951			131,656			132,574			99,778			105,578			135,039		105,578
Capital expenditures			43,175			38,803			33,595			19,613			24,392			34,218		24,392
Access line equivalents(5)			247,862			248,581			264,308			248,589			272,691			264,308		272,691
	Residential access lines		191,570			189,803			196,145			187,523			192,353			196,145		192,353
	Business access lines		53,056			51,810			50,226			48,795			49,918			50,226		49,918
	Digital subscriber lines		3,236			6,968			17,937			12,271			30,420			17,937		30,420
Balance Sheet Data (as of the period end):
Cash		$	2,919		$	5,394		$	5,603		$	33,082		$	6,413				$	4,843
Total assets			875,015			829,253			843,068			834,054			830,917					815,127
Total long term debt, including current portion			907,602			804,190			825,560			811,686			813,476					590,000
Preferred shares subject to mandatory redemption			—			90,307			96,699			92,089			111,519					—
Total shareholders' equity (deficit)			(149,510	)		(146,150	)		(147,953	)		(145,923	)		(162,112	)				186,042

(1)

Information gives pro forma effect to this offering, our new credit facility, the other transactions described under "The Transactions" and the acquisition of Community Service Telephone Co., or Community Service Telephone, and Commtel Communications, Inc., or Commtel Communications, as if they had each occurred on January 1, 2003. We refer to the acquisition of Community Service Telephone and Commtel Communications herein as the Maine acquisition. The pro forma statement of operations data do not include the subsequent write-off of deferred transaction costs of $6.0 million for the abandonment of our proposed offering of income deposit securities; however, the pro forma balance sheet data include a pro forma adjustment to reflect this write-off.

(2)

Interest expense includes amortization of debt issue costs aggregating $4,018, $3,664 and $4,171 for the fiscal years ended December 31, 2001, 2002 and 2003 and $3,118 and $3,452 for the nine months ended September 30, 2003 and 2004, respectively. We prospectively adopted the provisions of SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity," effective July 1, 2003. SFAS 150 requires us to classify as a long-term liability our series A preferred stock and to reclassify dividends and accretion from the series A preferred stock as interest expense. Such stock is now described as "Preferred Shares Subject to Mandatory Redemption" in the balance sheet and dividends and accretion on these preferred shares are now included in pre-tax income whereas previously they were presented as a reduction to equity (a dividend), and, therefore, a reduction of net income available to common stockholders. For the year ended December 31, 2003, interest expense includes $9,049 related to dividends and accretion on preferred shares subject to mandatory redemption. For the nine months ended September 30, 2003 and 2004, interest expense includes $4,440 and $14,820, respectively, related to dividends and accretion on preferred shares subject to mandatory redemption.

(3)

Income (loss) from discontinued operations reflects (i) the sale by us of all the capital stock of Union Telephone of Harford, Armour Independent Telephone Co., WMW Cable TV Co. and Kadoka Telephone Co. to the Golden West Telephone Properties, Inc. on September 30, 2003, which we refer to as the South Dakota disposition; and (ii) the discontinuation of

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our competitive local exchange carrier operations through FairPoint Carrier Services, Inc., or Carrier Services, in November 2001.

(4)

EBITDA means net income (loss) before income (loss) from discontinued operations, interest expense, income taxes, and depreciation and amortization. We believe EBITDA is useful to investors because EBITDA is commonly used in the communications industry to analyze companies on the basis of operating performance, liquidity and leverage. We believe EBITDA allows a standardized comparison between companies in the industry, while minimizing the differences from depreciation policies, financial leverage and tax strategies. We also believe that EBITDA is useful as a means to evaluate our ability to pay dividends. While providing useful information, EBITDA should not be considered in isolation or as a substitute for consolidated statement of operations and cash flows data prepared in accordance with generally accepted accounting principles. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

        A reconciliation of net cash provided by operating activities of continuing operations to EBITDA follows (in thousands):

																	Pro Forma
											Nine Months Ended September 30,									Nine Months Ended September 30, 2004
		Year Ended December 31,															Year Ended December 31, 2003
		2001			2002			2003			2003			2004
											(unaudited)						(unaudited)
Net cash provided by operating activities of continuing operations		$	35,717		$	55,632		$	32,834		$	23,658		$	32,858		$	89,828		$	83,892
Adjustments:
	Depreciation and amortization		(55,081	)		(46,310	)		(48,089	)		(36,181	)		(36,876	)		(49,325	)		(36,876	)
	Impairment of investments		—			(12,568	)		—			—			—			—			—
	Other non-cash items		(9,712	)		1,281			1,866			3,768			(11,191	)		(684	)		(13,104	)
	Changes in assets and liabilities arising from continuing operations, net of acquisitions		3,654			(6,729	)		5,139			4,102			1,612			5,139			1,612
Income (loss) from continuing operations			(25,422	)		(8,694	)		(8,250	)		(4,653	)		(13,597	)		44,958			35,524
Adjustments:
Interest expense(2)			76,314			69,520			90,224			64,640			77,698			35,552			26,664
Provision (benefit) for income tax expense			431			518			(236	)		250			279			(93	)		279
Depreciation and amortization			55,081			46,310			48,089			36,181			36,876			49,325			36,876
EBITDA		$	106,404		$	107,654		$	129,827		$	96,418		$	101,256		$	129,742		$	99,343

Certain covenants in our new credit facility will contain ratios based on Adjusted EBITDA and the restricted payment covenant in our new credit facility regulating the payment of dividends on our common stock will be based on Adjusted EBITDA. Adjusted EBITDA for any period is defined in our new credit facility as (1) the sum of Consolidated Net Income (which is defined in our new credit facility and includes distributions from investments), plus the following to the extent deducted from consolidated net income: provision for taxes, consolidated interest expense, depreciation, amortization, losses on sales of assets and other extraordinary losses, and certain other non-cash items, each as defined, minus (2) gains on sales of assets and other extraordinary gains and all non-cash items increasing consolidated net income for the period. For a more detailed definition of Adjusted EBITDA and Consolidated Net Income, see "Description of Certain Indebtedness—New Credit Facility." If our Adjusted EBITDA were to decline below certain levels, covenants in our new credit facility may be violated and could cause, among other things, a default under our new credit facility, or result in our inability to pay dividends. These covenants are

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summarized under "Description of Certain Indebtedness—New Credit Facility." A reconciliation of EBITDA to Adjusted EBITDA is as follows (in thousands):

																Pro Forma
										Nine Months Ended September 30,									Nine Months Ended September 30, 2004
	Year Ended December 31,															Year Ended December 31, 2003
	2001			2002			2003			2003			2004
										(unaudited)						(unaudited)
EBITDA	$	106,404		$	107,654		$	129,827		$	96,418		$	101,256		$	129,742		$	99,343
Net (gain) loss on sale of investments and other assets		648			(34	)		(608	)		(595	)		240			(608	)		240
Impairment on investments		—			12,568			—			—			—			—			—
Equity in net earnings of investees		(4,930	)		(7,798	)		(10,092	)		(7,235	)		(7,929	)		(10,092	)		(7,929	)
Distributions from investments(6)		5,013			9,018			10,775			8,650			11,810			10,775			11,810
Realized and unrealized losses on interest rate swaps		12,873			9,577			1,387			1,211			112			1,387			112
Loss on early retirement of debt		—			—			1,503			1,503			—			1,503			—
Non-cash stock based compensation		1,337			924			15			—			133			2,565			2,046
Deferred patronage dividends		(394	)		(253	)		(233	)		(174	)		(44	)		(233	)		(44	)
Adjusted EBITDA	$	120,951		$	131,656		$	132,574		$	99,778		$	105,578		$	135,039		$	105,578

(5)

Total access line equivalents includes both voice access lines and digital subscriber lines.

(6)

Includes distributions relating to minority investments and passive partnership interests. We do not control the timing or the amount of such distributions. The $11.8 million in distributions received in the nine months ended September 30, 2004 includes a non-recurring distribution of approximately $2.5 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity."

9

Risk Factors

An investment in our common stock involves a number of risks. In addition to the other information contained in this prospectus, prospective investors should give careful consideration to the following factors. Any of the following risks could materially and adversely affect our business, consolidated financial conditions, results of operations or liquidity. In such case, you may lose all or part of your original investment. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations.

Risks Related to our Common Stock and our Substantial Indebtedness

You may not receive the level of dividends provided for in the dividend policy our board of directors will adopt upon the closing of this offering or any dividends at all.

        Our board of directors will adopt a dividend policy, effective upon the closing of this offering, which reflects an intention to distribute a substantial portion of the cash generated by our business in excess of operating needs, interest and principal payments on our indebtedness, dividends on our future senior classes of capital stock, if any, capital expenditures, taxes and future reserves, if any, as regular quarterly dividends to our stockholders. Our board of directors may, in its discretion, amend or repeal this dividend policy. Our dividend policy is based upon our directors' current assessment of our business and the environment in which we operate, and that assessment could change based on competitive or technological developments (which could, for example, increase our need for capital expenditures) or new growth opportunities. In addition, future dividends with respect to shares of our common stock, if any, will depend on, among other things, our cash flows, cash requirements, financial condition, contractual restrictions, provisions of applicable law and other factors that our board of directors may deem relevant. Our board of directors may decrease the level of dividends provided for in the dividend policy or entirely discontinue the payment of dividends. Our new credit facility contains significant restrictions on our ability to make dividend payments. We cannot assure you that we will generate sufficient cash from continuing operations in the future, or have sufficient surplus or net profits, as the case may be, under Delaware law, to pay dividends on our common stock in accordance with the dividend policy established by our board of directors. If we were to use borrowings under our new credit facility's revolving facility to fund dividends, we would have less cash available for future dividends. The reduction or elimination of dividends may negatively affect the market price of our common stock.

To expand our business through acquisitions and service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. We may not generate sufficient funds from operations to consummate acquisitions, pay dividends with respect to shares of our common stock or repay or refinance our indebtedness at maturity or otherwise.

        We may not retain a sufficient amount of cash to finance a material expansion of our business, or to fund our operations consistent with past levels of funding in the event of a significant business downturn. In addition, because a substantial portion of cash available to pay dividends will be distributed to holders of our common stock under our dividend policy, our ability to pursue any material expansion of our business, including through acquisitions or increased capital spending, will depend more than it otherwise would on our ability to obtain third party financing. We cannot assure you that such financing will be available to us at all, or at an acceptable cost.

        Our ability to consummate acquisitions and to make payments on our indebtedness will depend on our ability to generate cash flow from operations in the future. This ability, to a certain extent, is

10

subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

        A significant portion of our cash flow from operations will be dedicated to capital expenditures and debt service. In addition, we currently expect to distribute a significant portion of our cash earnings to our stockholders in the form of quarterly dividends. As a result, we may not retain a sufficient amount of cash to finance growth opportunities, including acquisitions, or unanticipated capital expenditures or to fund our operations. In addition, if we reduce capital expenditures, the regulatory settlement payments we receive may decline.

        Borrowings under our new credit facility will bear interest at variable interest rates. Accordingly, if any of the base reference interest rates for the borrowings under our new credit facility increase, our interest expense will increase, which could negatively impact our ability to pay dividends on our common stock. In connection with this offering, we intend to enter into an interest rate swap agreement which will fix the interest rates on a substantial portion of the term loans under our new credit facility. After the interest rate swap agreement expires, our annual debt service obligations on such portion of the term loans will vary from year to year unless we enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge. If we choose to enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge in the future, the amount of cash available to pay dividends on our common stock may decrease. However, to the extent interest rates increase in the future, we may not be able to enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge on acceptable terms.

        In addition, prior to the maturity of our new credit facility, we will not be required to make any payments of principal on our new credit facility, and it is not likely that we will generate sufficient funds from operations to repay the principal amount of our indebtedness at maturity. We therefore will need to refinance our debt. We may not be able to refinance our new credit facility, or if refinanced, the refinancing may occur on less favorable terms, which may materially adversely affect our ability to pay dividends. If we were unable to refinance our new credit facility, our failure to repay all amounts due on the maturity date would cause a default under our new credit facility. We expect our required principal repayments under the term loan facility of our new credit facility to be approximately $590.0 million at its maturity in February 2012. Our interest expense may increase significantly if we refinance our new credit facility on terms that are less favorable to us than the terms of our new credit facility.

        We may also be forced to raise additional capital or sell assets and, if we are forced to pursue any of these options under distressed conditions, our business and the value of your investment in our common stock could be adversely affected. In addition, these alternatives may not be available to us when needed or on satisfactory terms due to prevailing market conditions, a decline in our business, legislative and regulatory factors or restrictions contained in the agreements governing our indebtedness.

If we have insufficient cash flow to cover the expected dividend payments under our dividend policy we would need to reduce or eliminate dividends or, to the extent permitted under the agreements governing our indebtedness, fund a portion of our dividends with additional borrowings.

        If we do not have sufficient cash to fund dividend payments, we would either reduce or eliminate dividends or, to the extent we were permitted to do so under our new credit facility and the agreements governing future indebtedness we may incur, fund a portion of our dividends with borrowings or from other sources. If we were to use working capital or permanent borrowings under

11

our new credit facility's revolving facility to fund dividends, we would have less cash available for future dividends and other purposes, which could negatively impact our financial condition, our results of operations and our ability to maintain or expand our business.

Our substantial indebtedness could restrict our ability to pay dividends on our common stock and have an adverse impact on our financing options and liquidity position.

        As of September 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $590.0 million of total consolidated indebtedness. Our substantial indebtedness could have important adverse consequences to the holders of our common stock, including:

•

limiting our ability to pay dividends on our common stock or make payments in connection with our other obligations, including, under our new credit facility;



•

limiting our ability in the future to obtain additional financing for working capital, capital expenditures or acquisitions;



•

we may not be able to refinance our indebtedness on terms acceptable to us or at all;



•

limiting our flexibility in planning for, or reacting to, changes in our business and the communications industry;



•

a significant portion of our cash flow from operations is likely to be dedicated to the payment of the principal of and interest on our indebtedness, thereby reducing funds available for future operations, acquisitions, dividends on our common stock and/or capital expenditures;



•

we may be more vulnerable to economic and industry downturns and conditions, including changes in interest rates; and



•

placing us at a competitive disadvantage compared to those of our competitors that have less indebtedness.

Despite our substantial indebtedness, we may still be able to incur substantially more indebtedness, which could further exacerbate the risks described above.

        Subject to certain covenants, our new credit facility will permit us to incur additional indebtedness. Any additional indebtedness that we may incur would exacerbate the risks described in the preceding risk factor.

Our new credit facility will contain significant limitations on distributions and other payments.

        Our new credit facility contains significant restrictions on our ability to pay dividends on our common stock based on meeting a total leverage ratio, satisfying a restricted payment covenant and compliance with other conditions, as described in detail under "Description of Certain Indebtedness—New Credit Facility."

We may amend the terms of our new credit facility, or we may enter into new agreements that govern our indebtedness, and the amended terms or new agreements may further significantly affect our ability to pay dividends to holders of our common stock.

        As a result of general economic conditions, conditions in the lending markets, the results of our business or for any other reason, we may elect or be required to amend or refinance our new credit facility, at or prior to maturity, or enter into additional agreements for indebtedness. Any such

12

amendment, refinancing or additional agreement may contain covenants which could limit in a significant manner our ability to pay dividends to you.

FairPoint Communications, Inc. is a holding company and relies on dividends, interest and other payments, advances and transfers of funds from its operating subsidiaries and investments to meet its debt service and other obligations.

        FairPoint Communications, Inc., or FairPoint, is a holding company and conducts all of its operations through its operating subsidiaries. FairPoint currently has no significant assets other than equity interests in its first tier subsidiaries. These first tier subsidiaries have no significant assets other than a direct or indirect equity interest in FairPoint's operating subsidiaries. As a result, FairPoint will rely on dividends and other payments or distributions from its operating subsidiaries to pay dividends with respect to its common stock and to meet its debt service obligations generally. The ability of FairPoint's subsidiaries to pay dividends or make other payments or distributions to FairPoint will depend on their respective operating results and may be restricted by, among other things:

•

the laws of their jurisdiction of organization, which may limit the amount of funds available for the payment of dividends;



•

agreements of those subsidiaries;



•

the terms of FairPoint's new credit facility; and



•

the covenants of any future outstanding indebtedness FairPoint or its subsidiaries incur.

        FairPoint's operating subsidiaries have no obligation, contingent or otherwise, to make funds available to FairPoint, whether in the form of loans, dividends or other distributions. In addition, we have a number of minority investments and passive partnership interests from which we receive distributions. For example, in 2003 and the nine months ended September 30, 2004, we received $10.8 million and $11.8 million, respectively, of distributions from such investments and interests, which represented a material portion of our cash flow. The $11.8 million received in the nine months ended September 30, 2004 includes a non-recurring $2.5 million distribution. We do not control the timing or amount of distributions from such investments or interests and we may not have access to the cash flows of these entities.

        Accordingly, our ability to pay dividends with respect to shares of our common stock and to repay our new credit facility at maturity or otherwise may be dependent upon factors beyond our control. Subject to limitations in our new credit facility, FairPoint's subsidiaries may also enter into agreements that contain covenants prohibiting them from distributing or advancing funds or transferring assets to FairPoint under certain circumstances, including to pay dividends.

Our new credit facility contains covenants that limit our business flexibility by imposing operating and financial restrictions on our operations.

        Covenants in our new credit facility impose significant operating and financial restrictions on us. These restrictions prohibit or limit, among other things:

•

the incurrence of additional indebtedness and the issuance by our subsidiaries of preferred stock;



•

the payment of dividends on, and purchases or redemptions of, capital stock;



•

a number of other restricted payments, including investments;



•

the creation of liens;



•

the ability of our subsidiaries to guarantee our and their indebtedness;



•

specified sales of assets;

13

•

the creation of encumbrances or restrictions on the ability of our subsidiaries to distribute and advance funds or transfer assets to us or any other subsidiary;



•

specified transactions with affiliates;



•

sale and leaseback transactions;



•

our ability to enter lines of business outside the communications business; and



•

certain consolidations, mergers and sales and transfers of assets by or involving us.

        Our new credit facility also contains covenants which require us to maintain specified financial ratios and satisfy financial condition tests, including, without limitation, a maximum total leverage ratio and a minimum interest coverage ratio.

If we are unable to comply with the covenants in the agreements governing our indebtedness, we could be in default under our indebtedness which could result in our inability to make dividend payments on our common stock.

        Our ability to comply with the covenants, ratios or tests contained in our new credit facility or in the agreements governing our future indebtedness may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants, ratios or tests could result in a default under our new credit facility. Certain events of default under our new credit facility would prohibit us from making dividend payments on our common stock. In addition, upon the occurrence of an event of default under our new credit facility, the lenders could elect to declare all amounts outstanding under our new credit facility, together with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, the lenders could proceed against the security granted to them to secure that indebtedness. If the lenders accelerate the payment of the indebtedness under our new credit facility, our assets may not be sufficient to repay in full the indebtedness under our new credit facility and our other indebtedness, if any.

Limitations on usage of net operating loss carry forwards, and other factors requiring us to pay cash taxes in future periods, may affect our ability to pay dividends to you.

        The transactions will result in an "ownership change" within the meaning of the U.S. federal income tax laws addressing net operating loss carry forwards, alternative minimum tax credits and other similar tax attributes. As a result of such ownership change, there will be specific limitations on our ability to use our net operating loss carry forwards and other tax attributes from periods prior to the transactions. Although it is not expected that such limitations will materially affect our U.S. federal and state income tax liability in the near-term, it is possible in the future that such limitations could limit our ability to utilize such tax attributes and, therefore, result in an increase in our U.S. federal and state income tax liability. In addition, in the future we may be required to pay cash income taxes because all of our net operating loss carry forwards have been used or have expired. Limitations on our usage of net operating loss carry forwards, and other factors requiring us to pay cash taxes in the future, would reduce the funds available for the payment of dividends and might require us to reduce or eliminate the dividends on our common stock.

Before this offering, there has not been a public market for our common stock. The price of our common stock may fluctuate substantially, which could negatively affect holders of our common stock.

        The initial public offering price of our common stock has been determined by negotiations among us, our existing equity investors and the representatives of the underwriters and may not be indicative of the market price for our common stock in the future. It is possible that an active trading market for our common stock will not develop or be sustained after this offering. Even if a trading market

14

develops, the market price of our common stock may fluctuate widely as a result of various factors, such as period-to-period fluctuations in our operating results, sales of our common stock by principal stockholders, developments in the telecommunications industry, the failure of securities analysts to cover our common stock after this offering or changes in financial estimates by analysts, competitive factors, regulatory developments, economic and other external factors, general market conditions and market conditions affecting the stock of telecommunications companies in particular. Telecommunications companies have in the past experienced extreme volatility in the trading prices and volumes of their securities, which has often been unrelated to operating performance. Any such market volatility may have a significant adverse effect on the market price of our common stock.

Future sales or the possibility of future sales of a substantial amounts of our common stock may depress the price of our common stock.

        Future sales, or the availability for sale in the public market, of substantial amounts of our common stock could adversely affect the prevailing market price of our common stock, and could impair our ability to raise capital through future sales of equity securities.

        Upon consummation of this offering, there will be 34,925,435 shares of our common stock outstanding (including 473,716 shares of restricted stock which will begin to vest on April 1, 2006). The 25,000,000 shares of our common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act unless such shares are held by our "affiliates," as that term is defined in Rule 144 under the Securities Act. The remaining shares of our common stock owned as of the closing of this offering by our existing equity investors, our directors, certain members of our management and our current and former employees will be restricted securities within the meaning of Rule 144 under the Securities Act, but will be eligible for resale subject to the applicable provisions of Rule 144. We, our executive officers and directors and substantially all of our significant equity holders have agreed to a "lock-up," meaning that, subject to specified exceptions, neither we nor they will sell any shares without the prior consent of the representatives of the underwriters for 180 days after the date of this prospectus. Following the expiration of this 180-day lock-up period, all of these shares of our common stock will be eligible for future sale, subject to the applicable provisions of Rule 144. In addition, on the closing date of this offering, members of our management and other employees will hold fully vested, exercisable and in-the-money stock options to purchase a total of 115,730 shares of our common stock. Finally, our existing equity investors and certain members of management have certain registration rights with respect to our common stock that they will retain, or may acquire upon the exercise of stock options, following this offering. See "Shares Eligible for Future Sale" for a discussion of the shares of our common stock that may be sold into the public market in the future.

        We may issue shares of our common stock, or other securities, from time to time as consideration for future acquisitions and investments. In the event any such acquisition or investment is significant, the number of shares of our common stock, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be significant. We may also grant registration rights covering those shares or other securities in connection with any such acquisitions and investments.

If you purchase shares of our common stock, you will experience immediate and substantial dilution.

        Investors purchasing shares of our common stock in the offering will experience immediate and substantial dilution in the net tangible book value of their shares. At the initial public offering price of $19.00 per share, dilution to new investors is $27.54 per share. Additional dilution will occur upon exercise of outstanding stock options. If we seek additional capital in the future, the issuance of shares of our common stock or securities convertible into shares of our common stock in order to obtain such capital may lead to further dilution of your equity investment. See "Dilution."

15

Our restated certificate of incorporation and amended and restated by-laws and several other factors could limit another party's ability to acquire us and deprive our investors of the opportunity to obtain a takeover premium for their securities.

        A number of provisions in our restated certificate of incorporation and amended and restated by-laws will make it difficult for another company to acquire us and for you to receive any related takeover premium for your securities. For example, our restated certificate of incorporation provides that certain provisions of our restated certificate of incorporation can only be amended by a vote of two-thirds or more in voting power of all the outstanding shares of capital stock and that stockholders generally may not act by written consent and only stockholders representing at least 50% in voting power may request that our board of directors call a special meeting. Our restated certificate of incorporation provides for a classified board of directors and authorizes the issuance of preferred stock without stockholder approval and upon such terms as the board of directors may determine. The rights of the holders of shares of our common stock will be subject to, and may be adversely affected by, the rights of holders of any class or series of preferred stock that may be issued in the future.

We may, under certain circumstances, suspend your rights of stock ownership the exercise of which would result in any inconsistency with, or violation of, any applicable communications law.

        Our restated certificate of incorporation will provide that so long as we hold any authorization, license, permit, order, filing or consent from the Federal Communications Commission or any state regulatory commission having jurisdiction over us, we will have the right to request certain information from our stockholders. If any stockholder from whom such information is requested should fail to respond to such a request or we conclude that the ownership of, or the existence or exercise of any rights of stock ownership with respect to, shares of our capital stock by such stockholder, could result in any inconsistency with, or violation of, any applicable communications law, we may suspend those rights of stock ownership the existence or exercise of which would result in any inconsistency with, or violation of, any applicable communications law, and we may exercise any and all appropriate remedies, at law or in equity, in any court of competent jurisdiction, against any stockholder, with a view towards obtaining such information or preventing or curing any situation which would cause an inconsistency with, or violation of, any provision of any applicable communications law. See "Description of Capital Stock—Regulatory Ownership Provisions."

Risks Related to our Business

We provide services to our customers over access lines, and if we lose access lines, our business and results of operations may be adversely affected.

        Our business generates revenue by delivering voice and data services over access lines. We have experienced net voice access line loss of 0.5% for the period from December 31, 2000 through December 31, 2003 and 2.6% for the period from September 30, 2003 through September 30, 2004 due to challenging economic conditions, increased competition and the introduction of digital subscriber line services. We may continue to experience net access line loss in our markets. Our inability to retain access lines could adversely affect our business and results of operations.

We are subject to competition that may adversely impact us.

        As an incumbent carrier, we historically have experienced little competition in our rural telephone company markets. Nevertheless, the market for telecommunications services is highly competitive. Regulation and technological innovation change quickly in the telecommunications industry, and changes in these factors historically have had, and may in the future have, a significant impact on competitive dynamics. In certain of our rural markets, we face competition from wireless telephone system operators, which may increase as wireless technology improves. We also face competition from

16

cable television operators. We may face additional competition from new market entrants, such as providers of wireless broadband, voice over internet protocol, satellite telecommunications and electric utilities. The Internet services market is also highly competitive, and we expect that competition will intensify. Some of our competitors have brand recognition and financial, personnel, marketing and other resources that are significantly greater than ours. In addition, consolidation and strategic alliances within the communications industry or the development of new technologies could affect our competitive position. We cannot predict the number of competitors that will emerge, especially as a result of existing or new federal and state regulatory or legislative actions, but increased competition from existing and new entities could have a material adverse effect on our business.

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

•

loss of customers (in general, when we lose a customer for local service we also lose that customer for all related services);



•

reduced usage of our network by our existing customers who may use alternative providers for long distance and data services;



•

reductions in the prices for our services which may be necessary to meet competition; and/or 



•

increases in marketing expenditures and discount and promotional campaigns.

In addition, our provision of long distance service is subject to a highly competitive market served by large nation-wide carriers that enjoy brand name recognition.

We may not be able to successfully integrate new technologies, respond effectively to customer requirements or provide new services.

        The communications industry is subject to rapid and significant changes in technology, frequent new service introductions and evolving industry standards. We cannot predict the effect of these changes on our competitive position, profitability or industry. Technological developments may reduce the competitiveness of our networks and require unbudgeted upgrades or the procurement of additional products that could be expensive and time consuming. In addition, new products and services arising out of technological developments may reduce the attractiveness of our services. If we fail to adapt successfully to technological changes or obsolescence or fail to obtain access to important new technologies, we could lose customers and be limited in our ability to attract new customers and/or sell new services to our existing customers. An element of our business strategy is to deliver enhanced and ancillary services to customers. The successful delivery of new services is uncertain and dependent on many factors, and we may not generate anticipated revenues from such services.

We rely on a limited number of key suppliers and vendors to operate our business. If these suppliers or vendors experience problems or favor our competitors, we could fail to obtain sufficient quantities of products and services we require to operate our business successfully.

        We depend on a limited number of suppliers and vendors for equipment and services relating to our network infrastructure. If these suppliers experience interruptions or other problems delivering these network components on a timely basis, subscriber growth and our operating results could suffer significantly. If proprietary technology of a supplier is an integral component of our network, we could be effectively locked into one of a few suppliers for key network components. As a result we have become reliant upon a limited number of network equipment manufacturers, including Nortel Networks Corporation and Siemens Information and Communication Networks, Inc. In addition, when our new billing platform is completed, we will rely on a single outsourced supplier to support our billing and related customer care services. In the event it becomes necessary to seek alternative suppliers and

17

vendors, we may be unable to obtain satisfactory replacement suppliers or vendors on economically attractive terms, on a timely basis, or at all, which could increase costs and may cause disruptions in services.

Our relationships with other telecommunications companies are material to our operations and their financial difficulties may adversely affect our business and results of operations.

        We originate and terminate calls for long distance carriers and other interexchange carriers over our network and for that service we receive payments for access charges. These payments represent a significant portion of our revenues. Should these carriers go bankrupt or experience substantial financial difficulties, our inability to then collect access charges from them could have a negative effect on our business and results of operations.

We face risks associated with acquired businesses and potential acquisitions.

        We have grown rapidly by acquiring other businesses. Since 1993, we have acquired 30 rural telephone businesses and we continue to own and operate 26 such businesses. We expect that a portion of our future growth will result from additional acquisitions, some of which may be material. Growth through acquisitions entails numerous risks, including:

•

strain on our financial, management and operational resources, including the distraction of our management team in identifying potential acquisition targets, conducting due diligence and negotiating acquisition agreements;



•

difficulties in integrating the network, operations, personnel, products, technologies and financial, computer, payroll and other systems of acquired businesses;



•

difficulties in enhancing our customer support resources to adequately service our existing customers and the customers of acquired businesses;



•

the potential loss of key employees or customers of the acquired businesses;



•

unanticipated liabilities or contingencies of acquired businesses;



•

not achieving projected cost savings or cash flow from acquired businesses;



•

fluctuations in our operating results caused by incurring considerable expenses to acquire businesses before receiving the anticipated revenues expected to result from the acquisitions;



•

difficulties in finding suitable acquisition candidates;



•

difficulties in making acquisitions based on attractive terms due to increased competitiveness; and



•

difficulties in obtaining and maintaining any required regulatory authorizations in connection with acquisitions.

        In addition, future acquisitions by us could result in the incurrence of indebtedness or contingent liabilities, which could have a material adverse effect on our business and our ability to pay dividends on our common stock, provide adequate working capital and service our indebtedness.

        We cannot assure you that we will be able to successfully complete the integration of the businesses that we have already acquired or successfully integrate any businesses that we might acquire in the future. If we fail to do so, or if we do so but at greater cost than we anticipated, or if our acquired businesses do not experience significant growth, there will be a risk that our business may be adversely affected.

18

We may need additional capital to continue growing through acquisitions.

        We may need additional financing to continue growing through acquisitions. Such additional financing may be in the form of additional debt, which would increase our leverage. We may not be able to raise sufficient additional capital at all or on terms that we consider acceptable.

A system failure could cause delays or interruptions of service, which could cause us to lose customers.

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

•

physical damage to access lines;



•

power surges or outages;



•

software defects; and



•

disruptions beyond our control.

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

Our new integrated billing platform may not be completed on time or may not function properly.

        We are in the process of converting our six billing systems into a single integrated billing platform for our customers. As of September 30, 2004, we had made capital expenditures of approximately $2.2 million with respect to such conversion. We expect to make an additional $6.5 million of capital expenditures to complete such conversion. One of the primary reasons for undertaking this conversion is to consolidate and streamline our internal controls so that we will be able to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. The portion of the conversion that will enable us to comply with these requirements is expected to be completed by the end of 2005 and the full conversion is expected to be completed in the second quarter of 2006. The failure to successfully complete this conversion could disrupt our billing process, which could have a material adverse effect on our business, financial condition and results of operations, and could cause us not to be in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. See "—We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002."

We depend on third parties for our provision of long distance services.

        Our provision of long distance services is dependent on underlying agreements with other carriers that provide us with transport and termination services. These agreements are based, in part, on our estimate of future supply and demand and may contain minimum volume commitments. If we overestimate demand, we may be forced to pay for services we do not need. If we underestimate demand, we may need to acquire additional capacity on a short-term basis at unfavorable prices, assuming additional capacity is available. If additional capacity is not available, we will not be able to meet this demand. In addition, if we cannot meet any minimum volume commitments, we may be subject to underutilization charges, termination charges, or rate increases which may adversely affect our results of operations.

We may not be able to maintain the necessary rights-of-way for our networks.

        We are dependent on rights-of-way and other permits from railroads, utilities, state highway authorities, local governments and transit authorities to install conduit and related telecommunications equipment for any expansion of our networks. We may need to renew current rights-of-way for our networks and cannot assure you that we would be successful in renewing these agreements on

19

acceptable terms. Some of our agreements may be short-term, revocable at will, or subject to termination upon customary default provisions, and we may not have access to existing rights-of-way after they have expired or terminated. If any of these agreements were terminated or could not be renewed, we may be required to remove our existing facilities from under the streets or abandon our networks. Similarly, we may not be able to obtain right-of-way agreements on favorable terms, or at all, in new service areas, and, if we are unable to do so, our ability to expand our networks, if we decide to do so, could be impaired.

Our success depends on our ability to attract and retain qualified management and other personnel.

        Our success depends upon the talents and efforts of our senior management team. With the exception of Eugene Johnson, our Chairman and Chief Executive Officer, none of these senior executives are employed by us pursuant to an employment agreement. The loss of any such management personnel, due to retirement or otherwise, and the inability to attract and retain highly qualified technical and management personnel in the future, could have a material adverse effect on our business, financial condition and results of operations.

We may face significant future liabilities or compliance costs in connection with environmental and worker health and safety matters.

        Our operations and properties are subject to federal, state and local laws and regulations relating to protection of the environment, natural resources, and worker health and safety, including laws and regulations governing the management, storage and disposal of hazardous substances, materials and wastes. Under certain environmental laws, we could be held liable, jointly and severally and without regard to fault, for the costs of investigating and remediating any contamination at owned or operated properties; or for contamination arising from the disposal by us or our predecessors of hazardous wastes at formerly-owned properties or at third-party waste disposal sites. In addition, we could be held responsible for third-party property or personal injury claims relating to any such contamination or relating to violations of environmental laws. Changes in existing laws or regulations or future acquisitions of businesses could require us to incur substantial costs in the future relating to such matters.

We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002.

        Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related regulations implemented by the Securities and Exchange Commission, the New York Stock Exchange and the Public Company Accounting Oversight Board, are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. We will be evaluating our internal controls systems to allow management to report on, and our independent auditors to attest to, our internal controls. We will be performing the system and process evaluation and testing (and any necessary remediation, including the conversion of our various billing systems into a single integrated billing platform) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. While we anticipate being able to fully implement the requirements relating to internal controls and all other aspects of Section 404 by our December 31, 2005 deadline, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance (including due to our failure to successfully complete the conversion of our various billing systems into a single integrated billing platform), we might be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission, the New York Stock Exchange or the Public Company Accounting Oversight Board. Any such action

20

could adversely affect our financial results or investors' confidence in us, and could cause our stock price to fall. In addition, the controls and procedures that we will implement may not comply with all of the relevant rules and regulations of the Securities and Exchange Commission, the New York Stock Exchange and the Public Company Accounting Oversight Board. If we fail to develop and maintain effective controls and procedures, we may be unable to provide financial information in a timely and reliable manner.

Risks Related to our Regulatory Environment

We are subject to significant regulations that could change in a manner adverse to us.

        We operate in a heavily regulated industry, and the majority of our revenues generally have been supported by regulations, including access revenue and Universal Service Fund support for the provision of telephone services in rural areas. Laws and regulations applicable to us and our competitors may be, and have been, challenged in the courts, and could be changed by Congress or regulators. In addition, any of the following have the potential to have a significant impact on us:

        Risk of loss or reduction of network access charge revenues.    Almost 48% of our revenues come from network access charges, which are paid to us by intrastate and interstate long distance carriers for originating and terminating calls in the regions served. This 48% also includes Universal Service Fund payments for local switching support, long term support and interstate common line support. In recent years, several of these long distance carriers have declared bankruptcy. Future declarations of bankruptcy by a carrier that utilizes our access services could negatively impact our financial results. The amount of access charge revenues that we receive is based on rates set by federal and state regulatory bodies, and such rates could change. Further, from time to time federal and state regulatory bodies conduct rate cases and/or "earnings" reviews, which may result in rate changes. The Federal Communications Commission has reformed and continues to reform the federal access charge system. States often mirror these federal rules in establishing intrastate access charges. In October 2001, the Federal Communications Commission reformed the system to reduce interstate access charges and shift a portion of cost recovery, which historically have been based on minutes-of-use, to flat-rate, monthly per line charges on end-user customers rather than long distance carriers. As a result, the aggregate amount of access charges paid by long distance carriers to access providers, such as our rural local exchange carriers, has decreased and may continue to decrease. Although these changes were implemented on a revenue neutral basis (with commensurate increases in other charges and Universal Service Fund support), there is no assurance that future changes in access charge rates will be implemented on a revenue neutral basis. It is unknown at this time what additional changes, if any, the Federal Communications Commission may eventually adopt. Furthermore, to the extent our rural local exchange carriers become subject to competition, such access charges could be paid to competing communications providers rather than to us. Additionally, the intrastate access charges we receive may be reduced as a result of wireless competition. Regulatory developments of this type could adversely affect our business, revenue or profitability.

        Risk of loss or reduction of Universal Service Support.    We receive Universal Service Fund revenues to support the high cost of our operations in rural markets. For the year ended December 31, 2003, approximately 8% of our revenues resulted from the high cost loop support we received from the Universal Service Fund and was based upon our average cost per loop compared to the national average cost per loop. For example, if the national average cost per loop increases and our operating costs (and average cost per loop) remain constant or decrease, the payments we receive from the Universal Service Fund would decline. Conversely, if the national average cost per loop decreases and our operating costs (and average cost per loop) remain constant or increase, the payments we receive from the Universal Service Fund would increase. Over the past year, the national average cost per loop in relation to our average cost per loop has increased and management believes the national average cost per loop may continue to increase in relation to our average cost per loop and, as a result, the

21

payments we receive from the Universal Service Fund could decline. This support fluctuates based upon the historical costs of our operating companies. In addition to the Universal Service Fund high cost loop support, we also receive Universal Service Fund support payments, which include local switching support, long term support, and interstate common line support that used to be included in our interstate access charge revenues (the Federal Communications Commission has recently merged long term support into interstate common line support). If our rural local exchange carriers were unable to receive support from the Universal Service Fund, or if such support was reduced, many of our rural local exchange carriers would be unable to operate as profitably as they have historically, in the absence of our implementation of increases in charges for other services. Moreover, if we raise prices for services to offset loss of Universal Service Fund payments, the increased pricing of our services may disadvantage us competitively in the marketplace, resulting in additional potential revenue loss.

        The Telecommunications Act of 1996, or the Telecommunications Act, provides that eligible telecommunications carriers, including competitors to rural local exchange carriers, may obtain the same per line support as the rural local exchange carriers receive if a state commission determines that granting such support to competitors would be in the public interest. In fact, wireless telecommunications providers in certain of our markets have obtained matching support payments from the Universal Service Fund, but that has not led to a loss of revenues for our rural local exchange carriers under existing regulations. Any shift in universal service regulation, however, could have an adverse effect on our business, revenue or profitability.

        During the last three years, pursuant to recommendations made by the Multi-Association Group and the Rural Task Force, the Federal Communications Commission has made certain modifications to the universal service support system that changed the sources of support and the method for determining the level of support. These changes have been revenue neutral to our operations. It is unclear whether the changes in methodology will continue to accurately reflect the costs incurred by our rural local exchange carriers, and whether it will provide for the same amount of universal service support that our rural local exchange carriers have received in the past. In addition, several parties have raised objections to the size of the universal service support fund and the types of services eligible for support. A number of issues regarding the source and amount of contributions to, and eligibility for payments from, the Universal Service Fund are pending and will likely be addressed by the Federal Communications Commission or Congress in the near future. The outcome of any regulatory proceedings or legislative changes could affect the amount of universal service support that we receive, and could have an adverse effect on our business, revenue or profitability.

        The Federal State Joint Board has recently issued recommendations for the resolution of portability of Universal Service Fund support. The Federal State Joint Board recommended that:

•

a set of permissive federal guidelines be developed to ensure that the public interest is served before eligible telecommunications carriers are designated;



•

support be limited to a single connection that provides access to the public telephone network; and



•

the basis for providing support be considered and further clarified during the comprehensive review of the Universal Service Fund to be completed in 2006.

        The Federal Communications Commission statutorily must act on these recommendations by February 27, 2005. In addition, the Federal Communications Commission is considering resolution of the method by which contributions to the Universal Service Fund are determined.

        Risk of loss of statutory exemption from burdensome interconnection rules imposed on incumbent local exchange carriers.    Our rural local exchange carriers are exempt from the Telecommunications Act's more burdensome requirements governing the rights of competitors to interconnect to incumbent local

22

exchange carrier networks and to utilize discrete network elements of the incumbent's network at favorable rates. If state regulators decide that it is in the public's interest to impose these more burdensome interconnection requirements on us, we would be required to provide unbundled network elements to competitors. As a result, more competitors could enter our traditional telephone markets than are currently expected and we could incur additional administrative and regulatory expenses, and experience additional revenue losses.

        Risks posed by costs of regulatory compliance.    Regulations create significant compliance costs for us. Our subsidiaries that provide intrastate services are generally subject to certification, tariff filing and other ongoing regulatory requirements by state regulators. Our interstate access services are provided in accordance with tariffs filed with the Federal Communications Commission. Challenges to our tariffs by regulators or third parties or delays in obtaining certifications and regulatory approvals could cause us to incur substantial legal and administrative expenses, and, if successful, such challenges could adversely affect the rates that we are able to charge our customers.

        Our business also may be impacted by legislation and regulation imposing new or greater obligations related to assisting law enforcement, bolstering homeland security, minimizing environmental impacts, or addressing other issues that impact our business. For example, existing provisions of the Communications Assistance for Law Enforcement Act and Federal Communications Commission regulations implementing the Communications Assistance for Law Enforcement Act require telecommunications carriers to ensure that their equipment, facilities, and services are able to facilitate authorized electronic surveillance. We cannot predict whether and when the Federal Communications Commission might modify its Communications Assistance for Law Enforcement Act rules or any other rules or what compliance with new rules might cost. Similarly, we cannot predict whether or when federal or state legislators or regulators might impose new security, environmental or other obligations on our business.

        For a more thorough discussion of the regulatory issues that may affect our business, see "Regulation."

Regulatory changes in the telecommunications industry could adversely affect our business by facilitating greater competition against us, reducing potential revenues or raising our costs.

        The Telecommunications Act provides for significant changes and increased competition in the telecommunications industry, including the local telecommunications and long distance industries. This statute and the Federal Communications Commission's implementing regulations remain subject to judicial review and additional rulemakings of the Federal Communications Commission, thus making it difficult to predict what effect the legislation will have on us, including our operations and our revenues and expenses, and our competitors. Several regulatory and judicial proceedings have recently concluded, are underway or may soon be commenced, that address issues affecting our operations and those of our competitors. We cannot predict the outcome of these developments, nor can we assure that these changes will not have a material adverse effect on us or our industry.

        For a more thorough discussion of the regulatory issues that may affect our business, see "Regulation."

The failure to obtain necessary regulatory approvals could impede the consummation of a potential acquisition.

        Our acquisitions likely will be subject to federal, state and local regulatory approvals. We cannot assure you that we will be able to obtain any necessary approvals, in which case a potential acquisition could be delayed or not consummated. For example, in June 2003, we executed an agreement and plan of merger with respect to the acquisition of Berkshire Telephone Corporation and we have not yet received the regulatory approvals required to consummate that acquisition.

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Forward-Looking Statements

        Some statements in this prospectus are known as "forward-looking statements." Forward-looking statements may relate to, among other things:

•

our dividend policy and expectations regarding dividend payments,



•

minimum Adjusted EBITDA estimates,



•

future performance generally,



•

business development activities,



•

future capital expenditures,



•

distributions from minority investments and passive partnership interests,



•

net operating loss carry forwards,



•

technological developments and changes in the telecommunications industry,



•

financing sources and availability,



•

regulatory support payments, and



•

the effects of regulation and competition.

        Many statements under the captions "Prospectus Summary," "Risk Factors," "Dividend Policy and Restrictions," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," "Regulation" and elsewhere in this prospectus are "forward-looking statements." These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in the prospectus that are not historical facts. When used in this prospectus, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed under "Risk Factors" and other parts of this prospectus. You should not place undue reliance on these forward-looking statements, which reflect our management's view only as of the date of this prospectus.

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Dividend Policy and Restrictions

General

        Our board of directors will adopt a dividend policy, effective upon the closing of this offering, under which a substantial portion of the cash generated by our business in excess of operating needs, interest and principal payments on our indebtedness, dividends on our future senior classes of capital stock, if any, capital expenditures, taxes and future reserves, if any, would in general be distributed as regular quarterly dividend payments to the holders of our common stock, rather than retained by us and used for other purposes, including to finance growth opportunities. This policy reflects our judgment that our stockholders would be better served if we distributed to them such substantial portion of the excess cash generated by our business instead of retaining it in our business. However, as described more fully below, you may not receive any dividends as a result of the following factors:

•

nothing requires us to pay dividends;



•

while our current dividend policy contemplates the distribution of a substantial portion of our cash in excess of operating needs, interest and principal payments on our indebtedness, dividends on our future senior classes of capital stock, if any, capital expenditures, taxes and future reserves, if any, this policy could be modified or revoked by our board of directors at any time;



•

even if our dividend policy was not modified or revoked, the actual amount of dividends distributed under this policy and the decision to make any distributions is entirely at the discretion of our board of directors;



•

the amount of dividends distributed is subject to covenant restrictions under our new credit facility;



•

the amount of dividends distributed is subject to restrictions under Delaware law;



•

our stockholders have no contractual or other legal right to receive dividends; and



•

we may not have enough cash to pay dividends due to changes in our cash from operations, distributions we receive from minority investments and passive partnership interests, working capital requirements and/or anticipated cash needs.

        We believe that our dividend policy will limit, but not preclude, our ability to pursue growth. If we continue paying dividends at the level currently anticipated under our dividend policy, we expect that we would need additional financing to fund significant acquisitions or to pursue growth opportunities requiring capital expenditures significantly beyond our current expectations. However, we intend to retain sufficient cash after the distribution of dividends to permit the pursuit of growth opportunities that do not require material capital investment. For further discussion of the relationship of our dividend policy to our ability to pursue potential growth opportunities, see "—Assumptions and Considerations" below.

        In accordance with our dividend policy, we currently intend to pay an initial dividend under this policy of $                per share for the period from the closing date of this offering through March 31, 2005 on or about April 15, 2005, and to continue to pay quarterly dividends at an annual rate of $1.59125 per share for the first four full fiscal quarters following the closing of this offering. In respect of the first four full fiscal quarters following the closing of this offering, this would be $54.8 million in the aggregate. This aggregate amount of dividends does not include any dividends with respect to 115,730 shares of our common stock issuable upon the exercise of fully vested, exercisable and in-the-money stock options or 473,716 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares will begin to vest on April 1, 2006 and will not be entitled to receive dividends for any period prior to April 1, 2006. Dividends on our common stock

25

will not be cumulative. Consequently, if dividends on our common stock are not declared and/or paid at the targeted level, our stockholders will not be entitled to receive such payments in the future. In determining our initial dividend level, we reviewed and analyzed, among other things, our operating and financial performance in recent years, the anticipated cash requirements associated with our capital structure, our anticipated capital expenditure requirements, our other anticipated cash needs, the terms of our new credit facility, applicable provisions of Delaware law, other potential sources of liquidity and various other aspects of our business.

        We have not paid dividends on our common stock in the past.

Minimum Adjusted EBITDA

        We do not as a matter of course make public projections as to future sales, earnings, or other results. However, our management has prepared the estimated financial information set forth below to present the estimated cash available to pay dividends based on minimum Adjusted EBITDA. The accompanying estimated financial information was not prepared with a view toward complying with the Public Company Accounting Oversight Board guidelines with respect to prospective financial information, but, in the view of our management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management's knowledge and belief, our expected course of action and our expected future financial performance. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on the estimated financial information.

        Neither our independent registered public accounting firm nor any other independent registered public accounting firm has compiled, examined, or performed any procedures with respect to the estimated financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the estimated financial information.

        The assumptions and estimates underlying the estimated financial information below are inherently uncertain and, though considered reasonable by our management as of the date of its preparation, are subject to a wide variety of significant business, economic, and competitive risks and uncertainties, including those described under "Risk Factors." Accordingly, there can be no assurance that the estimated financial information is indicative of our future performance or that the actual results will not differ materially from the estimated financial information presented below.

        We believe that in order to fund dividend payments to holders of our common stock at the level described above solely from cash generated by our business, our Adjusted EBITDA for the first four full fiscal quarters following the closing of this offering would need to be at least $120.5 million and our Adjusted EBITDA with respect to each such quarter would need to be at least $30.1 million. Based on a review and analysis conducted by our management and our board of directors as described under "—Assumptions and Considerations" below, we believe that our Adjusted EBITDA for the first four full fiscal quarters following the closing of this offering will be at least $120.5 million and our Adjusted EBITDA with respect to each such quarter will be at least $30.1 million. If our Adjusted EBITDA with respect to such periods were at or above these levels, we would be able to make the full targeted dividend payments on our common stock and we would be permitted to make such payments under the leverage ratio and restricted payment covenants in our new credit facility.

        The table below sets forth our calculation that $120.5 million of Adjusted EBITDA would be sufficient to fund dividend payments at the targeted levels on our common stock for the first four full fiscal quarters following the closing of this offering (excluding any dividends payable with respect to 115,730 shares of our common stock issuable upon the exercise of fully vested, exercisable and in-the-money stock options and 473,716 shares of restricted stock to be awarded under our 2005 stock

26

incentive plan on the closing date of this offering, which shares will begin to vest on April 1, 2006 and will not be entitled to receive dividends for any period prior to April 1, 2006) and would satisfy the leverage ratio and restricted payment covenants in our new credit facility.

Estimated Cash Available to Pay Dividends on Common Stock Based on Minimum Adjusted EBITDA

	(Dollars in thousands)
Minimum Adjusted EBITDA(1)(2)	$	120,483
Less:
Estimated cash interest expense on new credit facility(3)		34,012
Estimated capital expenditures(4)		31,000
Estimated cash income taxes(5)		650
Estimated cash available to pay dividends on outstanding common stock(6)	$	54,821
Estimated leverage ratio derived from above(7)		4.9x

        The table below sets forth, for the year ended December 31, 2003 and the four fiscal quarters ended September 30, 2004, the amount of cash that would have been available for distributions to our stockholders, in each case after giving pro forma effect to the Maine acquisition as if it had occurred on January 1, 2003, and subject to the other assumptions described in such table. The information in the table below should be read in conjunction with our consolidated historical and pro forma financial statements and notes thereto contained elsewhere in this prospectus.

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Pro Forma Cash Available to Pay Dividends for the Year Ended December 31, 2003 and the Four Fiscal Quarters Ended September 30, 2004

		Year Ended December 31, 2003			Four Fiscal Quarters Ended September 30, 2004
		(dollars in thousands)
Net cash provided by operating activities of continuing operations		$	32,834		$	42,034
Adjustments:
	Depreciation and amortization		(48,089	)		(48,784	)
	Other non-cash items		1,866			(13,093	)
	Changes in assets and liabilities arising from continuing operations net of acquisitions		5,139			2,649
Loss from continuing operations			(8,250	)		(17,194	)
Adjustments:
	Interest expense		90,224			103,282
	Provision (benefit) for income tax expense		(236	)		(207	)
	Depreciation and amortization		48,089			48,784
	Net gain on sale of investments and other assets		(608	)		227
	Equity in earnings of investee		(10,092	)		(10,786	)
	Distributions from investments (8)		10,775			13,935
	Realized and unrealized losses on interest rate swaps		1,387			288
	Loss on early retirement of debt		1,503			—
	Non-cash stock based compensation		15			148
	Deferred patronage dividends		(233	)		(103	)
Adjusted EBITDA			132,574			138,374
Proforma adjustments for Maine acquisition: (9)
	Net income (loss) from acquisition		59			(289	)
	Interest expense		1,027			187
	Provision (benefit) for income tax expense		143			(177	)
	Depreciation and amortization		1,236			226
Proforma Adjusted EBITDA			135,039			138,321
Cash interest expense on new credit facility (3)			(34,012	)		(34,012	)
Capital expenditures (4)(10)(11)			(34,218	)		(38,599	)
Income tax expense (5)			(650	)		(650	)
Additional public company costs (2)			(1,000	)		(1,000	)
Cash that would have been available to pay dividends			65,159			64,060
Cash required to pay dividends on common stock in accordance with our dividend policy			54,821			54,821

(1)

To pay the targeted dividends on our common stock, our Adjusted EBITDA with respect to each quarter must be at least $30.1 million.

(2)

Takes into account estimated incremental ongoing expenses of $1.0 million associated with being a public common stock issuer, including estimated audit fees, director and officer liability insurance premiums, expenses relating to stockholders' meetings, printing expenses, investor relations expenses, registrar and transfer agent fees, directors' fees, additional legal fees and listing fees.

(3)

Represents interest of approximately 5.68% per annum on $590.0 million of outstanding borrowings under our new credit facility's term loan facility and a commitment fee of 0.5% per annum on the average unused balance of $100.0 million under our new credit facility's revolving facility. These assumed rates give effect to an interest rate swap agreement we will enter into upon the closing of this offering that will effectively fix the interest rate we will pay on approximately $191.8 million of the term loans under our new credit facility for a period of five years after the closing of this offering and an interest rate swap agreement which will effectively fix the interest rate on approximately $191.8 million of the term loans under our new credit facility for a period of three years after the closing of the offering. Pursuant to these interest rate swaps, the interest rate on 65% of our floating rate term loan borrowings will be a blended interest rate of not more than 5.7% per annum for the first three years following the closing of this offering. Our calculation of

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"estimated cash interest expense on new credit facility" reflects the effect of these interest rate swap agreements.

(4)

We expect capital expenditures in fiscal 2004 to be approximately $36.4 million, which includes $4.4 million of anticipated non-recurring capital expenditures relating to the conversion of our billing systems into an integrated billing platform and the centralization of our customer service records and $9.0 million of anticipated non-recurring capital expenditures relating to the final stages of our digital subscriber line initiative. We expect that our annual capital expenditures for our existing operations will be approximately $31.0 million for fiscal 2005 through fiscal 2009. We estimate that approximately $28.0 million of this amount will be used to maintain and enhance our network infrastructure and operate our business. This includes expenditures to meet our network, product offering and customer requirements, such as investments in equipment, central office technology (which includes both hardware and software), inside and outside plant upgrades to meet network capacity requirements and normal repair and maintenance to our infrastructure. In addition, approximately $3.0 million of this amount will be available for one-time or discretionary capital expenditures, such as the billing systems conversion. We expect to fund all of these capital expenditures through our cash flow from operations. If cash is available beyond what is required to support our dividend policy, we may consider additional capital expenditures if we believe they are beneficial. Although the amount of our capital expenditures can fluctuate from quarter to quarter, on an annual basis we do not expect capital expenditures for our existing operations through fiscal 2009 to vary significantly from our estimated amounts. We do not believe that our dividend policy will materially affect our ability to maintain and enhance our network infrastructure and operate our business.

(5)

Assuming our pro forma capital structure after giving effect to the transactions, we expect cash taxes during the first four full fiscal quarters following the closing of this offering to be approximately $0.7 million. As of December 31, 2003, we had an aggregate of $250.8 million of net operating loss carry forwards available to us. Based on certain assumptions, our net operating loss carry forwards as of December 31, 2005 would be approximately $253.2 million. We have estimated cash taxes after giving effect to the transactions based on an estimate of our net operating loss carry forwards (including an "ownership change" under Section 382 of the Internal Revenue Code limiting the usage of our net operating loss carry forwards) and interest and amortization of deferred financing fees based on our new capital structure. At such time as our net operating loss carry forwards have been fully used, our cash tax liability will increase and may impact our ability to pay dividends. Our tax liability may also be affected by limitations on the use of our net operating loss carry forwards under Section 382 of the Internal Revenue Code by reason of this offering and earlier ownership changes. See "Risk Factors—Limitations on usage of our net operating loss carry forwards, and other factors requiring us to pay cash taxes in future periods, may affect our ability to pay dividends to you" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Accounting for Income Taxes."

(6)

The table below sets forth the number of shares of our common stock which would be outstanding upon the closing of this offering (excluding 115,730 shares of our common stock issuable upon the exercise of fully vested, exercisable and in-the-money stock options and 473,716 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares will begin to vest on April 1, 2006 and will not be entitled to receive dividends for any period prior to April 1, 2006) and the estimated per share and aggregate dividend amounts payable on such shares during the first four full fiscal quarters following the closing of this offering. In order to generate cash flow to pay dividends of $1.59125 per share of our common

29

stock for the first four full fiscal quarters following the closing of this offering, we would require an estimated minimum Adjusted EBITDA of $120.5 million during such period.

		Dividends
	Number of Outstanding Shares
		Per Share		Aggregate
				(in thousands)
Estimated dividends on our common stock	34,451,719	$	1.59125	$	54,821

(7)

The leverage ratio is calculated as total indebtedness divided by pro forma Adjusted EBITDA. Under our new credit facility, we may not pay dividends on our common stock if our leverage ratio is above 5.00 to 1.00. See "—Restrictions on Payment of Dividends and "Description of Certain Indebtedness—New Credit Facility."

(8)

We have a number of minority investments and passive partnership interests from which we receive distributions. We do not control the amount or timing of such distributions. The $13.9 million of distributions we received in the four fiscal quarters ended September 30, 2004 includes a non-recurring $2.5 million distribution.

(9)

Presents Adjusted EBITDA as if the Maine acquisition had occurred on January 1, 2003.

(10)

For the year ended December 31, 2003, the information gives effect to the Maine acquisition as if it had occurred on January 1, 2003.

(11)

Includes non-recurring capital expenditures of $2.2 million and $2.5 million for the year ended December 31, 2003 and the four fiscal quarters ended September 30, 2004, respectively, related to the conversion of our billing systems into an integrated billing platform and the centralization of our customer service records. Also includes non-recurring capital expenditures of $4.8 million and $9.5 million for the year ended December 31, 2003 and the four fiscal quarters ended September 30, 2004, respectively, related to capital investments in digital subscriber line access multiplexers and other plant upgrades associated with our accelerated digital subscriber line initiative that began during the third quarter of 2003. As a result, 96% of our exchanges are broadband capable as of September 30, 2004 and management expects that digital subscriber line investments will decrease significantly in 2005. Our management views non-recurring capital expenditures as either one-time capital expenditures or discretionary capital expenditures which are not necessary to maintain and enhance our network infrastructure or operate our business, such as the billing systems conversion and the digital subscriber line initiative described above. Our dividend policy may cause us to reduce or eliminate such one-time or discretionary capital expenditures in the future or to incur indebtedness to fund such capital expenditures. To the extent we finance capital expenditures with indebtedness, we will begin to incur incremental interest and principal obligations which would reduce our cash available for future dividend payments and other purposes. In addition, if we reduce or eliminate capital expenditures, the regulatory settlement payments we receive may decline.

Assumptions and Considerations

        Based on a review and analysis conducted by our management and our board of directors, we believe that our Adjusted EBITDA for the first four full fiscal quarters following the closing of this offering will be at least $120.5 million and our Adjusted EBITDA with respect to each such quarter will be at least $30.1 million, and we have determined that our assumptions as to capital expenditures, cash interest expense and income taxes in the above tables are reasonable. We considered numerous factors

30

in making such determination, including the following factors which we considered material in making such determination:

•

For fiscal years 2003, 2002 and 2001 and the four fiscal quarters ended September 30, 2004, our Adjusted EBITDA was $132.6 million, $131.7 million, $121.0 million and $138.3 million, respectively.



•

For fiscal years 2003, 2002 and 2001 and the four fiscal quarters ended September 30, 2004, we received distributions from minority investments and passive partnership interests of $10.8 million, $9.0 million, $5.0 million and $13.9 million, respectively. Although we do not control the amount or timing of such distributions, we believe that distributions from such investments and interests for fiscal 2005 will be consistent with historical levels, except for a non-recurring distribution of $2.5 million we received for the four fiscal quarters ended September 30, 2004.



•

For the year ended December 31, 2003 and the four fiscal quarters ended September 30, 2004, our pro forma Adjusted EBITDA (after giving effect to the Maine acquisition) was $135.0 million and $138.3 million, respectively.



•

For fiscal years 2003, 2002 and 2001 and the four fiscal quarters ended September 30, 2004, we incurred $33.6 million, $38.8 million, $43.2 million and $38.4 million, respectively, in capital expenditures. For fiscal years 2003, 2002 and 2001 and the four fiscal quarters ended September 30, 2004, we had capital expenditures of $4.7 million, $3.0 million, $2.0 million and $9.5 million, respectively, related to our digital subscriber line initiative. This investment has resulted in 96% of our exchanges being broadband enabled as of September 30, 2004. We expect that the amount of our capital expenditures related to digital subscriber line technology in 2005 will significantly decrease. Capital

expenditures for fiscal 2002 and 2001 also include the costs associated with switch and plant upgrades for certain of our exchanges and the purchase of high level digital loop carrier equipment. Such upgrades enable us to provide higher quality service and enhanced features to our customers. The cost to deploy similar technologies has decreased since the implementation of such upgrades. For example, equivalent capacity can be provided on soft switch technology which is less capital intensive than the Time Division Multiplex switches purchased in 2002 and 2001. We expect capital expenditures in fiscal 2004 to be approximately $36.4 million, which includes $4.4 million of anticipated non-recurring capital expenditures relating to the conversion of our billing systems into an integrated platform and the centralization of our customer service records and $9.0 million of anticipated non-recurring capital expenditures relating to the final stages of our digital subscriber line initiative. We expect capital expenditures in fiscal 2005 to be approximately $31.0 million.

•

Our analysis of the impact of our new capital structure (including the payment of dividends at the level described above) on our operations and performance in prior years and our determination that the new credit facility's revolving facility would have had sufficient capacity to finance any fluctuations in working capital and other cash needs, including the payment of dividends at the levels described above. We currently do not intend to borrow under our new credit facility's revolving facility to pay dividends.

        We have also assumed:

•

that our general business climate, including such factors as consumer demand for our services, the level of competition and our favorable regulatory environment, will remain consistent with previous periods; and



•

the absence of extraordinary business events, such as new industry altering technological advances or adverse regulatory developments, that may adversely affect our business, results of operations or anticipated capital expenditures.

31

        If our Adjusted EBITDA with respect to the first four full fiscal quarters after the closing of this offering were to fall below $120.5 million or $30.1 million in any quarter in such period (or if our assumptions as to capital expenditures, principal repayments, interest expense or tax expense were too low), we would need to either reduce or eliminate dividend payments on our common stock or, to the extent we were permitted to do so under our new credit facility, fund a portion of the dividends on our common stock with borrowings or from other sources. If we were to use working capital or permanent borrowings under our new credit facility's revolving facility to fund dividend payments, we would have less cash available for future dividend payments and other purposes, which could negatively impact our financial condition, our results of operations and our ability to maintain or expand our business. In addition, to the extent we finance capital expenditures or acquisitions with indebtedness, we will begin to incur incremental interest and principal obligations.

        We cannot assure you that our Adjusted EBITDA will equal or exceed the minimum levels set forth above, and our belief that it will equal or exceed such levels are subject to all of the risks, considerations and factors identified in other sections of this prospectus, including those identified in "Risk Factors."

        As noted above, we have presented our initial dividend payment level and our minimum Adjusted EBITDA only for the first four full fiscal quarters following the closing of this offering. Moreover, we cannot assure you that during or following such period that we will pay dividends at the level set forth above, or at all. In the future, our capital and cash needs will invariably change, which could impact the level of any dividends we pay.

        We are not required to pay dividends, and our board of directors may modify or revoke our dividend policy at any time. Dividend payments are within the sole discretion of our board of directors and will depend upon, among other things, our results of operations, our financial condition and future developments that could differ materially from our current expectations. We expect that our general policy will be to distribute rather than retain a substantial portion of our cash in excess of operating needs, interest and principal payments on our indebtedness, dividends on our future senior classes of capital stock, if any, capital expenditures, taxes and future reserves, if any. These policies are based upon our current assessment of our business and the environment in which it operates, and that assessment could change based on competitive or technological developments (which could, for example, increase our need for capital expenditures), acquisition opportunities or other factors. We believe that our dividend policy will limit, but not preclude, our ability to pursue growth. If we continue paying dividends at the level currently anticipated under our dividend policy, we expect that we would need additional financing to fund significant acquisitions or to pursue growth opportunities requiring capital expenditures significantly beyond our current expectations. Such additional financing could include, among other transactions, the issuance of additional shares of common stock. However, we intend to retain sufficient cash after the distribution of dividends to permit the pursuit of growth opportunities that do not require material capital investments. In the recent past, such growth opportunities have included investments in the roll-out of new services such as digital subscriber line internet access to our existing customer base and the selective expansion of our business into new and/or adjacent markets. Management currently has no specific plans to make a significant acquisition or to increase capital spending to expand our business materially. However, management will evaluate potential growth opportunities as they arise and, if our board of directors determines that it is in our best interest to use cash that would otherwise be available for distribution as dividends to pursue an acquisition opportunity, to materially increase capital spending or for some other purpose, the board would be free to depart from or change our dividend policy at any time. Management currently does not anticipate pursuing growth opportunities, including acquisitions, unless they are expected to be at least neutral or accretive to our ability to pay dividends to the holders of our common stock.

        Borrowings under our new credit facility will bear interest at variable interest rates. In connection with this offering, we intend to enter into an interest rate swap agreement which will fix the interest rate on approximately $191.8 million of the term loans under our new credit facility for a period of five

32

years after the closing of this offering and an interest rate swap agreement which will fix the interest rate on approximately $191.8 million of the term loans under our new credit facility for a period of three years after the closing of the offering. After these interest rate swap agreements expire, our annual debt service obligations on such portion of the term loans will vary from year to year unless we enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge. An increase of one percentage point in the annual interest rate applicable to borrowings under our new credit facility which would be outstanding on the closing date of this offering would result in an increase of approximately $5.9 million in our annual cash interest expense, and a corresponding decrease in cash available to pay dividends on our common stock. If we choose to enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge in the future, the amount of cash available to pay dividends on our common stock may decrease. However, to the extent interest rates increase in the future, we may not be able to enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge on acceptable terms. In addition, our new credit facility's revolving facility will need to be refinanced prior to February 2011 and our new credit facility's term loan facility will need to be refinanced prior to February 2012. We may not be able to refinance our new credit facility, or if refinanced, the refinancing may occur on less favorable terms, which may materially adversely affect our ability to pay dividends. If we were unable to refinance our new credit facility, our failure to repay all amounts due on the maturity date would cause a default under our new credit facility. We expect our required principal repayments under the term loan facility of our new credit facility to be approximately $590.0 million at its maturity in February 2012. Our interest expense may increase significantly if we refinance our new credit facility on terms that are less favorable to us than the terms of our new credit facility.

        We have the ability to issue additional common stock, other equity securities or preferred stock for such consideration and on such terms and conditions as are established by our board of directors in its sole discretion and without the approval of the holders of our common stock. It is possible that we will fund acquisitions, if any, through the issuance of additional common stock, other equity securities or preferred stock. Holders of any additional common stock or other equity securities issued by us may be entitled to share equally with the holders of the common stock offered hereby in dividend distributions. The certificate of designation of any preferred stock issued by us may provide that the holders of preferred stock are senior to the holders of our common stock with respect to the payment of dividends. If we were to issue additional common stock, other equity securities or preferred stock, it would be necessary for us to generate additional cash in order for us to distribute dividends at the same rate per share as distributed prior to any such additional issuance.

Restrictions on Payment of Dividends

        Under Delaware law, our board of directors may declare dividends only to the extent of our "surplus" (which is defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal year. We do not anticipate that we will have (and in prior years we would not have had) sufficient earnings to pay dividends at the levels described above and therefore expect that we will pay dividends out of surplus. Although we believe we will have sufficient surplus to pay dividends at the anticipated levels during the first four full fiscal quarters after the closing of this offering, our board of directors will seek periodically to assure itself of this before actually declaring any dividends.

        Our new credit facility restricts our ability to declare and pay dividends on our common stock as follows:

•

we will be permitted to pay dividends for the period from the closing date of this offering through March 31, 2005 as long as no default or event of default under our new credit facility has occurred and is continuing and we have at least $10 million of cash on hand (including unutilized commitments under our new credit facility's revolving facility);

33

•

after March 31, 2005, we may use all of our available cash accumulated after April 1, 2005 plus certain incremental funds to pay dividends, but we may not in general pay dividends in excess of such amount. "Available cash" is defined in our new credit facility as Adjusted EBITDA minus interest expense, capital expenditures (unless funded by long-term debt, equity or the proceeds from asset sales or insurance recovery events), cash taxes, repayments of our indebtedness, cash consideration paid for acquisitions (unless funded by debt or equity) and cash paid to make certain investments;



•

we may not pay dividends if a default or event of default under our new credit facility has occurred and is continuing or would occur as a consequence of such payment;



•

we may not pay dividends if our leverage ratio is above 5.00 to 1.00; and



•

we may not pay dividends if we do not have at least $10 million of cash on hand (including unutilized commitments under our new credit facility's revolving facility).

        See "Description of Certain Indebtedness—New Credit Facility."

Available cash (as defined in our new credit facility) does not represent the amount we intend to distribute as dividends for any period but rather is a restriction on the maximum level of dividend payments, if any, that we will be permitted to declare and pay under the terms of our new credit facility.

34

The Transactions

        Concurrently with this offering, we will effect the transactions described below. For additional information concerning the transactions, see "Use of Proceeds," "Description of Certain Indebtedness" and "Capitalization."

        New Credit Facility.    We will enter into a new senior secured credit facility with a syndicate of financial institutions, including Deutsche Bank Trust Company Americas, as administrative agent. The new credit facility will be comprised of a revolving facility in an aggregate principal amount of up to $100.0 million (less amounts reserved for letters of credit) and a term facility in an aggregate principal amount of up to $590.0 million. While the new credit facility will permit us to pay dividends to common stockholders, it will contain significant restrictions on our ability to make such dividend payments. The revolving facility will have a six year maturity and the term facility will have a seven year maturity.

        Repayment of Existing Credit Facility.    We will repay all outstanding loans under our existing credit facility, plus accrued and unpaid interest. The terms of the existing credit facility allow us to prepay loans without premium or penalty.

        Tender Offers and Consent Solicitations.    On January 5, 2005, we commenced tender offers and consent solicitations with respect to all of the outstanding 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% notes. As of January 27, 2005, approximately 99.8% of the 9¹/2% notes, 67.7% of the floating rate notes, 89.7% of the 12¹/2% notes and 99.1% of the 11⁷/8% notes had been irrevocably tendered and consents related thereto had been irrevocably delivered. We have executed supplemental indentures with respect to the indentures governing each such series of notes which eliminate substantially all of the covenants and the events of default in such indentures and permit the transactions to be consummated on the terms described herein. These supplemental indentures will become effective upon the closing of this offering. The consummation of the tender offers is conditioned upon the consummation of this offering. To the extent that any holders of 9¹/2% notes and floating rate notes do not tender their notes in the tender offers, we intend to redeem the remaining outstanding 9¹/2% notes and floating rate notes following this offering.

        Preferred Stock.    We will repurchase all of our series A preferred stock (together with accrued and unpaid dividends thereon) from the holders thereof. The series A preferred stock was initially issued in May 2002 in exchange for debt of one of our subsidiaries whose operations we discontinued.

35

Use of Proceeds

        The table below sets forth our estimate of the sources of the funds required to effect the transactions and our uses of such funds, assuming the transactions all occurred on September 30, 2004. We expect to receive $475.0 million of gross proceeds from the sale of our common stock. The estimated sources and uses are based on an assumed initial public offering price of $19.00 per share of common stock. The table assumes that we have repurchased all outstanding 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% notes in the tender offers and consent solicitations for such notes. Actual amounts may vary from the amounts shown below.

			(Dollars in millions)
Sources of Funds:
Common stock offered hereby			$	475.0
New credit facility(1)
	Term facility(2)			590.0
	Revolving facility(3)			—
Cash				1.6
		Total sources of funds	$	1,066.6
Uses of Funds:
Repay existing credit facility(4)			$	185.1
Repurchase 91/2% notes, floating rate notes, 121/2% notes and 117/8% notes(5)				608.2
Repurchase series A preferred stock(6)				121.9
Repay subsidiary debt(7)				13.6
Repay promissory note and other acquisition obligation(8)				7.2
Fees and expenses(9)				111.6
Accrued interest on outstanding indebtedness				19.0
		Total uses of funds	$	1,066.6

(1)

Our new credit facility will consist of a $590.0 million term facility and a $100.0 million revolving facility.

(2)

Loans under our new credit facility's term facility will mature in February 2012 and are expected to bear interest per annum at either a base rate plus a margin expected to be between 1.0% and 1.5% or a Eurodollar rate plus a margin expected to be between 2.0% and 2.5%.

(3)

Loans under our new credit facility's revolving facility will mature in February 2011 and are expected to bear interest per annum at either a base rate plus a margin expected to be between 1.0% and 1.5% or a Eurodollar rate plus a margin expected to be between 2.0% and 2.5%.

(4)

Represents all loans under our existing credit facility. All revolving loans under our existing credit facility mature on March 31, 2007 and bear interest per annum at LIBOR plus 4.00%. We used the proceeds from revolving loans to fund acquisitions, capital expenditures and for general corporate purposes. Tranche A term loans under our existing credit facility mature on March 31, 2007 and bear interest per annum at LIBOR plus 4.50%. Tranche C term loans under our existing credit facility mature on March 31, 2007 and bear interest per annum at LIBOR plus 4.50%.

(5)

The 9¹/2% notes and the floating rate notes each mature on May 1, 2008. The floating rate notes bear interest at a rate per annum equal to LIBOR plus 418.75 basis points. The 12¹/2% notes mature on May 1, 2010. The 11⁷/8% notes mature on March 1, 2010.

(6)

The series A preferred stock was initially issued in May 2002 in exchange for debt of one of our subsidiaries whose operations we discontinued.

(7)

This debt consists of senior secured floating rate notes and fixed rate notes issued by three of our operating subsidiaries which were assumed in connection with our acquisition of these subsidiaries. The maturities of these obligations range from 2005 to 2016. As of September 30, 2004, the interest rate on the floating rate notes ranged from 5.15% to 9.20% per annum and the interest rate on the fixed rate notes ranged from 4.964% to 10.782% per annum.

(8)

The promissory note was issued by us in connection with a past acquisition. This note matures in May 2005 and bears interest at a rate of 7% per annum. We will also repurchase shares of our class A common stock issued in connection with a past acquisition for a purchase price of approximately $0.2 million.

(9)

Includes $63.1 million of tender premiums and consent payments, the underwriting discount of $28.5 million payable to the underwriters in connection with this offering, $8.6 million payable to the providers of our new credit facility and $3.0 million in professional fees and other fees and expenses. Includes a transaction fee of approximately $8.4 million payable to Kelso & Company. See "Certain Relationships and Related Party Transactions—Financial Advisory Agreements."

36

Capitalization

        The following table sets forth our capitalization as of September 30, 2004:

•

on an actual basis; and



•

on a pro forma as adjusted basis to give effect to the transactions as if they were consummated as of September 30, 2004.

        This table should be read in conjunction with our consolidated financial statements and unaudited pro forma condensed consolidated financial statements included elsewhere in this prospectus.

			September 30, 2004
			Actual			Adjustments			Pro Forma as adjusted
			(dollars in thousands)
Cash and cash equivalents			$	6,413		$	(1,570	)	$	4,843
Long-term debt, including current portion:
	New credit facility:
		Term facility		—			590,000			590,000
		Revolving facility(1)					—			—
	Existing credit facility			185,068			(185,068	)		—
	91/2% notes and floating rate notes			190,207			(190,207	)		—
	121/2% notes			193,000			(193,000	)		—
	117/8% notes			225,000			(225,000	)		—
	Other debt(2)			20,588			(20,588	)		—
		Total consolidated long-term debt, including current portion		813,863			(223,863	)		590,000
	Series A preferred stock subject to mandatory redemption			111,519			(111,519	)		—
Common stock, par value $0.01 per share(3)				95			255			350
Additional paid-in capital				198,602			453,665			652,267
Unearned compensation				—			(9,000	)		(9,000	)
Accumulated deficit				(360,809	)		(96,766	)		(457,575	)
Total stockholders' equity (deficit)				(162,112	)		348,154			186,042
Total capitalization			$	769,683		$	11,202		$	780,885

(1)

Under the revolving facility, subject to satisfying certain requirements, we will have revolving loan availability of up to $100.0 million.

(2)

Includes senior secured floating rate notes and fixed rate notes issued by three of our operating subsidiaries which were assumed in connection with our acquisition of these subsidiaries. Also includes a promissory note which was issued by us in connection with a past acquisition.

(3)

200,000,000 shares of our common stock authorized and 34,925,435 shares outstanding, pro forma as adjusted. This includes 473,716 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares will begin to vest on April 1, 2006 and will not be entitled to receive dividends for any period prior to April 1, 2006.

37

Dilution

        Dilution is the amount by which:

•

the portion of the offering price paid by the purchasers of our common stock in this offering, exceeds



•

the net tangible book value or deficiency per share of our common stock after the offering.

        Net tangible book value or deficiency per share of our common stock is determined at any date by subtracting our total liabilities from our total assets less our intangible assets and dividing the difference by the number of shares of common stock deemed to be outstanding at that date.

        Our net tangible book deficiency as of September 30, 2004 was approximately $654.4 million, or $69.24 per share of class A common stock and class C common stock. After giving effect to our receipt and intended use of approximately $1,024.9 million of estimated net proceeds (after deducting estimated underwriting discounts and commissions and offering expenses) from our sale of common stock in this offering and borrowings we expect to receive under our new credit facility, and assuming that all of the outstanding 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% notes are tendered pursuant to the applicable tender offers for such notes, our pro forma as adjusted net tangible book deficiency as of September 30, 2004 would have been approximately $294.2 million (after adjustment for intangible assets, including goodwill, debt issue costs and interest rate cap), or $8.54 per share of common stock. This represents an immediate increase in net tangible book value of $60.70 per share of our common stock to existing stockholders and an immediate dilution of $27.54 per share of our common stock to new investors purchasing our common stock in this offering. This does not include the 473,716 shares of restricted stock to be issued under our 2005 stock incentive plan.

        The following table illustrates this substantial and immediate dilution to new investors:

	Per Share of Common Stock
Initial public offering price per share of our common stock	$	19.00
Net tangible book value (deficiency) per share as of September 30, 2004		(69.24	)
Increase per share attributable to cash payments made by investors in this offering		60.70
Pro forma as adjusted net tangible book value (deficiency) after this offering	$	(8.54	)
Dilution in net tangible book value per share to new investors	$	27.54

        The following table sets forth on a pro forma basis as of September 30, 2004, assuming no exercise of the underwriters' over-allotment option and not including the 473,716 shares of restricted stock to be issued under our 2005 stock incentive plan:

•

the total number of shares of our class A common stock purchased by our existing equity investors and our officers during the past five years and the total number of shares of our common stock to be owned by the new investors purchasing our common stock in this offering, as represented by our common stock to be sold in this offering;

38

•

the total consideration paid by such equity investors and such officers to be paid by the new investors purchasing our common stock in this offering; and



•

the average price per share of existing class A common stock and class C common stock paid by such existing equity investors and such officers (cash and stock) and the average price per share of our common stock to be paid by new investors purchasing our common stock in this offering:

	Shares of Common Stock Purchased
				Total Consideration
								Average Price Per Share of Common Stock
	Number	Percent		Amount		Percent
Existing equity investors and officers	5,679,238	18.5	%	$	394,368,614	45.4	%	$	69.22
New investors	25,000,000	81.5	%		475,000,000	54.6	%		19.00
Total	30,679,238	100	%	$	869,368,614	100	%

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Selected Financial Data

        Certain of the selected financial data presented below under the captions "Statement of Operations," "Operating Data," "Summary Cash Flow Data" and "Balance Sheet Data" as of December 31, 2002 and 2003, and for each of the years in the three-year period ended December 31, 2003, are derived from the consolidated financial statements of the Company and its subsidiaries, which financial statements have been audited by KPMG LLP, independent registered public accounting firm. The consolidated financial statements as of December 31, 2002 and 2003, and of each of the years in the three-year period ended December 31, 2003, and the report thereon, are included elsewhere in this prospectus. The selected financial data for the nine month periods ended September 30, 2003 and 2004 has been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which consist only of normal recurring adjustments, necessary for a fair presentation of the financial positions and results of operations for these periods. The following financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and notes thereto contained elsewhere in this prospectus. Amounts in thousands, except access lines and ratios.

		Year Ended December 31,															Nine Months Ended September 30,
		1999			2000			2001			2002			2003			2003			2004
																	(unaudited)
Statement of Operations:
Revenues		$	133,475		$	190,786		$	230,176		$	230,819		$	231,432		$	171,663		$	188,838
Operating expenses:
	Operating expenses		71,214			95,540			115,763			110,265			111,188			81,624			96,355
	Depreciation and amortization(1)		29,964			46,146			55,081			46,310			48,089			36,181			36,876
	Stock based compensation expense		3,386			12,323			1,337			924			15			—			133
Total operating expenses			104,564			154,009			172,181			157,499			159,292			117,805			133,364
Income from operations			28,911			36,777			57,995			73,320			72,140			53,858			55,474
Interest expense(2)			(50,464	)		(59,556	)		(76,314	)		(69,520	)		(90,224	)		(64,640	)		(77,698	)
Other income (expense), net(3)			4,877			13,198			(6,670	)		(11,974	)		9,600			6,380			8,907
Loss from continuing operations before income taxes			(16,676	)		(9,581	)		(24,989	)		(8,174	)		(8,484	)		(4,402	)		(13,317	)
Income tax (expense) benefit(3)			(2,179	)		(5,607	)		(431	)		(518	)		236			(250	)		(279	)
Minority interest in income of subsidiaries			(100	)		(3	)		(2	)		(2	)		(2	)		(1	)		(1	)
Loss from continuing operations			(18,955	)		(15,191	)		(25,422	)		(8,694	)		(8,250	)		(4,653	)		(13,597	)
Income (loss) from discontinued operations			(10,085	)		(73,926	)		(186,178	)		21,933			9,921			9,726			671
Net income (loss)			(29,040	)		(89,117	)		(211,600	)		13,239			1,671			5,073			(12,926	)
Redeemable preferred stock dividends and accretion(2)			—			—			—			(11,918	)		(8,892	)		(8,892	)		—
Gain on repurchase of redeemable preferred stock			—			—			—			—			2,905			2,905			—
Net income (loss) attributable to common shareholders		$	(29,040	)	$	(89,117	)	$	(211,600	)	$	1,321		$	(4,316	)	$	(914	)	$	(12,926	)
Basic and diluted shares outstanding(4)			6,860			9,357			9,499			9,498			9,483			9,483			9,468
Basic and diluted loss from continuing operations per share(4)		$	(2.76	)	$	(1.62	)	$	(2.68	)	$	(2.17	)	$	(1.50	)	$	(1.12	)	$	(1.44	)
Operating Data:
EBITDA(5)		$	63,652		$	96,118		$	106,404		$	107,654		$	129,827		$	96,418		$	101,256
Adjusted EBITDA(5)			66,241			100,034			120,951			131,656			132,574			99,778			105,578
Capital expenditures			27,773			49,601			43,175			38,803			33,595			19,613			24,392
Access line equivalents(6)			150,612			237,294			247,862			248,581			264,308			248,589			272,691
	Residential access lines		120,387			184,798			191,570			189,803			196,145			187,523			192,353
	Business access lines		30,225			51,025			53,056			51,810			50,226			48,795			49,918
	Digital subscriber lines		—			1,471			3,236			6,968			17,937			12,271			30,420

40

Summary Cash Flow Data:
Net cash provided by operating activities of continuing operations	$	26,411		$	44,706		$	35,717		$	55,632		$	32,834		$	23,658		$	32,858
Net cash used in investing activities of continuing operations		(59,986	)		(284,953	)		(57,161	)		(30,258	)		(54,010	)		(11,160	)		(12,079	)
Net cash provided by (used in) financing activities of continuing operations		46,979			300,088			101,234			(12,546	)		(1,976	)		(15,123	)		(18,856	)
Net cash contributed (from) to continuing operations (to) from discontinued operations		(17,862	)		(64,466	)		(80,862	)		(10,353	)		23,361			30,313			(1,113	)
Balance Sheet Data (at period end):
Cash	$	8,616		$	3,991		$	2,919		$	5,394		$	5,603		$	33,082		$	6,413
Property, plant and equipment, net		157,236			272,228			278,277			271,690			266,706			255,663			253,704
Total assets		517,356			863,547			875,015			829,253			843,068			834,054			830,917
Total long term debt		462,395			756,812			907,602			804,190			825,560			811,686			813,476
Preferred shares subject to mandatory redemption		—			—			—			90,307			96,699			92,089			111,519
Total stockholders' equity (deficit)		(11,581	)		64,378			(149,510	)		(146,150	)		(147,953	)		(145,923	)		(162,112	)

(1)

On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets." Pursuant to the requirements of SFAS No. 142, we ceased amortizing goodwill beginning January 1, 2002, and instead test for goodwill impairment annually. Amortization expense for goodwill and equity method goodwill was $5,335, $9,762 and $11,962 in fiscal 1999, 2000 and 2001, respectively. Depreciation and amortization excludes amortization of debt issue costs.

(2)

Interest expense includes amortization of debt issue costs aggregating $1,575, $2,362, $4,018, $3,664 and $4,171 for the fiscal years ended December 31, 1999, 2000, 2001, 2002 and 2003 and $3,118 and $3,452 for the nine months ended September 30, 2003 and 2004, respectively. In 1999, interest expense includes $13,331 related to the retirement of put warrants of one of our subsidiaries. We prospectively adopted the provisions of SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity," effective July 1, 2003. SFAS No. 150 requires us to classify as a long-term liability our series A preferred stock and to reclassify dividends and accretion from the series A preferred stock as interest expense. Such stock is now described as "Preferred Shares Subject to Mandatory Redemption" in the balance sheet and dividends and accretion on these shares are now included in pre-tax income whereas previously they were presented as a reduction to equity (a dividend), and, therefore, a reduction of net income available to common stockholders. For the year ended December 31, 2003, interest expense includes $9,049 related to dividends and accretion on shares subject to mandatory redemption. For the nine months ended September 30, 2003 and 2004, interest expense includes $4,440 and $14,820, respectively, related to dividends and accretion on preferred shares subject to mandatory redemption.

(3)

On January 1, 2001, we adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities," as amended by SFAS No. 138. On the date of adoption, the Company recorded a cumulative adjustment of $4,664 in accumulated other comprehensive income for the fair value of interest rate swaps. Because the interest rate swaps do not qualify as accounting hedges under SFAS No. 133, the change in fair value of the interest rate swaps are recorded as non operating gains or losses, which the Company classifies in other income (expense). We also recorded other income (expense) in 2001, 2002 and 2003 for the amortization of the transition adjustment of the swaps initially recognized in accumulated other comprehensive income. In the second quarter of 2002, we adopted SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections." This statement eliminates the requirement that gains and losses from the extinguishment of debt be required to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. In 2003, other income (expense) includes a $3,465 gain on the extinguishment of debt and a $4,967 loss for the write-off of debt issue costs related to this extinguishment of debt.

(4)

In connection with the proposed public offering of our common stock, our board of directors approved a 5.2773714 for 1 reverse stock split of our common stock. All share and per share amounts related to our common stock have been restated to reflect the reverse stock split.

(5)

EBITDA means net income (loss) before income (loss) from discontinued operations, interest expense, income taxes, and depreciation and amortization. We believe EBITDA is useful to investors because EBITDA is commonly used in the communications industry to analyze companies on the basis of operating performance, liquidity and leverage. We believe EBITDA allows a standardized comparison between companies in the industry, while minimizing the differences from depreciation policies, financial leverage and tax strategies. We also believe that EBITDA is useful as a means to evaluate our

41

ability to pay dividends. While providing useful information, EBITDA should not be considered in isolation or as a substitute for consolidated statement of operations and cash flows data prepared in accordance with accounting principles generally accepted in the United States of America. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

A reconciliation of net cash provided by operating activities of continuing operations to EBITDA follows (in thousands):

		Year Ended December 31,															Nine Months Ended September 30,
		1999			2000			2001			2002			2003			2003			2004
																	(unaudited)
Net cash provided by operating activities of continuing operations		$	26,411		$	44,706		$	35,717		$	55,632		$	32,834		$	23,658		$	32,858
Adjustments:
	Depreciation and amortization		(29,964	)		(46,146	)		(55,081	)		(46,310	)		(48,089	)		(36,181	)		(36,876	)
	Impairment of investments		—						—			(12,568	)		—			—			—
	Other non-cash items		(9,716	)		7,439			(9,712	)		1,281			1,866			3,768			(11,191	)
	Changes in assets and liabilities arising from continuing operations, net of acquisitions		(5,686	)		(21,190	)		3,654			(6,729	)		5,139			4,102			1,612
Income (loss) from continuing operations			(18,955	)		(15,191	)		(25,422	)		(8,694	)		(8,250	)		(4,653	)		(13,597	)
Adjustments:
Interest expense(2)(3)			50,464			59,556			76,314			69,520			90,224			64,640			77,698
Provision (benefit) for income tax expense			2,179			5,607			431			518			(236	)		250			279
Depreciation and amortization			29,964			46,146			55,081			46,310			48,089			36,181			36,876
EBITDA		$	63,652		$	96,118		$	106,404		$	107,654		$	129,827		$	96,418		$	101,256

Certain covenants in our new credit facility will contain ratios based on Adjusted EBITDA and the restricted payment covenant in our new credit facility regulating the payment of dividends on our common stock will be based on Adjusted EBITDA. Adjusted EBITDA for any period is defined in our new credit facility as (1) the sum of Consolidated Net Income (which is defined in our new credit facility and includes distributions from investments), plus the following to the extent deducted from consolidated net income: provision for taxes, consolidated interest expense, depreciation, amortization, losses on sales of assets and other extraordinary losses, and certain other non-cash items, each as defined, minus (2) gains on sales of assets and other extraordinary gains and all non-cash items increasing consolidated net income for the period. For a more detailed definition of Adjusted EBITDA and Consoldated Net Income, see "Description of Certain Indebtedness—New Credit Facility." If our Adjusted EBITDA were to decline below certain levels, covenants in our new credit facility that are based on Adjusted EBITDA may be violated and could cause, among other things, a default under our new credit facility, or result in our inability to pay dividends. These covenants are summarized under "Description of Certain Indebtedness—New Credit Facility." A reconciliation of EBITDA to Adjusted EBITDA is as follows (in thousands):

	Year Ended December 31,															Nine Months Ended September 30,
	1999			2000			2001			2002			2003			2003			2004
EBITDA	$	63,652		$	96,118		$	106,404		$	107,654		$	129,827		$	96,418		$	101,256
Net (gain) loss on sale of investments and other assets		(514	)		(6,642	)		648			(34	)		(608	)		(595	)		240
Impairment on investments		—			—			—			12,568			—			—			—
Equity in net earnings of investees		(2,495	)		(4,807	)		(4,930	)		(7,798	)		(10,092	)		(7,235	)		(7,929	)
Distributions from investments(7)		2,592			3,155			5,013			9,018			10,775			8,650			11,810
Realized and unrealized losses on interest rate swaps		—			—			12,873			9,577			1,387			1,211			112
Loss on early retirement of debt		—			—			—			—			1,503			1,503			—
Non-cash stock based compensation		3,386			12,323			1,337			924			15			—			133
Deferred patronage dividends		(380	)		(113	)		(394	)		(253	)		(233	)		(174	)		(44	)
Adjusted EBITDA	$	66,241		$	100,034		$	120,951		$	131,656		$	132,574		$	99,778		$	105,578

(6)

Total access line equivalents includes voice access lines and digital subscriber lines.

(7)

Includes distributions relating to minority investments and passive partnership interests. We do not control the timing or the amount of such distributions. The $11.8 million in distributions received in the nine months ended September 30, 2004 includes a non-recurring distribution of approximately $2.5 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity."

42

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

        The following discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this prospectus. The following discussion includes certain forward-looking statements. For a discussion of important factors, including the continuing development of our business, actions of regulatory authorities and competitors and other factors which could cause actual results to differ materially from the results referred to in the forward-looking statements, see "Risk Factors."

Overview

        We are a leading provider of communications services in rural communities, offering an array of services, including local and long distance voice, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural communities and we are the 17th largest local telephone company, in each case based on number of access lines. We operate in 17 states with approximately 272,691 access line equivalents in service as of September 30, 2004.

        We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. Since 1993, we have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 access lines. All of our telephone company subsidiaries qualify as rural local exchange carriers under the Telecommunications Act.

        Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because rural local exchange carriers primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. As a result, in our markets, we have experienced virtually no wireline competition and limited competition from cable providers. While most of our markets are served by wireless service providers, their impact on our business has been limited.

        Access lines are an important element of our business. Historically, rural telephone companies have experienced consistent growth in access lines because of positive demographic trends, insulated rural local economies and little competition. Recently, however, many rural telephone companies have experienced a loss of access lines due to challenging economic conditions, increased competition and the introduction of digital subscriber line services. We have not been immune to these conditions. We have been able to mitigate our access line loss through bundling services, win-back programs, increased community involvement and a variety of other programs.

        Despite our net losses of access lines, we have generated growth in our revenues each year since 1999. We have accomplished this by providing our customers with services not previously available in most of our markets, such as enhanced voice services and data services, including digital subscriber line services, and through acquisitions.

Revenues

        We derive our revenues from:

•

Local calling services.    We receive revenues from providing local exchange telephone services, including monthly recurring charges for basic service, usage charges for local calls and service charges for special calling features.

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•

Universal Service Fund—high cost loop support.    We receive payments from the Universal Service Fund to support the high cost of our operations in rural markets. This revenue stream fluctuates based upon our average cost per loop compared to the national average cost per loop. For example, if the national average cost per loop increases and our operating costs (and average cost per loop) remain constant or decrease, the payments we receive from the Universal Service Fund would decline. Conversely, if the national average cost per loop decreases and our operating costs (and average cost per loop) remain constant or increase, the payments we receive from the Universal Service Fund would increase. Over the past year, the national average cost per loop in relation to our average cost per loop has increased, and we believe that the national average cost per loop will likely continue to increase in relation to our average cost per loop. As a result, the payments we receive from the Universal Service Fund will likely decline.



•

Interstate access revenues.    These revenues are primarily based on a regulated return on rate base and recovery of allowable expenses associated with the origination and termination of toll 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 Federal Communications Commission. These revenues also include Universal Service Fund payments for local switching support, long term support and interstate common line support.



•

Intrastate access revenues.    These 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 long distance 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.



•

Long distance services.    We receive revenues from long distance services we provide to our residential and business customers. In addition, our subsidiary Carrier Services provides our rural local exchange carriers and other non-affiliated communications providers with wholesale long distance services.



•

Data and Internet services.    We receive revenues from monthly recurring charges for services, including digital subscriber line, special access, private lines, Internet and other services.



•

Other services.    We receive revenues from other services, including billing and collection, directory services and sale and maintenance of customer premise equipment.

        The following summarizes our revenues and percentage of revenues from continuing operations from these sources:

	Year ended December 31,						Nine months ended September 30,				Year ended December 31,						Nine months ended September 30,
	2001		2002		2003		2004		2003		2001		2002		2003		2004		2003
	Revenue (in thousands)										% of Revenue
Local calling services	$	50,629	$	54,000	$	56,078	$	47,322	$	41,735	22	%	23	%	24	%	25	%	24	%
Universal service fund-high cost loop		19,019		22,429		18,903		17,110		14,260	8		10		8		9		9
Interstate access revenues		66,002		65,769		66,564		52,061		49,037	29		29		29		28		28
Intrastate access revenues		48,671		43,848		43,969		31,879		32,625	21		19		19		17		19
Long distance services		19,459		16,763		15,440		13,258		11,673	9		7		7		7		7
Data and Internet services		7,684		10,257		13,431		13,550		9,585	3		4		6		7		5
Other services		18,712		17,753		17,047		13,658		12,748	8		8		7		7		8
Total	$	230,176	$	230,819	$	231,432		188,838		171,663	100	%	100	%	100	%	100	%	100	%

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Operating Expenses

        Our operating expenses are categorized as operating expenses; depreciation and amortization; and stock based compensation.

•

Operating expenses includes cash costs incurred in connection with the operation of our central offices and outside plant facilities and related operations. In addition to the operational costs of owning and operating our own facilities, we also purchase long distance services from regional bell operating companies, large independent telephone companies and third party long distance providers. In addition, our operating expenses include expenses relating to sales and marketing, customer service and administration and corporate and personnel administration.



•

Depreciation and amortization includes depreciation of our communications network and equipment. Prior to January 1, 2002, and the implementation of SFAS No. 142, this category also included amortization of goodwill relating to our acquisitions.



•

Stock based compensation consists of non-cash compensation charges incurred in connection with the employee stock options granted to our executive officers, and stockholder appreciation rights agreements granted to two of our executive officers.

Acquisitions

        We intend to continue to pursue selective acquisitions:

•

On December 1, 2003, we purchased all of the capital stock of Community Service Telephone and Commtel Communications. Community Service Telephone and Commtel Communications provided communication services to approximately 13,280 access line equivalents in central Maine as of the date of such acquisition.



•

On June 18, 2003, we executed an agreement and plan of merger with Berkshire Telephone Company, or Berkshire, to merge FairPoint Berkshire Corporation with Berkshire. Shareholders of Berkshire would receive approximately $19.2 million in the merger, subject to adjustment. Berkshire is an independent local exchange carrier that, as of September 30, 2004, provided communication services to over 7,232 access line equivalents serving five communities in New York State. Berkshire's communities of service are adjacent to Taconic Telephone Corp., one of the Company's subsidiaries. This acquisition is expected to close during the first half of 2005, pending receipt of required regulatory approvals.



•

During 2002, we made no acquisitions.



•

During 2001, we acquired one rural local exchange carrier and certain assets of additional telephone exchanges for an aggregate purchase price of $24.2 million, which included $0.7 million of acquired debt. At the respective dates of acquisition, these businesses served an aggregate of approximately 5,600 access lines.

        In the normal course of business, we evaluate selective acquisitions and may enter into non-binding letters of intent with respect to such acquisitions, subject to customary conditions. Management currently intends to fund future acquisitions through additional financing. However, our substantial amount of indebtedness and our dividend policy could restrict our ability to obtain such financing on acceptable terms or at all.

Stock Based Compensation

        Non-cash compensation charges associated with restricted stock units were $133,000 for the nine-months ended September 30, 2004.

45

        In 2003, we did not recognize any material non-cash compensation charges, primarily due to the fact that the fair market value per share of our common stock remained relatively stable.

        In March 2002, we recognized a non-cash compensation benefit of $0.2 million associated with the reduction in estimated fair market value of the stockholder appreciation rights agreements. In December 2002, an additional benefit of $0.1 million was recognized in connection with these agreements. This benefit was offset by a non-cash compensation charge of $1.2 million in connection with the modification of employee stock options by one of our executive officers.

        In December 2001, we recognized a non-cash compensation charge of $2.2 million in connection with the modification of employee stock options by one of our executive officers. This charge was offset by a non-cash compensation benefit of $0.9 million associated with the reduction in estimated fair market value of the stockholder appreciation rights agreements.

Discontinued Operations

        On September 30, 2003, MJD Services Corp., or MJD Services, a wholly-owned subsidiary of the Company, completed the sale of all of the capital stock owned by MJD Services of Union Telephone Company of Hartford, Armour Independent Telephone Co., WMW Cable TV Co. and Kadoka Telephone Co. to Golden West Telephone Properties, Inc., or Golden West. The sale was completed in accordance with the terms of the purchase agreement, dated as of May 9, 2003, between MJD Services and Golden West, which we refer to as the South Dakota purchase agreement. The divestiture is referred to herein as the South Dakota disposition. MJD Services received approximately $24.2 million in proceeds from the South Dakota disposition. The companies sold to Golden West provided communication services to approximately 4,150 voice access lines located in South Dakota as of the date of such disposition. The operations of these companies were presented as discontinued operations beginning in the second quarter of 2003. Therefore, the balances associated with these activities were reclassified as "held for sale." All prior period financial statements have been restated accordingly. We recorded a gain on disposal of the South Dakota companies of $7.7 million during the third quarter of 2003.

        In November 2001, we decided to discontinue the competitive local exchange carrier operations of Carrier Services. This decision was a proactive response to the deterioration in the capital markets, the general slow-down of the economy and the slower-than-expected growth in Carrier Services' competitive local exchange carrier operations.

        Carrier Services provides wholesale long distance services and support to our rural local exchange carriers and other non-affiliated communications providers. These services allow such companies to operate their own long distance communication services and sell such services to their respective customers. Our long distance business is included as part of continuing operations in the accompanying financial statements.

        The information in our year to year comparisons below represents only our results from continuing operations.

46

Results of Operations

        The following table sets forth the percentages of revenues represented by selected items reflected in our consolidated statements of operations. The year to year and quarter to quarter comparison of financial results are not necessarily indicative of future results:

		Year Ended December 31,						Nine months ended September 30,
		2001		2002		2003		2004		2003
Revenues		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
	Operating expenses	50.3		47.8		48.0		51.0	%	47.5	%
	Depreciation and amortization	23.9		20.1		20.8		19.5		21.1
	Stock based compensation	0.6		0.4		—		0.1		—
Total operating expenses		74.8		68.3		68.8		70.6		68.6
Income from operations		25.2		31.7		31.2		29.4		31.4
	Net gain on sale of investments and other assets	(0.3	)	—		0.3		(0.1	)	0.3
	Interest and dividend income	0.9		0.8		0.8		0.7		0.7
	Interest expense	(33.2	)	(30.1	)	(39.0	)	(41.1	)	(37.7	)
	Impairment of investments	—		(5.4	)	—		—		—
	Equity in net earnings of investees	2.1		3.4		4.4		4.2		4.2
	Realized and unrealized losses on interest rate swaps	(5.6	)	(4.1	)	(0.6	)	(0.1	)	(0.7	)
	Other non-operating, net	—		0.2		(0.7	)	—		(0.9	)
Total other expense		(36.1	)	(35.2	)	(34.8	)	(36.4	)	(34.1	)
Loss from continuing operations before income taxes		(10.9	)	(3.5	)	(3.6	)	(7.0	)	(2.7	)
Income tax benefit (expense)		(0.2	)	(0.3	)	0.1		(0.1	)	(0.1	)
Loss from continuing operations		(11.0	)%	(3.8	)%	(3.5	)%	(7.1	)%	(2.8	)%

Nine Month Period Ended September 30, 2004 Compared with Nine Month Period Ended September 30, 2003

        Revenues

        Revenues.    Revenues increased $17.1 million to $188.8 million in 2004 compared to $171.7 million in 2003. $6.6 million of this increase was attributable to the Maine acquisition and $10.5 million to revenues from our existing operations. We derived our revenues from the following sources.

        Local calling services.    Local calling service revenues increased $5.6 million from $41.7 million in 2003 to $47.3 million in 2004. Revenues from our existing operations increased $3.2 million. Of this increase, $2.8 million is attributable to the implementation of Basic Service Calling Areas in the state of Maine, which changes and expands basic service calling areas and has the effect of shifting revenues from intrastate access to local services. Despite a 2.6% decline in net voice access lines, the remaining $0.4 million increase in local revenues from existing operations is due to increases in local calling features and local interconnection revenues. The remaining increase of $2.4 million in local calling service revenues was attributable to the Maine acquisition.

        Universal service fund—high cost loop.    Universal service fund—high cost loop receipts increased $2.8 million to $17.1 million in 2004 from $14.3 million in 2003. Our existing operations accounted for all of this increase. A reclassification of plant has increased our Universal Service Fund receipts in our

47

Maine and Idaho companies that has more than offset a drop in receipts from the Universal Service Fund related to increases in the national average cost per loop.

        Interstate access revenues.    Interstate access revenues increased $3.1 million from $49.0 million in 2003 to $52.1 million in 2004. Our existing operations accounted for $0.6 million of this increase due to expense increases from our regulated operations that resulted in higher interstate revenue requirements, and $2.5 million was attributable to the Maine acquisition.

        Intrastate access revenues.    Intrastate access revenues decreased from $32.6 million in 2003 to $31.9 million in 2004. The decrease from our existing operations was $1.6 million before being offset by $0.9 million in revenues contributed by the Maine acquisition. The decrease was mainly attributed to a decrease of $1.8 million related to the Basic Service Calling Areas plan implemented in Maine as discussed above in local calling services.

        Long distance services.    Long distance services revenues increased $1.6 million from $11.7 million in 2003 to $13.3 million in 2004. This was all attributable to our existing operations as a result of promotional efforts and bundles with unlimited long distance designed to generate more revenue.

        Data and Internet services.    Data and Internet services revenues increased $4.0 million from $9.6 million in 2003 to $13.6 million in 2004. This increase is due primarily to increases in digital subscriber line customers as we continue to aggressively market our broadband services. Our digital subscriber line subscribers increased from 12,271 as of September 30, 2003 to 30,420 as of September 30, 2004, a 148% increase during this period.

        Other services.    Other revenues increased from $12.8 million in 2003 to $13.7 million in 2004. An increase of $0.4 million from existing operations was due to a $1.2 million one-time sale and installation of E911 system equipment. This was offset by $0.8 million of reductions in billing and collection revenues, as inter-exchange carriers continue to take back the billing function for their more significant long distance customers. We expect the billing and collection trend to continue. The Maine acquisition contributed $0.5 million to the increase.

        Operating Expenses

        Operating expenses and cost of goods sold, excluding depreciation and amortization.    Operating expenses increased $14.8 million to $96.4 million in 2004 from $81.6 million in 2003. Of the increase, $11.4 million is related to our existing operations and $3.4 million is related to expenses of the companies we acquired in 2003 in the Maine acquisition. Wages and benefits increased $3.3 million due to merit increases, an increase in our incentive compensation plan and an increase in the number of our employees compared to a year ago. As we change our company to a more data/broadband and sales organization, our training costs have also increased by $0.2 million as compared to the same period in 2003. Network operations expense, wholesale digital subscriber line charges and transport and network costs associated with our broadband initiatives increased $2.8 million. Cost of goods sold associated with the one-time sale and installation of E911 system equipment was $1.0 million in 2004. Bad debt expense was $1.1 million higher in 2004 than 2003 due primarily to a recovery received in 2003. Marketing and promotion expenses increased $1.2 million due to higher levels of activity related to the promotion of custom calling features, data services and other products. Billing costs have increased $0.8 million as we incur costs associated with the conversion of our billing systems into an integrated platform.

        Depreciation and amortization.    Depreciation and amortization increased $0.7 million to $36.9 million in 2004 from $36.2 million in 2003. All of this increase was attributable to the Maine acquisition.

48

        Stock based compensation.    For the nine months ended September 30, 2004, stock-based compensation associated with restricted stock units was $133,000. During the nine months ended September 30, 2003 there were no stock-based compensation charges.

        Income from operations.    Income from operations increased $1.6 million to $55.5 million in 2004 from $53.9 million in 2003. A $0.7 million decrease attributable to our existing operations was offset by a $2.3 million increase attributable to the Maine acquisition.

        Other income (expense).    Total other expense increased $10.5 million to $68.8 million in 2004 from $58.3 million in 2003. The increase consisted primarily of interest expense on long-term debt, which increased $13.1 million to $77.7 million in 2004 from $64.6 million in 2003, mainly attributable to the extinguishment of debt in connection with our issuance of the 11⁷/8% notes during the first quarter of 2003 and the adoption of Statement of Financial Accounting Standards 150 as of July 1, 2003, the latter of which resulted in our recording $14.8 million in interest expense related to dividends and accretion on series A preferred stock for the nine months ended September 30, 2004 compared to $4.4 million for the nine months ended September 30, 2003. Earnings in equity investments increased $0.7 million to $7.9 million in 2004 from $7.2 million in 2003. Other non operating income (expense) includes net loss on the extinguishment of debt and expenses related to the loss on the write off of loan origination costs. In conjunction with the issuance of $225.0 million of the 11⁷/8% notes during the first quarter of 2003, we recorded $3.5 million in non-operating gains on the extinguishment of a portion of the 9¹/2% notes, the 12¹/2% notes and Carrier Services loans. These gains were offset by a non-operating loss of $5.0 million for the write-off of debt issue costs related to this extinguishment of debt in 2003.

        The following is a summary of amounts included in realized and unrealized losses on interest rate swaps (dollars in thousands):

		Nine months ended September 30,
		2004			2003
Change in fair value of interest rate swaps		$	874		$	6,576
Reclassification of transition adjustment included in other comprehensive income (loss)			(103	)		(852	)
Realized losses			(883	)		(6,935	)
	Total	$	(112	)	$	(1,211	)

        Income tax expense.    Income tax expense was approximately $0.3 million in 2004 and 2003. The income tax expense relates primarily to income taxes owed in certain states.

        Discontinued operations.    Net income from discontinued operations of our companies sold in the South Dakota Disposition was $1.9 million in 2003. The companies were sold on September 30, 2003 and resulted in the recognition of a gain on the disposal of the discontinued operations of $7.7 million during 2003. During the nine months ended September 30, 2004, we recorded a reduction to our liability associated with the discontinuation of our competitive local exchange carrier operations of $0.7 million. This is mainly attributable to excise tax refunds received from the Internal Revenue Service as well as a reduction in liabilities associated with potential property tax payments.

        Net income (loss).    Net loss attributable to common stockholders for the nine months ended September 30, 2004 was $12.9 million. Our 2003 net loss attributable to common stockholders was $0.9 million after giving effect to $8.9 million in dividends and accretion related to our series A preferred stock and the repurchase of series A preferred stock at a discount of $2.9 million. The difference between 2004 and 2003 is a result of certain of the factors discussed above.

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Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

Revenues

        Revenues.    Revenues increased $0.6 million to $231.4 million in 2003 compared to $230.8 million in 2002. Of this increase, $0.7 million was attributable to the Maine acquisition and $1.5 million in revenues from our existing operations. This was offset by a decrease to revenues of $1.6 million from our wholesale long distance company. We derived our revenues from the following sources:

        Local calling services.    Local calling service revenues increased $2.1 million from $54.0 million in 2002 to $56.1 million in 2003. Despite a 0.5% decline in net voice access lines, revenues from our existing operations increased $1.8 million due to increases in local calling features and local interconnection revenues. The remaining increase in local calling service revenues of $0.3 million was attributable to the Maine acquisition.

        Universal service fund—high cost loop.    Universal service fund—high cost loop receipts decreased $3.5 million to $18.9 million in 2003 from $22.4 million in 2002. Our existing operations accounted for all of this decrease. The support from the high cost loop fund is associated with historical expense levels of our companies that exceed the national average cost per loop. The historical expenses occur two years prior to the receipt of the Universal Service Fund revenues. Historical expenses related to a performance share plan paid in 2000 by an acquired company resulted in Universal Service Fund receipts in 2002 which did not recur in 2003. In addition to this decrease, the Universal Service Fund receipts declined due to increases in the national average cost per loop.

        Interstate access revenues.    Interstate access revenues increased $0.8 million from $65.8 million in 2002 to $66.6 million in 2003. Our existing operations accounted for $0.5 million of this increase due to operating expense increases that resulted in higher interstate revenue requirements and $0.3 million was attributable to the Maine acquisition.

        Intrastate access revenues.    Intrastate access revenues increased slightly from $43.8 million in 2002 to $44.0 million in 2003. This slight increase was attributable to the Maine acquisition. While consolidated access revenues were relatively flat, lower access rates in a few of the states in which we operate were generally offset by higher minutes of use in other states in which we operate.

        Long distance services.    Long distance services revenues decreased $1.4 million from $16.8 million in 2002 to $15.4 million in 2003. An approximately $0.2 million increase was attributable to our existing rural local exchange carrier operations. Carrier Services revenues decreased by $1.6 million as a result of rate increases from its underlying toll carriers, which resulted in the loss of wholesale customers by Carrier Services.

        Data and Internet services.    Data and Internet services revenues increased $3.1 million from $10.3 million in 2002 to $13.4 million in 2003. This increase is primarily from an increase of digital subscriber lines customers from 6,659 to 17,937, an increase of 169%.

        Other services.    Other revenues decreased by $0.8 million from $17.8 million in 2002 to $17.0 million in 2003 at our existing operations. This decrease is mainly associated with reductions in billing and collections revenues, as interexchange carriers continue to take back the billing function for their more significant long distance customers. We expect this trend to continue.

Operating Expenses

        Operating expenses, excluding depreciation and amortization.    Operating expenses increased $0.9 million to $111.2 million in 2003 from $110.3 million in 2002. Expenses of our wholesale long distance company decreased $0.7 million as a result of lower minutes of use from our wholesale customers. This decrease was offset by an increase of $1.3 million related to our existing operations and

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$0.3 million related to expenses of the companies we acquired in 2003 in the Maine acquisition. Several items contributed to the expense increase, including network operations expense, transport and network costs associated with our broadband initiatives. Expenses also increased because of an increase in the Universal Service Fund life line fund contribution expense which is directly assigned to the interstate revenue requirement and is fully recovered via our interstate revenues. Marketing and promotion expenses increased due to higher levels of activity related to the promotion of custom calling features, data services and other performance products. The increased expenses in 2003 would have been larger except for lower compensation costs in 2003 as a result of employee termination costs incurred in 2002, as well as a $1.9 million bad debt expense incurred in 2002 when a carrier declared bankruptcy and a $0.6 million recovery of this write-off received in 2003 resulting in a year over year decrease in bad debt expense of $2.5 million.

        Depreciation and Amortization.    Depreciation and amortization from continuing operations increased $1.8 million to $48.1 million in 2003 from $46.3 million in 2002. An increase of $1.7 million was attributable to the increased investment in our communications network by existing operations we acquired prior to 2003 and $0.1 million was attributable to the Maine acquisition.

        Stock Based Compensation.    For the year ended December 31, 2002, stock based compensation of $0.9 million was incurred, including $1.2 million resulting from a modification of an employee stock option agreement with an executive officer, offset by the decrease in the estimated value of fully vested stockholder appreciation rights agreements of $0.3 million. Stock based compensation for the year ended December 31, 2003 was not material.

        Income from Operations.    Income from continuing operations decreased $1.2 million to $72.1 million in 2003 from $73.3 million in 2002. A $0.5 million decrease attributable to our existing operations and a decrease of $1.0 million from our wholesale long distance company was offset by a $0.3 million increase attributable to the Maine acquisition.

        Other Income (Expense).    Total other expense from continuing operations decreased $0.9 million to $80.6 million in 2003 from $81.5 million in 2002. The expense consisted primarily of interest expense on long-term debt. Interest expense increased $20.7 million to $90.2 million in 2003 from $69.5 million in 2002, mainly attributable to our March 2003 debt refinancing and our early adoption of SFAS 150, as of July 1, 2003, the latter of which resulted in our recording $9.0 million in interest expense related to dividends and accretion on preferred shares subject to mandatory redemption. During 2002, we recorded non-cash impairment of investments of $12.6 million which is associated with other than temporary declines in fair value of approximately $8.2 million of Choice One stock and a write-down of $4.4 million for certain investments accounted for under the equity method. There were no similar impairment losses recorded in 2003. Earnings in equity investments increased $2.3 million to $10.1 million in 2003 from $7.8 million in 2002. Other non-operating income (expense) includes net gain (loss) on the extinguishment of debt and expenses related to the loss on the write off of loan origination costs. As a result of the issuance of $225.0 million in senior notes during the first quarter of 2003, we recorded $2.8 million and $0.7 million of non-operating gains on the extinguishment of the senior subordinated notes and the Carrier Services loans, respectively. Additionally, we recorded a non-operating loss of $5.0 million for the write-off of debt issue costs related to this extinguishment of debt in 2003.

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        The following is a summary of amounts included in realized and unrealized gains (losses) on interest rate swaps (dollars in thousands):

		2002			2003
Change in fair value of interest rate swaps		$	2,135		$	7,693
Reclassification of transition adjustment included in other comprehensive income (loss)			(1,437	)		(1,029	)
Realized gains (losses)			(10,275	)		(8,051	)
	Total	$	(9,577	)	$	(1,387	)

        Income Tax Benefit.    Income tax benefit from continuing operations increased $0.7 million to $0.2 million in 2003 from an expense of $0.5 million in 2002. The income tax benefit related primarily to income taxes owed in certain states offset by investment tax credits in certain states.

        Discontinued Operations.    In November 2001, we decided to discontinue the competitive local exchange carrier operations of Carrier Services. Net income from discontinued operations of our competitive local exchange carrier operations was $0.3 million and $19.5 million for 2003 and 2002, respectively. The income in 2002 was a result of a gain on extinguishment of debt attributable to Carrier Services. Net income from discontinued operations of our existing operations sold in the South Dakota disposition was $1.9 million and $2.4 million for 2003 and 2002, respectively. The Company recorded a gain on disposal in connection with the South Dakota disposition of $7.7 million in 2003.

        Net Income (Loss).    Our 2003 net loss attributable to common shareholders was $4.3 million after giving effect to $8.9 million in dividends and accretion related to our series A preferred stock and the repurchase of series A preferred stock at a discount of $2.9 million. Additionally, as a result of the adoption of SFAS 150 on July 1, 2003, the dividends and accretion of $9.0 million related to these instruments is included as a reduction of net income for the third and fourth quarters of 2003. Our 2002 net income attributable to common shareholders was $1.3 million after giving effect to $11.9 million in dividends and accretion related to our series A preferred stock. The differences between the 2003 and 2002 net income (loss) are a result of the factors discussed above.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Revenues

        Revenues.    Revenues increased $0.6 million to $230.8 million in 2002 compared to $230.2 million in 2001. Of this increase, $4.2 million was attributable to revenues from companies we acquired in 2001. This was offset by a reduction of $0.7 million in revenues from our existing operations and a decrease in revenues of $2.9 million attributable to revenues from our wholesale long distance company. We derived our revenues from the following sources.

        Local calling services.    Local calling service revenues increased $3.4 million from $50.6 million in 2001 to $54.0 million in 2002, including an increase of $2.2 million from an increase in the number of voice access lines and local services provided in our existing operations, as well as an increase of $1.2 million from the companies we acquired in 2001.

        Universal service fund—high cost loop.    Universal service fund—high cost loop receipts increased $3.4 million to $22.4 million in 2002 from $19.0 million in 2001. Our existing operations accounted for $3.2 million of the increase with the balance obtained from companies we acquired in 2001. The support from the high cost loop fund is associated with historical expense levels of our companies that exceed the national average cost per loop.

        Interstate access revenues.    Interstate access revenues were relatively flat from year to year, decreasing $0.2 million from $66.0 million in 2001 to $65.8 million in 2002. A reduction of $1.2 million

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from our existing operations was offset by $1.0 million associated with companies we acquired in 2001. The $1.2 million revenue reductions are due mainly to our cost reductions at acquired entities, which correspondingly lower our revenue requirement.

        Intrastate access revenues.    Intrastate access revenues decreased $4.9 million from $48.7 million in 2001 to $43.8 million in 2002. An increase of $1.6 million from companies we acquired in 2001 was offset by a reduction of $6.5 million from our existing operations. The decrease was mainly due to rate and state support reductions in Maine, Kansas, Vermont and Illinois. We continue to expect downward pressure on our intrastate access rates. To the extent these pressures reduce our earnings levels below authorized rates of return, our companies are allowed to file and seek approval from the state public utility commissions for recovery of these reductions through increases in local rates and, where they exist, state universal service funds.

        Long distance services.    Long distance services revenues decreased $2.7 million from $19.5 million in 2001 to $16.8 million in 2002, all attributed to a reduction in Carrier Services' long distance wholesale operations. Wholesale customers were lost when one of our underlying wholesale carriers declared bankruptcy.

        Data and Internet services.    Data and Internet services revenues increased $2.6 million from $7.7 million in 2001 to $10.3 million in 2002, including an increase of $0.1 million from acquisitions and an increase of $2.5 million as a result of increased service offerings to our customers of our existing operations.

        Other services.    Other revenues decreased by $0.9 million from $18.7 million in 2001 to $17.8 million in 2002 as other revenue contributed by the companies we acquired in 2001 of $0.1 million was offset by a reduction in other revenues of $1.0 million from our existing operations. This decrease is mainly associated with reductions in billing and collections revenues, as interexchange carriers "take back" the billing function for their long distance customers. This trend is expected to continue.

Operating Expenses

        Operating expenses, excluding depreciation and amortization.    Operating expenses decreased $5.5 million, or 4.7%, to $110.3 million in 2002 from $115.8 million in 2001. Expenses of our wholesale long distance company decreased $2.5 million as a result of lower minutes of use from our wholesale customers. In addition, expenses of our existing operations decreased by $4.4 million, mainly attributable to overall cost reduction efforts throughout the company. This decrease was offset by an increase of $1.4 million attributable to expenses of the rural local exchange carriers we acquired in 2001.

        Depreciation and Amortization.    Depreciation and amortization from continuing operations decreased $8.8 million to $46.3 million in 2002 from $55.1 million in 2001. The decrease of $12.0 million attributable to the discontinuance of amortizing goodwill upon the implementation of SFAS No. 142 was offset by increases in depreciation of property, plant and equipment consisting of $2.5 million attributable to the increased investment in our communications network by existing operations we acquired prior to 2001 and $0.7 million related to the companies we acquired in 2001.

        Stock Based Compensation.    For the year ended December 31, 2002, stock based compensation of $0.9 million was incurred, including $1.2 million related to a modification of an employee stock option agreement with an executive officer, offset by the decrease in the estimated value of fully vested stockholder appreciation rights agreements of $0.3 million. For the year ended December 31, 2001, stock based compensation of $0.9 million was related to the decrease in the estimated value of fully vested stockholder appreciation rights agreements. This is offset by a $2.2 million non-cash stock based

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compensation charge related to a modification of an employee stock option agreement with an executive officer. The net charge for the year ended December 31, 2001 was $1.3 million.

        Income from Operations.    Income from continuing operations increased $15.3 million to $73.3 million in 2002 from $58.0 million in 2001. Of this increase, $13.2 million was attributable to our existing operations and $2.1 million was attributable to the rural local exchange carriers we acquired in 2001. Income from our wholesale long distance company decreased $0.4 million, and stock based compensation expense decreased $0.4 million.

        Other Income (Expense).    Total other expense from continuing operations decreased $1.5 million to $81.5 million in 2002 from $83.0 million in 2001. The expense consists primarily of interest expense on long-term debt. Interest expense decreased $6.8 million to $69.5 million in 2002 from $76.3 million in 2001. During 2002, we recorded non-cash impairment of investments of $12.6 million which is associated with other than temporary declines in fair value of approximately $8.2 million of Choice One stock and a write-down of $4.4 million for certain investments accounted for under the equity method. Earnings in equity investments increased $2.9 million to $7.8 million in 2002 from $4.9 million in 2001.

        The following is a summary of amounts included in realized and unrealized gains (losses) on interest rate swaps (dollars in thousands):

		2001			2002
Change in fair value of interest rate swaps		$	(6,896	)	$	2,135
Reclassification of transition adjustment included in other comprehensive income (loss)			(1,238	)		(1,437	)
Realized gains (losses)			(4,739	)		(10,275	)
	Total	$	(12,873	)	$	(9,577	)

        Income Tax Expense.    Income tax expense from continuing operations increased $0.1 million to $0.5 million in 2002 from $0.4 million in 2001. The income tax expense relates primarily to income taxes owed in certain states.

        Discontinued Operations.    Income from discontinued operations was $21.9 million in 2002. $2.4 million was a result of the South Dakota disposition and $17.5 million was a result of a gain on extinguishment of debt at Carrier Services. Losses from discontinued operations for 2001 were $186.2 million. This loss was associated with a loss on the disposition of the competitive local exchange carrier operations of $95.3 million, losses from the discontinued operations of the competitive local exchange carrier operations of $93.0 million, offset with income from the South Dakota disposition of $2.1 million.

        Net Income (Loss).    Our 2002 net income attributable to common shareholders was $1.3 million after giving effect to $11.9 million in dividends and accretion related to the series A preferred stock. Our net loss was $211.6 million for 2001, as a result of the factors discussed above and mainly associated with the loss from discontinued operations.

Liquidity and Capital Resources

        Following consummation of the transactions, our short-term and long-term liquidity needs will arise primarily from: (i) interest payments primarily related to our new credit facility; (ii) capital expenditures, which are expected to be approximately $31.0 million in 2005; (iii) working capital requirements as may be needed to support the growth of our business; (iv) dividend payments on our common stock; and (v) potential acquisitions. Our board of directors will adopt a dividend policy, effective upon the closing of this offering, which reflects our judgment that our stockholders would be better served if we distributed a substantial portion of our cash available for distribution to them instead of retaining it in our business.

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        After the transactions, we intend to fund our operations, interest expense, capital expenditures, working capital requirements and dividend payments on our common stock from cash from operations. To fund future acquisitions, we intend to use borrowings under our new revolving facility, or, subject to the restrictions in our new credit facility, to arrange additional funding through the sale of public or private debt and/or equity securities, or obtain additional senior bank debt.

        Our ability to service our indebtedness will depend on our ability to generate cash in the future. We will not be required to make any scheduled amortization payments under our new credit facility's term loan facility which will mature in February 2012. We will need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance our indebtedness on commercially reasonable terms or at all. If we were unable to renew or refinance our new credit facility, our failure to repay all amounts due on the maturity date would cause a default under our new credit facility. In addition, borrowings under our new credit facility will bear interest at variable interest rates. In connection with this offering, we intend to enter into an interest rate swap agreement which will fix the interest rate on approximately $191.8 million of the term loans under our new credit facility for a period of five years after the closing of this offering and an interest rate swap agreement which will fix the interest rate on approximately $191.8 million of the term loans under our new credit facility for a period of three years after the closing of this offering. After these interest rate swap agreements expire, our annual debt service obligations on such portion of the term loans will vary from year to year unless we enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge. An increase of one percentage point in the annual interest rate applicable to borrowings under our new credit facility which would be outstanding on the closing date of this offering would result in an increase of approximately $5.9 million in our annual cash interest expense, and a corresponding decrease in cash available to pay dividends on our common stock. If we choose to enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge in the future, the amount of cash available to pay dividends on our common stock may decrease. However, to the extent interest rates increase in the future, we may not be able enter into a new interest rate swap or to purchase an interest rate cap or other interest rate hedge on acceptable terms. For the years ended December 31, 2003, 2002 and 2001, cash provided by operating activities of continuing operations was $32.8 million, $55.6 million and $35.7 million, respectively. For the nine months ended September 30, 2004 and 2003, cash provided by operating activities of continuing operations was $32.9 million and $23.7 million, respectively.

        Based on the dividend policy with respect to our common stock, we may not have any significant cash available to meet any unanticipated liquidity requirements, other than available borrowings, if any, under our new revolving facility. As a result, we may not retain a sufficient amount of cash to finance growth opportunities, including acquisitions, or unanticipated capital expenditures or to fund our operations. If we do not have sufficient cash for these purposes, our financial condition and our business will suffer. However, our board of directors may, in its discretion, amend or repeal this dividend policy to decrease the level of dividends provided for or discontinue entirely the payment of dividends.

        Upon the closing of this offering, we will use net proceeds received from this offering, together with approximately $590.0 million of borrowings under our new credit facility, to, among other things, repay all outstanding loans under our existing credit facility, repurchase all of our series A preferred stock and consummate tender offers and consent solicitations in respect of our outstanding 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% notes. To the extent not all of the holders of 9¹/2% notes and floating rate notes tender their notes in the tender offer and consent solicitation for such notes, we intend to redeem the remaining outstanding 9¹/2% notes and floating rate notes following this offering. See "The Transactions" and "Use of Proceeds."

        Net cash used in investing activities from continuing operations was $54.0 million, $30.3 million and $57.2 million for the years ended December 31, 2003, 2002 and 2001, respectively. These cash flows

55

primarily reflect capital expenditures of $33.6 million, $38.8 million and $43.2 million for the years ended December 31, 2003, 2002 and 2001, respectively, and acquisitions of telephone properties, net of cash acquired of $33.1 million, $0 million and $18.9 million for the years ended December 31, 2003, 2002 and 2001, respectively.

        Offsetting capital expenditures were distributions from investments of $10.8 million, $9.0 million and $5.0 million for the years ended December 31, 2003, 2002 and 2001, respectively. These investments represent minority investments and passive partnership interests. We do not control the timing or amount of distributions from such investments or interests. In addition, we have been advised that one of these partnerships has adjusted its pricing structure. Based on such adjustments, the amount of future distributions from this partnership will decrease. Future price adjustments, if any, may result in a significant decrease in distributions from this partnership. Historically, the amount of distributions from this partnership represented a material portion of our cash flow.

        Net cash used in investing activities from continuing operations was $12.1 million and $11.2 million for the nine months ended September 30, 2004 and 2003, respectively. These cash flows primarily reflect net capital expenditures of $24.0 million and $19.3 million for the nine months ended September 30, 2004 and 2003, respectively.

        Offsetting capital expenditures were distributions from investments of $11.8 million and $8.7 million for the nine months ended September 30, 2004 and 2003, respectively. The $11.8 million received in the nine months ended September 30, 2004 includes a non-recurring $2.5 million distribution to one of our subsidiaries, Chouteau Telephone Company, indirectly from Independent Cellular Telephone LLC resulting from the sale of Independent Cellular Telephone LLC's membership interest in an operating cellular limited liability company. These investments represent minority investments and passive partnership interests. We do not control the timing or amount of distributions from such investments or interests. In addition, we have been advised that one of these partnerships has adjusted its pricing structure. Based on such adjustments, the amount of future distributions from this partnership will decrease. Future price adjustments, if any, may result in a significant decrease in distributions from this partnership. Historically, the amount of distributions from this partnership represented a material portion of our cash flow.

        Net cash provided by (used in) financing activities from continuing operations was $(2.0) million, $(12.5) million and $101.2 million for the years ended December 31, 2003, 2002 and 2001, respectively. These cash flows primarily represent net proceeds of long term debt of $23.3 million and $104.2 million for the years ended December 31, 2003 and 2001, respectively. For the year ended December 31, 2002, net repayments were $11.5 million.

        Net cash used in financing activities from continuing operations was $18.9 million and $15.1 million for the nine months ended September 30, 2004 and 2003, respectively. These cash flows primarily represent net repayment of long-term debt of $12.2 million and $5.6 million in debt issuance and offering related costs for the nine months ended September 30, 2004. For the nine months ended September 30, 2003, net proceeds from the issuance of long term debt of $9.6 million were offset by debt issuance costs of $15.1 million and the repurchase of series A preferred stock and common stock of $9.6 million.

        Our annual capital expenditures for our rural telephone operations have historically been significant. Because existing regulations allow us to recover our operating and capital costs, plus a reasonable return on our invested capital in regulated telephone assets, capital expenditures have historically constituted an attractive use of our cash flow. Capital expenditures were approximately $33.6 million for the year ended December 31, 2003 and $24.4 million for the nine months ended September 30, 2004. These amounts include $2.0 million and $1.2 million for the year ended December 31, 2003 and the nine months ended September 30, 2004, respectively, of non-recurring capital expenditures related to the conversion of our billing systems into an integrated billing platform

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and the centralization of our customer service records. These amounts also include $4.8 million and $7.4 million for the year ended December 31, 2003 and nine months ended September 30, 2004, respectively, of non-recurring capital expenditures related to capital investments in digital subscriber line access multiplexers and other plant upgrades associated with our accelerated digital subscriber line initiative that began during the third quarter of 2003. As a result, 96% of our exchanges are broadband capable as of September 30, 2004 and management expects that digital subscriber line investments will decrease significantly in 2005. Our management views non-recurring capital expenditures as either one-time capital expenditures or discretionary capital expenditures which are not necessary to maintain and enhance our network infrastructure or operate our business.

        We expect capital expenditures in fiscal 2004 to be approximately $36.4 million, which includes $4.4 million of anticipated non-recurring capital expenditures relating to the conversion of our billing systems into an integrated billing platform and the centralization of our customer service records and $9.0 million of anticipated non-recurring capital expenditures relating to the final stages of our digital subscriber line initiative. We expect that our annual capital expenditures for our existing operations will be approximately $31.0 million for fiscal 2005 through fiscal 2009. We estimate that approximately $28.0 million of this amount will be used to maintain and enhance our network infrastructure and operate our business. This includes expenditures to meet our network, product offering and customer requirements, such as investments in equipment, central office technology (which includes both hardware and software), inside and outside plant upgrades to meet network capacity requirements and normal repair and maintenance to our infrastructure. In addition, approximately $3.0 million of this amount will be available for one-time or discretionary capital expenditures, such as the billing systems conversion. We expect to fund all of these capital expenditures through our cash flow from operations. If cash is available beyond what is required to support our dividend policy, we may consider additional capital expenditures if we believe they are beneficial. Although the amount of our capital expenditures can fluctuate from quarter to quarter, on an annual basis we do not expect capital expenditures for our existing operations through fiscal 2009 to vary significantly from our estimated amounts.

        We intend to use borrowings under our new credit facility's revolving facility to fund the acquisition of Berkshire, which we expect to close in the first half of 2005.

        Our existing credit facility consists of an $85.0 million revolving loan facility, of which $46.8 million was available at September 30, 2004, and two term facilities, a tranche A term loan facility of $40.0 million with $40.0 million outstanding at September 30, 2004 that matures on March 31, 2007 and a tranche C term loan facility with $106.9 million principal amount outstanding as of September 30, 2004 that matures on March 31, 2007. We will repay all of the borrowings under our existing credit facility with a portion of the net proceeds from this offering, together with borrowings under our new credit facility. See "The Transactions" and "Use of Proceeds."

        In 1998, FairPoint issued $125.0 million aggregate principal amount of 9¹/2% senior subordinated notes and $75.0 million aggregate principal amount of floating rate notes. Both series of these notes mature on May 1, 2008. These notes are general unsecured obligations of FairPoint, subordinated in right of payment to all of FairPoint's senior debt. In 2000, FairPoint issued $200.0 million aggregate principal amount of 12¹/2% senior subordinated notes. These notes mature on May 10, 2010. These notes are general unsecured obligations of FairPoint, subordinated in right of payment to all of FairPoint's senior debt. In 2003, FairPoint issued $225.0 million aggregate principal amount of 11⁷/8% senior notes. These notes mature on March 1, 2010. These notes are general unsecured obligations of FairPoint, ranking pari passu in right of payment with all existing and future senior debt of FairPoint, including all obligations under FairPoint's existing credit facility, and senior in right of payment to all existing and future subordinated indebtedness of FairPoint.

        In connection with this offering, on January 5, 2005, we commenced tender offers and consent solicitations for all of the outstanding 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% notes. As of January 27, 2005, approximately 99.8% of the 9¹/2% notes, 67.7% of the floating rate notes, 89.7% of

57

the 12¹/2% notes and 99.1% of the 11⁷/8% notes had been irrevocably tendered and consents related thereto had been irrevocably delivered. We have executed supplemental indentures with respect to the indentures governing each such series of notes which eliminate substantially all of the covenants and the events of default in such indentures and permit the transactions to be consummated on the terms described herein. These supplemental indentures will become effective upon the closing of this offering.

        For a summary description of our debt, see "Description of Certain Indebtedness."

        In May 2002, Carrier Services entered into an amended and restated credit facility with its lenders to restructure its obligations under its credit facility. In the restructuring, (i) Carrier Services paid certain of its lenders $5.0 million to satisfy $7.0 million of obligations under the credit facility, (ii) the lenders converted approximately $93.9 million of the loans under the credit facility into shares of our series A preferred stock and (iii) the remaining loans under the credit facility and certain swap obligations were converted into $27.9 million of new term loans. In March 2003, we used a portion of the proceeds from the offering of the 11⁷/8% notes and borrowings under the existing credit facility's tranche A term loan facility to repay $2.2 million principal amount of loans under the Carrier Services credit facility, at approximately a 30% discount to par. On January 30, 2004, we used additional borrowings under its existing credit facility's tranche A loan facility and a portion of the borrowings under its existing credit facility's revolving loan facility to repay in full all indebtedness under the Carrier Services credit facility.

        Our series A preferred stock is non-voting, except as required by applicable law, and is not convertible into our class A common stock. The series A preferred stock provides for the payment of dividends at a rate equal to 17.428% per annum. Dividends on the series A preferred stock are payable, at our option, either in cash or in additional shares of series A preferred stock. We have the option to redeem the series A preferred stock at any time. The redemption price for such shares is payable in cash in an amount equal to $1,000 per share plus any accrued but unpaid dividends thereon, which we refer to as the preference amount. Under certain circumstances, we would be required to pay a premium of up to 6% of the preference amount in connection with the redemption of the series A preferred stock. In addition, upon the occurrence of certain events, we would be required to redeem all outstanding shares of the series A preferred stock at a price per share equal to the preference amount. Certain holders of the series A preferred stock have agreed with us to reduce the dividend rate payable on the shares they hold from 17.428% to 15% for the period from March 6, 2003 to March 6, 2005. We will repurchase all of our series A preferred stock (together with accrued and unpaid dividends thereon) from the holders thereof in connection with this offering. The series A preferred stock was initially issued in May 2002 in exchange for debt of Carrier Services.

        Subsequent to September 30, 2004, we wrote-off debt issuance and offering costs of $6.0 million associated with our abandoned offering of income deposit securities. The offering of income deposit securities was abandoned in favor of the transactions described herein. Debt issue and offering costs of $1.0 million that are a direct and incremental benefit to the transactions described herein remain capitalized after the write-off.

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Summary of Contractual Obligations

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

        The following table discloses aggregate information about our contractual obligations as of September 30, 2004 and the periods in which payments are due:

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(Dollars in thousands)
Contractual obligations:
Debt maturing within one year	$	28,337	$	28,337	$	—	$	—	$	—
Long term debt		785,139		—		170,284		194,083		420,772
Preferred shares subject to mandatory redemption(1)		121,747		—		—		—		121,747
Operating leases(2)		12,222		4,910		5,301		1,473		538
Deferred transaction fee(3)		8,445		—		—		—		8,445
Common stock subject to put options		1,136		1,000		136		—		—
Non-compete agreements		100		100		—		—		—
Minimum purchase contract		8,039		5,011		3,028		—		—
Total contractual cash obligations	$	965,165	$	39,358	$	178,749	$	195,556	$	551,502

        The following table discloses aggregate information about our contractual obligations as of September 30, 2004 after giving effect to the transactions and the periods in which payments are due:

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(Dollars in thousands)
Contractual obligations:
Debt maturing within one year	$	—	$	—	$	—	$	—	$	—
Long term debt		590,000		—		—		—		590,000
Operating leases(2)		12,222		4,910		5,301		1,473		538
Noncompete agreements		100		100		—		—		—
Minimum purchase contract		8,039		5,011		3,028		—		—
Total contractual cash obligations	$	610,361	$	10,021	$	8,329	$	1,473	$	590,538

(1)

We have the option to redeem the series A preferred stock at any time. Under certain circumstances, we would be required to pay a premium of up to 6% in connection with a redemption. We are required to redeem the series A preferred stock upon the occurrence of one of the following events: (i) a merger, consolidation, sale, transfer or disposition of at least 50% of our assets or business, (ii) a public offering of our common stock which yields in the aggregate at least $175.0 million, or (iii) the first anniversary of the maturity of the 12¹/2% notes (which first anniversary will occur in May 2011), unless prohibited by our credit facility or the indentures governing our 9¹/2% notes, floating rate notes and 12¹/2% notes.

(2)

Real property lease obligations of $8.0 million associated with the discontinued operations discussed in note 12 to our consolidated financial statements which are stated in this table at total contractual amounts. However, we have negotiated lease terminations or subleases on these properties to reduce the total obligation. Operating leases from continuing operations of $4.2 million are also included.

(3)

Payable to Kelso & Company upon the occurrence of certain events, which include this offering. See "Certain Relationships and Related Party Transactions—Financial Advisory Agreements."

        As of September 30, 2004, we did not have any derivative financial instruments.

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Critical Accounting Policies

        Our critical accounting policies are as follows:

•

Accounting for income taxes; and



•

Valuation of long-lived assets, including goodwill.

        Accounting for income taxes.    As part of the process of preparing our consolidated financial statements we were required to estimate our income taxes. This process involves estimating our actual current tax exposure and assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe the recovery is not likely, we must establish a valuation allowance. Further, to the extent that we establish a valuation allowance or increase this allowance in a financial accounting period, we must include a tax provision, or reduce our tax benefit in our consolidated statement of operations. In performing the assessment, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

        There are various factors that may cause those tax assumptions to change in the near term. We cannot predict whether future U.S. federal income tax laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes to the U.S. federal and state income tax laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when new regulation and legislation is enacted.

        We had $250.8 million in federal and state net operating loss carryforwards as of December 31, 2003. The transactions will result in an "ownership change" within the meaning of the U.S. federal income tax laws addressing net operating loss carryforwards, alternative minimum tax credits and other similar tax attributes. As a result of such ownership change, there will be specific limitations on our ability to use our net operating loss carryforwards and other tax attributes. In order to fully utilize the deferred tax assets, mainly generated by the net operating losses, we will need to generate future taxable income of approximately $176.4 million prior to the expiration of the net operating loss carryforwards beginning in 2019 through 2022. Based upon the level of projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe we will realize the benefits of these deductible differences, net of the valuation allowance of $64.4 million at December 31, 2003. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

        On October 22, 2004, the President signed into law the American Jobs Creation Act of 2004, or the Jobs Act. We are evaluating the impact of changes to provisions related to deferred compensation plans and the effect of the manufacturing tax relief on our effective tax rate in future periods and various other provisions of the Jobs Act.

        Valuation of long-lived assets, including goodwill.    We review our long-lived assets, including goodwill for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Several factors could trigger an impairment review such as:

•

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

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•

significant changes in the overall strategy in which we operate our overall business.

Goodwill was $468.8 million at December 31, 2003.

        We are required to perform an annual impairment review of goodwill as required by Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. No impairment of goodwill or other long-lived assets resulted from the annual valuation of goodwill.

New Accounting Standards

        In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. In December 2003, the FASB revised Interpretation No. 46, which clarifies the application of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements. As per ARB No. 51, a general rule for preparation of consolidated financial statements of a parent and its subsidiary is ownership by the parent, either directly or indirectly, of over fifty percent of the outstanding voting shares of a subsidiary. However, application of the majority voting interest requirement of ARB No. 51 to certain types of entities may not identify the party with a controlling financial interest because the controlling financial interest may be achieved through arrangements that do not involve voting interest. Interpretation No. 46 clarifies applicability of ARB No. 51 to entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. Interpretation No. 46 requires an entity to consolidate a variable interest entity even though the entity does not, either directly or indirectly, own over fifty percent of the outstanding voting shares. Interpretation No. 46 is applicable for financial statements issued for reporting periods that end after March 15, 2004. The implementation of Interpretation No. 46 did not have a significant impact on our financial statements.

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of a non-public entity, in which case this statement shall be effective for fiscal periods beginning after December 15, 2003. For purposes of SFAS No. 150, we meet the definition of a nonpublic entity. As described in note 7 to our consolidated financial statements contained elsewhere in this prospectus, we adopted SFAS No. 150 early, as of July 1, 2003.

        In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payments. SFAS No. 123(R) revises FASB Statement No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) focuses primarily on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires companies to recognize in the statement of operations the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). SFAS No. 123(R) is effective as of the first reporting period that begins after June 15, 2005. Accordingly, we will adopt SFAS No. 123(R) in our third quarter of fiscal 2005. We are currently evaluating the provisions of SFAS No. 123(R) and have not yet determined the impact that its adoption will have on our results of operations or financial position.

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Inflation

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

Quantitative and Qualitative Disclosures About Market Risk

        At December 31, 2003, we recorded our marketable available-for-sale equity securities at a fair value of $1.9 million. These securities have exposure to price risk. A hypothetical ten percent adverse change in quoted market prices would decrease the recorded value by approximately $0.2 million at December 31, 2003. During the quarter ended September 30, 2004, we impaired the value of our marketable available-for-sale equity securities due to an other-than-temporary decline in market value. At September 30, 2004, the carrying value of our equity securities is zero.

        Approximately 68% of our debt bears interest at fixed rates or effectively at fixed rates. However, our earnings are affected by changes in interest rates as our long-term debt under our existing credit facility has variable interest rates based on either the prime rate or LIBOR. If interest rates on our variable rate debt increased by 10%, our interest expense would have increased, and our loss from continuing operations before taxes would have increased by approximately $1.4 million for the year ended December 31, 2003 and approximately $0.4 million for the nine months ended September 30, 2004.

        From time to time, we have entered into interest rate swaps to manage our exposure to fluctuations in interest rates on our variable rate debt. Our liability for the fair value of these swaps was approximately $0.9 million at December 31, 2003. The fair value indicates an estimated amount we would have to pay to cancel the contracts or transfer them to other parties. In connection with our existing credit facility, we used two interest rate swap agreements, with notional amounts of $25.0 million each, to effectively convert a portion of our variable interest rate exposure to fixed rates ranging from 8.07% to 10.34%. The swap agreements expired in May 2004.

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Business

Our Business

        We are a leading provider of communications services in rural communities, offering an array of services, including local and long distance voice, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural communities, and we are the 17th largest local telephone company, in each case based on number of access lines. We operate in 17 states with approximately 272,691 access line equivalents in service as of September 30, 2004.

        We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. We have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 access lines. All of our telephone company subsidiaries qualify as rural local exchange carriers under the Telecommunications Act.

        Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because rural local exchange carriers primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. As a result, in our markets, we have experienced virtually no wireline competition and limited competition from cable providers. While most of our markets are served by wireless service providers, their impact on our business has been limited.

Our Competitive Strengths

        We believe we are distinguished by the following competitive strengths:

•

Consistent and predictable cash flows and strong margins.    We have the leading market position in the rural communities we serve, with limited competition. Demand for telephone services from our residential and local business customers has historically been very stable despite changing economic conditions. As a result, we have experienced a relatively stable access line count during the last two years compared to regional bell operating companies. Additionally, our telephone companies operate in generally supportive regulatory environments. These factors have permitted us to generate consistent cash flows and strong margins.



•

Geographically diversified markets.    We currently operate 26 rural local exchange carriers in 17 states, clustered in four regions, enabling us to capitalize on economies of scale and operating efficiencies. Our geographic diversity significantly enhances our cash flow stability by limiting our exposure to competition, local economic downturns and state regulatory changes. In addition, we believe that we have achieved significant scale efficiencies by centralizing many functions, such as sales and marketing, network planning, accounting and customer service.



•

Technologically advanced infrastructure.    Our advanced network infrastructure enables us to provide a wide array of communications services. Our network consists of central office hosts and remote sites with all digital switches, primarily manufactured by Nortel and Siemens, operating with current software. As of December 31, 2003, we maintained over 24,000 miles of copper plant and approximately 2,800 miles of fiber optic plant in order to service our 272,691 access line equivalents in service as of September 30, 2004. As a result of our historic capital investments, our network infrastructure requires predictable capital expenditures and allows us

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to implement certain broadband enabled services with minimal incremental cost. As of September 30, 2004, approximately 96% of our exchanges were capable of providing broadband services.

•

Broadest service offerings in our markets.    We believe that, as a result of our advanced network and switching infrastructure, we offer the only comprehensive suite of communications services in our markets, including local and long distance voice, data and Internet services. In addition, we offer enhanced features such as caller identification, call waiting, call forwarding, teleconferencing, video conferencing and voicemail. We also offer broadband communications solutions to most of our customers primarily through digital subscriber lines technology.



•

Management team with proven track record.    We have an experienced management team that has demonstrated its ability to grow our rural telephone business over the past decade. Our senior management team has an average of 21 years of experience working with a variety of telephone companies. Our regional presidents have an average of 26 years of experience in the telecommunications industry. Our management team has successfully integrated 30 business acquisitions since 1993, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings.

Our Strategy

        The key elements of our strategy are to:

•

Increase revenue per customer.    We are focused on increasing our revenues by introducing innovative product offerings and marketing strategies for enhanced and ancillary services to meet the growing needs of our customers. Our long standing relationships with our customers have helped us to successfully cross-sell broadband and value-added services, such as digital subscriber lines, long distance, Internet dial-up, voicemail and other services. We will continue to evaluate and implement technologies that will allow us to offer new products and services.



•

Continue to improve operating efficiencies and profitability.    We have achieved significant operating efficiencies by applying our operational, regulatory, marketing and management expertise to our acquired businesses. We intend to continue to increase our operating efficiencies by consolidating various administrative functions and implementing best practices across all of our regions. For example, we have begun to integrate all billing systems into a single, outsourced billing platform, which will allow us to improve our customer service and enhance sales and marketing efforts. When completed, we plan to use this platform to develop a number of centralized customer service and call centers and to create a significantly improved customer data base. These call centers and customer data base will allow us to enhance our operating efficiency and optimize our marketing initiatives.



•

Enhance customer loyalty.    We believe that our service driven customer relationships and long-standing local presence lead to high levels of customer satisfaction and increased demand for enhanced and ancillary services. We continue to build long-term relationships with our customers by actively participating in the communities we serve and by offering an array of communications services and quality customer care.



•

Grow through selective acquisitions.    We believe that our acquisition strategy has been successful because of our ability to integrate acquisitions and improve operating efficiencies in the businesses we acquire. Our management team has consistently produced strong operating cash flow improvements in our acquired businesses. We will continue to evaluate and pursue acquisitions which provide the opportunity to enhance our revenues and cash flows. One of our

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acquisition criteria will be the potential of any proposed transaction to permit increased dividends on our common stock.

Our Services

        We offer a broad portfolio of high-quality communications services for residential and business customers in each of the markets in which we operate. We have a long history of operating in our markets and have a recognized identity within each of our service areas. Our companies are locally staffed, which enables us to efficiently and reliably provide an array of communications services to meet our customer needs. These include services traditionally associated with local telephone companies, as well as other services such as long distance, Internet and broadband enabled services. Based on our understanding of our local customers' needs, we have attempted to be proactive by offering bundled services designed to simplify the customer's purchasing and management process.

Generation of Revenue

        We primarily generate revenue through: (i) the provision of our basic local telephone service to customers within our service areas; (ii) the provision of network access to interexchange carriers for origination and termination of interstate and intrastate long distance phone calls; (iii) Universal Service Fund—high cost loop payments; and (iv) the provision of other services such as long distance resale, data and Internet and broadband enabled services, enhanced services, such as caller name and number identification, and billing and collection for interexchange carriers.

        The following chart summarizes our revenue sources for the year ended December 31, 2003:

Revenue Source	% Revenue	Description
Local Calling Services	24%	Enables the local customer to originate and receive an unlimited number of calls within a defined "exchange" area. The customer is charged a flat monthly fee for basic service and service charges for special calling features.
Network Access Charges	48%	Enables long distance companies to utilize our local network to originate or terminate intrastate and interstate calls. The network access charges are paid by the interexchange carrier to us and are regulated by state regulatory agencies and the Federal Communications Commission, respectively. This also includes Universal Service Fund payments for local switching support, long term support and interstate common line support.
Universal Service Fund—high cost loop	8%	We receive payments from the Universal Service Fund to support the high cost of our operations in rural markets. This support fluctuates based upon our average cost per loop compared to the national average cost per loop.
Long Distance Services	7%	We receive revenues for intrastate and interstate long distance services provided to our retail customers and our wholesale long distance customers.

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Data and Internet Services	6%	We receive revenues from monthly recurring charges for services, including broadband, digital subscriber lines, special access, private lines, Internet and other services.
Other Services	7%	We generate revenues from other services, including enhanced services and billing and collection.

        See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information regarding our revenue sources.

Local Calling Services

        Local calling services include basic local lines, private lines and switched data services. We provide local calling services to residential and business customers, generally for a fixed monthly charge. In an rural local exchange carriers' territory, the amount that we can charge a customer for local service is determined by rate proceedings involving the appropriate state regulatory authorities.

Network Access Charges

        Network access charges relate to long distance, or toll calls, that typically involve more than one company in the provision of telephone service. Since toll calls are generally billed to the customer originating the call, a mechanism is required to compensate each company providing services relating to the call. This mechanism is the access charge and we bill access charges to long distance companies and other customers for the use of our facilities to access the customer, as described below.

        Intrastate Access Charges.    We generate intrastate access revenue when an intrastate long distance call involving an interexchange carrier is originated by a customer in our rural local exchange carrier exchange to a customer in another of our exchanges in the same state. The interexchange carrier pays us an intrastate access payment for either terminating or originating the call. We bill the call through our carrier access billing system and receive the access payment from the interexchange carrier. The access charge for intrastate services is regulated and approved by the state regulatory authority.

        Interstate Access Charges.    We generate interstate access revenue when an interstate long distance call is originated by a customer calling from one state to a customer in another state. We bill interstate access charges in the same manner as we bill intrastate access charges; however, the interstate access charge is regulated and approved by the Federal Communications Commission instead of the state regulatory authority.

Universal Service Fund—High Cost Loop

        The Universal Service Fund supplements the amount of local service revenue received by us to ensure that basic local service rates for customers in high cost rural areas are consistent with rates charged in lower cost urban and suburban areas. The Universal Service Fund, which is funded by monthly fees charged to interexchange carriers and local exchange carriers, distributes funds to us on a monthly basis based upon our cost support for local exchange carriers whose cost of providing the local loop connections to customers is significantly greater than the national average.

Long Distance Services

        We offer switched and dedicated long distance services throughout our service areas through resale agreements with national interexchange carriers. In addition, through Carrier Services, we offer

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wholesale long distance services to our rural local exchange carriers and other non-affiliated communications providers.

Data and Internet Services

        We offer Internet access via digital subscriber lines technology, dedicated T-1 connections, Internet dial-up, high speed cable modem and wireless broadband. Customers can utilize this access in combination with customer owned equipment and software to establish a presence on the web. In addition, we offer enhanced Internet services, which include obtaining Internet protocol addresses, basic web site design and hosting, domain name services, content feeds and web-based e-mail services. Our services include access to 24-hour, 7-day a week customer support.

Other Services

        We seek to capitalize on our rural local exchange carriers' local presence and network infrastructure by offering enhanced services to customers, as well as billing and collection services for interexchange carriers.

        Enhanced Services.    Our advanced digital switch and voicemail platforms allows us to offer enhanced services such as call waiting, call forwarding and transferring, call hunting, three-way calling, automatic callback, call hold, caller name and number identification, voice mail, teleconferencing, video conferencing, store-and-forward fax, follow-me numbers, Centrex services and direct inward dial.

        Billing and Collection.    Many interexchange carriers provide long distance services to our rural local exchange carrier customers and may elect to use our billing and collection services. Our rural local exchange carriers charge interexchange carriers a billing and collection fee for each call record generated by the interexchange carrier's customer.

        Directory Services.    Through our local telephone companies, we publish telephone directories in the majority of our locations. These directories provide white page listings, yellow page listings and community information listings. These directories generate revenues and operating cash flow from the sale of yellow page and related advertising to businesses. We contract out with leading industry providers to assist in the sale of advertising, compilation of information, as well as the production, publication and distribution of these directories.

Our Markets

        Our 26 rural local exchange carriers operate as the incumbent local exchange carrier in each of their respective markets. Our rural local exchange carriers serve an average of approximately 13 access lines per square mile versus the non-rural carrier average of approximately 128 access lines per square mile. Approximately 79% of these access lines serve residential customers. Our business customers account for approximately 21% of our access lines. Our business customers are predominantly in the agriculture, light manufacturing and service industries.

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        The following chart identifies the number of access line equivalents in each of our 17 states as of September 30, 2004:

State	Access Line Equivalents
Maine	68,919
Florida	54,095
Washington	45,504
New York	44,765
Ohio	9,333
Virginia	8,193
Illinois	8,094
Vermont	7,113
Idaho	6,468
Kansas	6,124
Oklahoma	3,839
Colorado	3,155
Pennsylvania	3,105
Other States(1)	3,984
Total:	272,691

(1)

Includes Massachusetts, New Hampshire, Georgia and Alabama.

Sales and Marketing

        Our marketing approach emphasizes customer-oriented sales, marketing and service. We believe most telecommunications companies devote their resources and attention primarily toward customers in more densely populated markets. We seek to differentiate ourself from our competitors by providing a superior level of service to each of our customers.

        Each of our rural local exchange carriers has a long history in the communities it serves. It is our policy to maintain and enhance the strong identity and reputation that each rural local exchange carrier enjoys in its markets, as we believe this is a significant competitive advantage. As we market new services, we will seek to continue to utilize our identity in order to attain higher recognition with potential customers.

        To demonstrate our commitment to the markets we serve, we maintain local offices in most of the population centers within our service territories. These offices are typically staffed by local residents and provide sales and customer support services in the community. We believe that local offices facilitate a direct connection to the community, which improves customer satisfaction and loyalty.

        In addition, our strategy is to enhance our telecommunications services by offering comprehensive bundling of services and deploying new technologies to build upon the strong reputation we enjoy in our markets and to further promote rural economic development in the rural communities we serve.

        Many of the rural local exchange carriers acquired by us traditionally have not devoted a substantial amount of their operating budget to sales and marketing activities. After acquiring the rural local exchange carriers, we typically change this practice to provide additional support for existing products and services as well as to support the introduction of new services. As of September 30, 2004, we had 238 employees engaged in sales, marketing and customer service.

        We have two basic tiers of customers: (i) local customers located in our local access and transport areas who pay for local phone service and (ii) the interexchange carriers which pay us for access to

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customers located within our local access and transport areas. In general, the vast majority of our local customers are residential, as opposed to business, which is typical for rural telephone companies.

Information Technology and Support Systems

        Our approach to billing and operational support systems focuses on implementing best-of-class applications that allow consistent communication and coordination throughout our entire organization. Our objective is to improve profitability by reducing individual company costs through the sharing of best practices, centralization or standardization of functions and processes, and deployment of technologies and systems that provide for greater efficiencies and profitability.

        We have begun to integrate all billing systems into a single, outsourced billing platform. When completed, we plan to use this platform to develop a number of centralized customer service and call centers and to create a significantly improved customer data base. These call centers and customer data base will allow us to enhance our operating efficiency and optimize our marketing initiatives. The billing platform will also enable our customers to directly access, via the Internet, their accounts and will allow us to provide virtual call centers.

Network Architecture and Technology

        Our rural local exchange carrier networks consist of central office hosts and remote sites with advanced digital switches, primarily manufactured by Nortel and Siemens, operating with current software. The outside plant consists of transport and distribution delivery networks connecting our host central office with remote central offices and ultimately with our customers. As of December 31, 2003, we maintained over 24,000 miles of copper plant and 2,800 miles of fiber optic plant. We own fiber optic cable, which has been deployed throughout our current network and is the primary transport technology between our host and remote central offices and interconnection points with other incumbent carriers.

        Our fiber optic transport system is primarily a synchronous optical network capable of supporting increasing customer demand for high bandwidth transport services. This system supports advanced services including Asynchronous Transfer Mode, Frame Relay and/or Internet Protocol Transport, facilitating delivery of advanced services as demand warrants.

        In our rural local exchange carrier markets, digital subscriber lines-enabled integrated access technology is being deployed to provide significant broadband capacity to our customers. As of September 30, 2004, we had invested approximately $23.8 million and deployed this technology in all 26 of our rural local exchange carriers, reaching 137 of our 143 exchanges.

        Rapid and significant changes in technology are expected in the communications industry. Our future success will depend, in part, on our ability to anticipate and adapt to technological changes. We believe that our network architecture enables us to efficiently respond to these technological changes.

Competition

        We believe that the Telecommunications Act and other recent actions taken by the Federal Communications Commission and state regulatory authorities promote competition in the provision of telecommunications services; however, many of the competitive threats now confronting larger regulated telephone companies do not currently exist in the rural local exchange carrier marketplace. Our rural local exchange carriers historically have experienced little wireline competition as the incumbent carrier in their market because the demographic characteristics of rural telecommunications markets generally will not support the high cost of operations and significant capital investment required for new wireline entrants to offer competitive services. For instance, the per minute cost of

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operating both telephone switches and interoffice facilities is higher in rural areas, as rural local exchange carriers typically have fewer, more geographically dispersed customers and lower calling volumes. Also, the distance from the telephone switch to the customer is typically longer in rural areas, which results in increased distribution facilities costs. These relatively high costs tend to discourage other wireline competitors from entering territories serviced by rural local exchange carriers.

Wireless Competition

        In most of our rural markets, we face competition from wireless technology. We do not expect this technology to represent a significant competitive threat to us in the near term, but as technology and economies of scale improve, we may experience increased competition from wireless carriers. In addition, the Federal Communications Commission's requirement that telephone companies offer wireline-to-wireless number portability may increase the competition we face from wireless carriers.

Wireline Competition

        We also face competition from new market entrants that provide close substitutes for the traditional telephone services we provide, such as cable television, satellite telecommunications and electric utility companies. Cable television companies are entering the telecommunications market by upgrading their networks with fiber optics and installing facilities to provide fully interactive transmission of broadband, voice, video and data communications. Electric utilities have existing assets and access to low cost capital that could allow them to enter a market rapidly and accelerate network development. While we have limited competition for voice services from cable providers and electric utilities for basic voice services, we cannot guarantee that we will not face increased competition from such providers in the future.

        In addition, we could face increased competition from competitive local exchange carriers, particularly in offering services to Internet service providers.

Voice Over Internet Protocol Competition

        Voice over internet protocol service is increasingly being embraced by all industry participants. Voice over internet protocol service essentially involves the routing of voice calls, at least in part, over the Internet through packets of data instead of transmitting the calls over the existing telephone system. While current voice over internet protocol applications typically complete calls using incumbent local exchange carrier infrastructure and networks, as voice over internet protocol services obtain acceptance and market penetration and technology advances further, a greater quantity of communication may be placed without the public switched telephone network. On March 10, 2004, the Federal Communications Commission issued a Notice of Proposed Rulemaking with respect to internet protocol-enabled services. Among other things, the Federal Communications Commission is considering whether voice over internet protocol services are regulated telecommunications services or unregulated information services. We cannot predict the outcome of the Federal Communications Commission's rulemaking or the impact on the revenues of our rural local exchange carriers. The proliferation of voice over internet protocol, particularly to the extent such communications do not utilize our rural local exchange carriers' networks, may result in an erosion of our customer base and loss of access fees and other funding.

Internet Competition

        The Internet services market is also highly competitive, and we expect that competition will continue to intensify. Internet services, meaning both Internet access (wired and wireless) and on-line content services, are provided by Internet service providers, satellite-based companies, long distance

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carriers and cable television companies. Many of these companies provide direct access to the Internet and a variety of supporting services to businesses and individuals. In addition, many of these companies, such as America Online, Inc., Microsoft Network and Yahoo, offer on-line content services consisting of access to closed, proprietary information networks. Long distance companies and cable television operators, among others, are aggressively entering the Internet access markets. Long distance carriers have substantial transmission capabilities, traditionally carry data to large numbers of customers and have an established billing system infrastructure that permits them to add new services. Satellite companies are offering broadband access to the Internet from desktop PCs. Many of these competitors have substantially greater financial, technological, marketing, personnel, name-brand recognition and other resources than those available to us.

Long Distance Competition

        The long distance telecommunications market is highly competitive. Competition in the long distance business is based primarily on price, although service bundling, branding, customer service, billing service and quality play a role in customers' choices.

Other Competition

        Although we believe we offer the only comprehensive suite of communications services in our markets, existing service providers such as wireless, cable and utility companies could form strategic alliances to offer bundled services in our markets. We cannot guarantee that we will not face increased competition from such bundled service providers.

Employees

        As of September 30, 2004, we employed a total of 857 employees. 125 employees of our rural local exchange carriers are represented by four unions. We believe the state of our relationship with our union and non-union employees is good. Within our Company, 33 employees are employed at our corporate office, 816 employees are employed at our rural local exchange carriers and 8 employees are employed by Carrier Services.

Properties

        We own all of the properties material to our business. Our headquarters is located in Charlotte, North Carolina. We also have administrative offices, maintenance facilities, rolling stock, central office and remote switching platforms and transport and distribution network facilities in each of the 17 states in which we operate our rural local exchange carrier business. Our administrative and maintenance facilities are generally located in or near the rural communities served by our rural local exchange carriers and our central offices are often within the administrative building and outlying customer service centers. Auxiliary battery or other non-utility power sources are at each central office to provide uninterrupted service in the event of an electrical power failure. Transport and distribution network facilities include fiber optic backbone and copper wire distribution facilities, which connect customers to remote switch locations or to the central office and to points of presence or interconnection with the long distance carriers. These facilities are located on land pursuant to permits, easements or other agreements. Our rolling stock includes service vehicles, construction equipment and other required maintenance equipment.

        We believe each of our respective properties is suitable and adequate for the business conducted therein, is being appropriately used consistent with past practice and has sufficient capacity for the present intended purposes.

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Legal Proceedings

        We currently and from time to time are involved in litigation and regulatory proceedings incidental to the conduct of our business, but currently we are not a party to any lawsuit or proceeding which, in our opinion, is likely to have a material adverse effect on us.

Intellectual Property

        We believe we have the trademarks, trade names and licenses that are necessary for the operation of our business as we currently conduct it. We do not consider our trademarks, trade names or licenses to be material to the operation of our business.

Discontinued Operations

        On September 30, 2003, MJD Services, a wholly-owned subsidiary of the Company, completed the sale of all of the capital stock owned by MJD Services of Union Telephone Company of Hartford, Armour Independent Telephone Co., WMW Cable TV Co. and Kadoka Telephone Co. to Golden West. The sale was completed in accordance with the terms of the South Dakota purchase agreement. MJD Services received approximately $24.2 million in proceeds from the South Dakota disposition. The companies sold to Golden West provided communications services to approximately 4,150 voice access lines located in South Dakota as of the date of such disposition. The operations of these companies were presented as discontinued operations beginning in the second quarter of 2003. Therefore, the balances associated with these activities were reclassified as "held for sale." All prior period financial statements have been restated accordingly. We recorded a gain on disposal of the South Dakota companies of $7.7 million during the third quarter of 2003.

        In early 1998, we launched our competitive local exchange carrier enterprise through our wholly-owned subsidiary, Carrier Services. In November 2001, we decided to discontinue such competitive local exchange carrier operations. This decision was a proactive response to the deterioration in the capital markets, the general slow-down of the economy and the slower-than-expected growth in Carrier Services' competitive local exchange carrier operations. Carrier Services completed the termination or sale of its competitive local exchange carrier operations in the second quarter of 2002.

        Carrier Services provides wholesale long distance service and support to our rural local exchange carriers and to other non-affiliated communications providers. These services allow such companies to operate their own long distance communication services and sell such services to their respective customers.

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Regulation

The following summary does not describe all present and proposed federal, state and local legislation and regulations affecting the telecommunications industry. Some legislation and regulations are currently the subject of judicial proceedings, legislative hearings and administrative proposals which could change the manner in which this industry operates. Neither the outcome of any of these developments, nor their potential impact on us, can be predicted at this time. Regulation can change rapidly in the telecommunications industry, and such changes may have an adverse effect on us in the future. See "Risk Factors—Risks Related to our Regulatary Environment."

Overview

        Our regulated communications services are subject to extensive federal, state and local regulation. We hold various regulatory authorizations for our service offerings. At the federal level, the Federal Communications Commission generally exercises jurisdiction over all facilities and services of telecommunications common carriers, such as us, to the extent those facilities are used to provide, originate, or terminate interstate or international communications. State regulatory commissions generally exercise jurisdiction over such facilities and services to the extent those facilities are used to provide, originate or terminate intrastate communications. In addition, pursuant to the Telecommunications Act, state and federal regulators share responsibility for implementing and enforcing the domestic pro-competitive policies introduced by that legislation. In particular, state regulatory agencies have substantial oversight over the provision by incumbent telephone companies of interconnection and non-discriminatory network access to competitive communications providers. Local governments often regulate the public rights-of-way necessary to install and operate networks, and may require communications services providers to obtain licenses or franchises regulating their use of public rights-of-way. Additionally, municipalities and other local government agencies may regulate limited aspects of our business, including our use of public rights of way, and by requiring us to obtain construction permits and abide by building codes.

        We believe that competition in our telephone service areas will increase in the future as a result of the Telecommunications Act, although the ultimate form and degree of competition cannot be ascertained at this time. Competition may lead to loss of revenues and profitability as a result of: loss of customers; reduced usage of our network by our existing customers who may use alternative providers for long distance and data services; and reductions in prices for our services which may be necessary to meet competition.

Federal Regulation

        We must comply with the Communications Act which requires, among other things, that communications carriers offer services at just and reasonable rates and on non-discriminatory terms and conditions. The amendments to the Communications Act contained in the Telecommunications Act dramatically changed and are expected to continue to change the landscape of the telecommunications industry. The central aim of the Telecommunications Act was to open local telecommunications marketplaces to competition while enhancing universal service. Most significantly, the Telecommunications Act governs the removal of barriers to market entry into local telephone services, requires incumbent local exchange carriers to interconnect with competitors, establishes procedures pursuant to which incumbent local exchange carriers may provide other services, such as the provision of long distance services by regional bell operating companies, and imposes on incumbent local exchange carriers duties to negotiate interconnection arrangements in good faith.

        Removal of Entry Barriers.    Prior to the enactment of the Telecommunications Act, many states limited the services that could be offered by a company competing with an incumbent local exchange carrier. The Telecommunications Act generally preempts state and local laws that prevent competitive

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entry into the provision of any communications service. However, states can modify conditions of entry into areas served by rural local exchange carriers where the state regulatory commission determines that such modification is warranted by the public interest. Since the passage of the Telecommunications Act, we have experienced only limited competition from cable and wireless service providers.

        Access Charges.    The Federal Communications Commission regulates the prices that incumbent local telephone companies charge for the use of their local telephone facilities in originating or terminating interstate transmissions. The Federal Communications Commission has structured these prices, also referred to as "access charges," as a combination of flat monthly charges paid by the end-users and usage sensitive charges paid by long distance carriers. State regulatory commissions regulate intrastate access charges. Many states generally mirror the Federal Communications Commission price structure. A significant amount of our revenues come from network access charges, which are paid to us by intrastate carriers and interstate long distance carriers for originating and terminating calls in the regions served by our rural local exchange carriers. The amount of access charge revenues that we receive is based on rates set by federal and state regulatory bodies, and such rates are subject to change at any time.

        The Federal Communications Commission regulates the levels of interstate access charges by imposing price caps on larger incumbent local telephone companies. These price caps can be adjusted based on various formulae, such as inflation and productivity, and otherwise through regulatory proceedings. Smaller incumbents may elect to base access charges on price caps, but are not required to do so unless they elected to use price caps in the past or their affiliated incumbent local telephone companies base their access charges on price caps. Each of our 26 incumbent local telephone subsidiaries elected not to apply the Federal Communications Commission's price caps. Instead, our subsidiaries employ rate-of-return regulation for their interstate access charges.

        The Federal Communications Commission has made, and is continuing to consider, various reforms to the existing rate structure for charges assessed on long distance carriers for connection to local networks. States often mirror federal rules in establishing intrastate access charges. In 2001, the Federal Communications Commission adopted an order implementing the beginning phases of the Multi-Association Group plan to reform the access charge system for rural carriers. The Multi-Association Group plan is revenue neutral to our operating companies. Among other things, the Multi-Association Group plan reduces access charges and shifts a portion of cost recovery, which historically have been based on minutes-of-use, to flat-rate, monthly per line charges on end-user customers rather than long distance carriers. As a result, the aggregate amount of access charges paid by long distance carriers to access providers, such as our rural local exchange carriers, has decreased and may continue to decrease. In adopting the Multi-Association Group plan, the Federal Communications Commission also determined that rate-of-return carriers will continue to be permitted to set rates based on the authorized rate of return of 11.25%. Additionally, the Federal Communications Commission initiated a rulemaking proceeding to investigate the Multi-Association Group's proposed incentive regulation plan and other means of allowing rate-of-return carriers to increase their efficiency and competitiveness. The Multi-Association Group plan expires in 2006 and will need to be renewed or replaced at such time. In addition, to the extent our rural local exchange carriers become subject to competition in their own local exchange areas, such access charges could be paid to competing local exchange carriers rather than to us. Additionally, the access charges we receive may be reduced as a result of competition by other service providers such as wireless and voice over internet services. Such a circumstance could have a material adverse effect on our financial condition and results of operations. In addition, the Federal Communications Commission has sought comment on broad policy changes that could harmonize the rate structure and levels of all forms of intercarrier compensation, and could, as a result, substantially modify the current forms of carrier-to-carrier payments for interconnected traffic. Furthermore, in the notice of proposed rulemaking on voice over internet protocol services the Federal Communications Commission adopted in February 2004, the Federal Communications Commission has

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sought comment on whether access charges should apply to voice over internet protocol or other internet protocol-based services. It is unknown at this time what additional changes, if any, the Federal Communications Commission may eventually adopt and the effect of any such changes on our business.

        Rural Local Exchange Carrier Services Regulation.    Our rural local exchange carrier services segment revenue is subject to regulation including regulation by the Federal Communications Commission and incentive regulation by various state regulatory commissions. State lawmakers will likely continue to review the statutes governing the level and type of regulation for telecommunications services. It is expected that over the next few years, legislative and regulatory actions will provide opportunities to restructure rates, introduce more flexible incentive regulation programs and possibly reduce the overall level of regulation. We expect the election of incentive regulation plans and the expected reduction in the overall level of regulation to allow us to introduce new services and pricing changes more expeditiously than in the past. At the same time, however, the implementation of such new programs may also lead to reductions in intrastate access charges.

        The Federal Communications Commission generally must approve in advance most transfers of control and assignments of operating authorizations by Federal Communications Commission-regulated entities. Therefore, if we seek to acquire companies that hold Federal Communications Commission authorizations, in most instances we will be required to seek approval from the Federal Communications Commission prior to completing those acquisitions. The Federal Communications Commission has the authority to condition, modify, cancel, terminate or revoke operating authority for failure to comply with applicable federal laws or rules, regulations and policies of the Federal Communications Commission. Fines or other penalties also may be imposed for such violations. Our interstate common carrier services are also subject to nondiscrimination requirements and requirements that rates be just and reasonable.

        The Federal Communications Commission has required that incumbent independent local exchange carriers that provide interstate long distance services originating from their local exchange service territories must do so in accordance with "structural separation" rules. These rules require that our long distance affiliates (i) maintain separate books of account, (ii) not own transmission or switching facilities jointly with the local exchange affiliate, and (iii) acquire any services from its affiliated local exchange telephone company at tariffed rates, terms and conditions. The Federal Communications Commission has initiated a rulemaking proceeding to examine whether there is a continuing need for such requirements; however, we cannot predict the outcome of that proceeding.

        The Telecommunications Act required all carriers to offer local number portability. This requirement allows telephone customers to change service providers but keep their existing telephone numbers. Initially, the Federal Communications Commission set November 24, 2003 as the local number portability deadline for carriers within the Top 100 Metropolitan Statistical Areas and May 24, 2004 for carriers outside the Top 100 Metropolitan Statistical Areas. On January 16, 2004, the Federal Communications Commission granted an extension of time, to May 24, 2004, to local exchange carriers with fewer than two percent of the nation's subscriber lines, regardless of whether the companies operate in a Top 100 Metropolitan Statistical Areas. All local exchange carriers with bona fide local number portability requests must be prepared to port numbers from wireline to wireless carriers on or before May 24, 2004. We are in compliance with this requirement in all of the states in which we operate or have received waivers to extend the time for implementation beyond the May 24^th date in certain states where technical limitations hinder compliance by this date.

        Our operations and those of all telecommunications carriers also may be impacted by legislation and regulation imposing new or greater obligations related to assisting law enforcement, bolstering homeland security, minimizing environmental impacts, or addressing other issues that impact our business. For example, existing provisions of the Communications Assistance for Law Enforcement Act and Federal Communications Commission regulations implementing the Communications Assistance

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for Law Enforcement Act require telecommunications carriers to ensure that their equipment, facilities, and services are able to facilitate authorized electronic surveillance. We believe we are in compliance with those laws and regulations. These laws and regulations, however, are subject to both interpretation and change which may result in requirements for us to incur additional costs.

State Regulation

        Most states have some form of certification requirement that requires providers of telecommunications services to obtain authority from the state regulatory commission prior to offering common carrier services. Each of our 26 rural local exchange carriers operates as the incumbent local telephone company in the states in which it operates and is certified in those states to provide local telephone services. State regulatory commissions generally regulate the rates incumbent local exchange carriers charge for intrastate services, including rates for intrastate access services paid by providers of intrastate long distance services. Although the Federal Communications Commission has preempted certain state regulations pursuant to the Telecommunications Act, states have retained authority to impose requirements on carriers necessary to preserve universal service, protect public safety and welfare, ensure quality of service and protect consumers. For instance, incumbent local exchange carriers must file tariffs setting forth the terms, conditions and prices for their intrastate services, and such tariffs may be challenged by third parties. From time to time, states conduct rate cases or "earnings" reviews. These reviews may result in the disallowance of certain investments or expenses for ratemaking puroposes. Subsidiaries of the Company recently completed rate cases in Vermont, Illinois, Kansas and Maine. We currently have "earnings" reviews of our rates being conducted in Idaho, New York and Vermont.

        Under the Telecommunications Act, state regulatory commissions have jurisdiction to arbitrate and review interconnection disputes and agreements between incumbent local exchange carriers and competitive local exchange carriers, in accordance with rules set by the Federal Communications Commission. State regulatory commissions may also formulate rules regarding fees imposed on providers of telecommunications services within their respective states to support state universal service programs. States often require prior approvals or notifications for certain acquisitions and transfers of assets, customers, or ownership of regulated entities. Therefore, in most instances we will be required to seek state approval prior to completing new acquisitions of rural local exchange carriers. States generally retain the right to sanction a carrier or to revoke certifications if a carrier materially violates relevant laws and/or regulations.

Local Government Authorizations

        We may be required to obtain from municipal authorities permits for street opening and construction or operating franchises to install and expand facilities in certain rural communities. Some of these franchises may require the payment of franchise fees. We have obtained such municipal franchises as were required. In some rural areas, we do not need to obtain such permits or franchises because the subcontractors or electric utilities with which we have contracts already possess the requisite authorizations to construct or expand our networks.

The Promotion of Local Service Competition and Traditional Telephone Companies

        As discussed above, the Telecommunications Act provides, in general, for the removal of barriers to entry into the telecommunications industry in order to promote competition for the provision of local service. Congress, however, has recognized that states should not be prohibited from taking actions necessary to preserve and advance universal service, and has further recognized that special consideration should be given to the appropriate conditions for competitive entry in areas served by rural telephone companies, such as our 26 rural local exchange carrier subsidiaries.

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        Pursuant to the Telecommunications Act, all local exchange carriers, including both incumbents and new competitive carriers, are required to: (i) allow others to resell their services at retail rates; (ii) ensure that customers can keep their telephone numbers when changing carriers; (iii) ensure that competitors' customers can use the same number of digits when dialing and receive nondiscriminatory access to telephone numbers, operator service, directory assistance and directory listing; (iv) ensure access to telephone poles, ducts, conduits and rights of way; and (v) compensate competitors for the competitors' costs of completing calls to competitors' customers. Competitors are required to compensate the incumbent telephone company for the cost of providing these interconnection services. Under the Telecommunications Act, our rural local exchange carriers may request from state regulatory commissions, suspension or modification of any or all of the requirements described above. A state regulatory commission may grant such a request if it determines that such exemption, suspension or modification is consistent with the public interest and necessary to avoid a significant adverse economic impact on communications users and generally avoid imposing a requirement that is technically unfeasible or unduly economically burdensome. If a state regulatory commission denies some or all of any such request made by one of our rural local exchange carriers, or does not allow us adequate compensation for the costs of providing interconnection, our costs could increase and our revenues could decline. In addition, with such a denial, competitors could enjoy benefits that would make their services more attractive than if they did not receive such interconnection rights. With the exception of the previously referenced requests to modify the May 24, 2004 implementation date for local number portability in certain states, we have not encountered a need to file any such requests for suspension or modification of the interconnection requirements.

        The Telecommunications Act, with certain exceptions, imposes the following additional duties on incumbent telephone companies by requiring them to: (i) interconnect their facilities and equipment with any requesting telecommunications carrier at any technically feasible point; (ii) unbundle and provide nondiscriminatory access to network elements such as local loops, switches and transport facilities, at nondiscriminatory rates and on nondiscriminatory terms and conditions; (iii) offer their retail services for resale at wholesale rates; (iv) provide reasonable notice of changes in the information necessary for transmission and routing of services over the incumbent telephone company's facilities or in the information necessary for interoperability; and (v) provide, at rates, terms and conditions that are just, reasonable and nondiscriminatory, for the physical co-location of equipment necessary for interconnection or access to unbundled network elements at the premises of the incumbent telephone company. Competitors are required to compensate the incumbent local exchange carrier for the cost of providing these interconnection services. However, pursuant to the Telecommunications Act, rural telephone companies, including our rural local exchange carriers, are automatically exempt from these additional incumbent telephone company requirements. The exemption remains effective until an incumbent rural local telephone company receives a bona fide request for these additional interconnection services and the applicable state authority determines whether the request is not unduly economically burdensome, technically feasible, and consistent with the universal service objectives set forth in the Telecommunications Act. This exemption remains effective for all of our incumbent local telephone operations, except in Florida where the legislature has determined that all incumbent local exchange carriers are required to provide the additional interconnection services as prescribed in the Telecommunications Act. If a request for any of these additional interconnection services is filed by a potential competitor with respect to one of our other operating territories, we are likely to ask the relevant state regulatory commission to retain the exemption. If a state regulatory commission rescinds such exemption in whole or in part and if the state regulatory commission does not allow us adequate compensation for the costs of providing the interconnection, our costs would significantly increase, we would face new competitors in that state and we could suffer a significant loss of customers and resulting declines in our revenues. In addition, we could incur additional administrative and regulatory expenses as a result of the interconnection requirements.

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Promotion of Universal Service

        The Universal Service Fund payments received by our rural local exchange carriers from the Universal Service Fund are intended to support the high cost of our operations in rural markets. Such Universal Service Fund payments related to the high cost loop represented 8% of our revenues for the year ended December 31, 2003. Under current Federal Communications Commission regulations, the total Universal Service Fund available to all rural local telephone companies, including our 26 rural local exchange carrier subsidiaries, is subject to a cap. In any given year, the cap may or may not be reached. In any year where the cap is reached, the per access line rate at which we can recover Universal Service Fund payments may decrease. In addition, the consideration of changes in the federal rules governing the distribution of Universal Service Fund is pending before the Federal Communications Commission. If our rural local exchange carriers were unable to receive Universal Service Fund payments, or if such payments were reduced, many of our rural local exchange carriers would be unable to operate as profitably as they have historically in the absence of our implementation of increases in charges for other services. Moreover, if we raise prices for services to offset loss of Universal Service Fund payments, the increased pricing of our services may disadvantage us competitively in the marketplace, resulting in additional potential revenue loss. Payments from the Universal Service Fund fluctuate based upon our average cost per loop compared with the national average cost per loop. For example, if the national average cost per loop increases and our operating costs (and average cost per loop) remain constant or decrease, the payments we receive from the Universal Service Fund would decline. Conversely, if the national average cost per loop decreases and our operating costs (and average cost per loop) remain constant or increase, the payments we receive from the Universal Service Fund would increase. Over the past year, the national average cost per loop in relation to our average cost per loop has increased and management believes the national average cost per loop may continue to increase in relation to our average cost per loop and, as a result, the payments we receive from the Universal Service Fund could decline.

        Universal service rules have been adopted by both the Federal Communications Commission and some state regulatory commissions. Universal Service Fund funds may be distributed only to carriers that are designated as eligible telecommunications carriers by a state regulatory commission. All of our rural local exchange carriers have been designated as eligible telecommunications carriers pursuant to the Telecommunications Act. However, under the Telecommunications Act, competitors could obtain the same support payments as we do if a state regulatory commission determined that granting such support payments to competitors would be in the public interest.

        Two notable regulatory changes enacted by the Federal Communications Commission in the last four years are the adoption, with certain modifications, of the Rural Task Force proposed framework for rural high-cost universal service support and the implementation of the beginning phases of the Multi-Association Group plan. The Federal Communications Commission's Rural Task Force order modifies the existing universal service support mechanism for rural local exchange carriers and adopts an interim embedded, or historical, cost mechanism for a five-year period that provides predictable levels of support to rural carriers. The Federal Communication Commission has stated its intention to develop a long-term plan based on forward-looking costs when the five-year period expires in 2006. The Multi-Association Group plan created a new universal service support mechanism, Interstate Common Line Support, to replace carrier common line access charges and the recovery of certain costs formerly recovered through traffic sensitive access charges. A recent Federal Communications Commission order merged long term support into its interstate common line support mechanism without reducing (at least initially) the aggregate universal service support from the two mechanisms (both of which had been previously transformed from access charge revenue streams into universal service support mechanisms). As a result of these changes, when a competitor is designated an eligible telecommunications carrier, it also receives an increased level of Universal Service Fund support equal to the level received by the incumbent on a per line basis.

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        The Federal State Joint Board is currently considering recommendations on the question of which carriers can obtain Universal Service Fund support in a market. The Federal State Joint Board recommended that:

•

a set of permissive federal guidelines be developed to ensure that the public interest is served before eligible telecommunications carriers are designated;



•

support be limited to a single connection that provides access to the public telephone network; and



•

the basis for providing support be considered and further clarified during the comprehensive review of the Universal Service Fund to be completed in 2006.

        The Federal Communications Commission statutorily must act on these recommendations by February 27, 2005. Also, the Federal Communications Commission is considering resolution of the method by which contributions to the Universal Service Fund are determined.

        In addition, there are a number of judicial appeals challenging several aspects of the Federal Communications Commission's universal service rules. It is not possible to predict at this time whether the Federal Communications Commission or Congress will require modification to those rules, or the ultimate impact any such modification might have on us.

Potential Internet Regulatory Obligations

        In connection with our Internet access offerings, we could become subject to laws and regulations as they are adopted or applied to the Internet. There is currently only limited regulations applicable to the Internet. As the significance of the Internet expands, federal, state and local governments may adopt rules and regulations, or apply existing laws and regulations to the Internet, and related matters are under consideration in both federal and state legislative and regulatory bodies. The Federal Communications Commission is currently reviewing the appropriate regulatory framework governing broadband access to the Internet through telephone and cable operators' communications networks. We cannot predict whether the outcome will prove beneficial or detrimental to our competitive position. In February 2004, the Federal Communications Commission initiated a proceeding to examine the regulatory implications of voice over Internet protocol technology. We cannot predict the results of these proceedings, the nature of these regulations or their impact on our business.

Environmental Regulations

        Similarly, and like all other local telephone companies, our 26 rural local exchange carrier subsidiaries are subject to federal, state and local laws and regulations governing the use, storage, disposal of, and exposure to hazardous materials, the release of pollutants into the environment and the remediation of contamination. As an owner of property, we could be subject to environmental laws that impose liability for the entire cost of cleanup at contaminated sites, regardless of fault or the lawfulness of the activity that resulted in contamination. We believe, however, that our operations are in substantial compliance with applicable environmental laws and regulations.

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Management

        The following table sets forth the names and positions of our current directors and executive officers, as well as our nominees for our board of directors pending closing of this offering, and their ages.

        Upon the closing of this offering, our restated certificate of incorporation will require our board of directors to have between five and eleven members. We will restructure our board of directors and appoint the following three independent directors: Patricia Garrison-Corbin, David L. Hauser, and Claude C. Lilly. One additional independent director will be appointed in accordance with our restated bylaws within one year after the closing of this offering. To accommodate the inclusion of these new independent directors, three of our current directors, Daniel G. Bergstein, Anthony J. DiNovi and George E. Matelich, will resign upon the closing of this offering. See "—Composition of the Board After the Offering" below. See "Certain Relationships and Related Party Transactions—Stockholders Agreements, Nominating Agreement and Registration Rights Agreement."

Name	Age	Position
Eugene B. Johnson	57	Co-Founder, Chairman of the Board of Directors and Chief Executive Officer
Peter G. Nixon	52	Chief Operating Officer
Valeri A. Marks	46	President
Walter E. Leach, Jr.	53	Executive Vice President and Chief Financial Officer
Shirley J. Linn	54	Senior Vice President, General Counsel and Secretary
Lisa R. Hood	39	Senior Vice President and Controller
Timothy W. Henry	49	Vice President of Finance and Treasurer
Daniel G. Bergstein	61	Co-Founder and Director
Frank K. Bynum, Jr.	41	Director
Anthony J. DiNovi	42	Director
George E. Matelich	48	Director
Kent R. Weldon	37	Director
Patricia Garrison-Corbin	57	Director Nominee
David L. Hauser	53	Director Nominee
Claude C. Lilly	58	Director Nominee

        Eugene B. Johnson.    Mr. Johnson has served as our Chairman since January 1, 2003 and as our Chief Executive Officer since January 1, 2002. Prior to his current responsibilities, Mr. Johnson was our Chief Development Officer from May 1993 to December 2002 and Vice Chairman from August 1998 to December 2002. Mr. Johnson is a co-founder and has been a director of our company since 1991. From 1997 to 2002, Mr. Johnson served as a director of the Organization for the Promotion and Advancement of Small Telecommunications Companies the primary industry organization for small independent telephone companies. From 1987 to 1993, Mr. Johnson served as President and principal shareholder of JC&A, Inc., an investment banking and brokerage firm providing services to the cable television, telephone and related industries. From 1985 to 1987, Mr. Johnson served as the director of the mergers and acquisitions department of Cable Investments, Inc., an investment banking firm. Mr. Johnson currently is chairman of Organization for the Promotion and Advancement of Small Telecommunication Companies' Universal Service Fund committee.

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        Peter G. Nixon.    Mr. Nixon has served as our Chief Operating Officer since November 2002. Previously, Mr. Nixon was our Senior Vice President of Corporate Development from February 2002 to November 2002 and President of our Telecom Group from April 2001 to February 2002. Prior to this, Mr. Nixon served as President of our Eastern Region Telecom Group from June 1999 to April 2001 and President of Chautauqua & Erie Telephone Corporation, or C&E, from July 1997, when we acquired C&E, to June 1999. From April 1, 1989 to June 1997, Mr. Nixon served as Executive Vice President of C&E. From April 1, 1978 to March 31, 1989, Mr. Nixon served as Vice President of Operations for C&E. Mr. Nixon has served as the past Chairman of the New York State Telephone Association, in addition to his involvement in several community and regional organizations.

        Valeri A. Marks.    In October 2004, Ms. Marks was appointed our President. From 2001 to 2003, Ms. Marks served as Chairman and Chief Executive Officer of Sockeye Networks (which was acquired by Internap Network Services Corporation). From 2000 to 2001, Ms. Marks served as President and Chief Executive Officer of Digital Broadband Communications, Inc. and from 1999 to 2000, she served as President and Chief Executive Officer of the Internet division of SBC Communications, Inc. Ms. Marks is a director of Amerivault, an online data back-up and recovery company.

        Walter E. Leach, Jr.    In July 2004, Mr. Leach was appointed our Executive Vice President and Chief Financial Officer. Mr. Leach has served as our Chief Financial Officer since October 1994 and served as our Senior Vice President from February 1998 to July 2004. From October 1994 to December 2000, Mr. Leach was our Secretary. From 1984 through September 1994, Mr. Leach served as Executive Vice President of Independent Hydro Developers, where he had responsibility for all project acquisition, financing and development activities.

        Shirley J. Linn.    In September 2004, Ms. Linn was appointed our Senior Vice President, General Counsel and Secretary. Ms. Linn has served as our General Counsel since October 2000, our Vice President since October 2000 and our Secretary since December 2000. Prior to joining us, Ms. Linn was a partner, from 1984 to 2000, in the Charlotte, North Carolina law firm of Underwood Kinsey Warren & Tucker, P.A., where she specialized in general business matters, particularly mergers and acquisitions.

        Lisa R. Hood.    In July 2004, Ms. Hood was appointed our Senior Vice President and Controller. Ms. Hood has served as our Controller since December 1993 and served as our Vice President from December 1993 to July 2004. Prior to joining our company, Ms. Hood served as manager of a local public accounting firm in Kansas. Ms. Hood is certified as a public accountant in Kansas.

        Timothy W. Henry.    Mr. Henry has served as our Vice President of Finance and Treasurer since December 1997. From 1992 to December 1997, Mr. Henry served as Vice President/Portfolio Manager at CoBank, ACB, and managed a $225 million telecommunications loan portfolio, which included responsibility for CoBank's relationship with us.

        Daniel G. Bergstein.    Mr. Bergstein is a co-founder and has been a director of our company since 1991. Mr. Bergstein served as Chairman of our board of directors from 1991 until August 1998. Since 1988, Mr. Bergstein has been a senior partner in the New York office of the international law firm Paul, Hastings, Janofsky & Walker LLP, where he is the Chairman of the Firm's global Telecommunications and Media Practice. Mr. Bergstein is also a co-founder of Cequel III LLC and is a Director of AAT Communications, Inc., Cebridge Connections and MxEnergy Inc. He also serves as a board member of the National Trustees of the Foundation Fighting Blindness.

        Frank K. Bynum, Jr.    Mr. Bynum has served as a director of our company since July 1997. He is also a Managing Director of Kelso & Company. Mr. Bynum joined Kelso & Company in 1987 and has held positions of increasing responsibility at Kelso & Company prior to becoming a Managing Director. Mr. Bynum is a director of Cambridge Display Technology, Inc., Citation Corporation, Endurance Business Media, Inc. and eMarkets, Inc. He is also a Trustee of Prep for Prep and a member of the

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Board of Trustees of the College Foundation of the University of Virginia. Mr. Bynum has been designated to the Board of Directors by Kelso & Company pursuant to Kelso & Company's designation rights under our stockholders agreement.

        Anthony J. DiNovi.    Mr. DiNovi has served as a director of our company since January 2000. He is currently a Managing Director of Thomas H. Lee Partners, L.P., where he has been employed since 1988. Mr. DiNovi is a director of American Media, Inc., Endurance Specialty Holdings Ltd., Eye Care Centers of America Inc., Michael Foods, Inc., National Waterworks, Inc., US LEC Corp., Nortek, Inc., Vertis, Inc. and various private corporations. Mr. DiNovi has been designated to the Board of Directors by Thomas H. Lee Equity Fund pursuant to Thomas H. Lee Equity Fund's designation rights under our stockholders agreement.

        George E. Matelich.    Mr. Matelich has served as a director of our company since July 1997. Mr. Matelich is currently a Managing Director of Kelso & Company, with which he has been associated since 1985. Mr. Matelich is a director of Waste Services, Inc. and Optigas, Inc. Mr. Matelich is also a Trustee of the University of Puget Sound. Mr. Matelich has been designated to the Board of Directors by Kelso & Company pursuant to Kelso & Company's designation rights under our stockholders agreement.

        Kent R. Weldon.    Mr. Weldon has served as a director of our company since January 2000. He is currently a Managing Director of Thomas H. Lee Partners, L.P. Mr. Weldon worked at the firm from 1991 to 1993 and rejoined it in 1995. Prior to 1991, Mr. Weldon worked at Morgan Stanley & Co. Incorporated in the Corporate Finance Department. Mr. Weldon is a director of Michael Foods, Inc., Nortek, Inc. and Syratech Corporation. Mr. Weldon has been designated to the Board of Directors by Thomas H. Lee Equity Fund pursuant to Thomas H. Lee Equity Fund's designation rights under our stockholders agreement.

        Patricia Garrison-Corbin.    Ms. Corbin will be appointed as a director of our company upon consummation of this offering. Ms. Corbin has served as President of P.G. Corbin & Company, Inc., Financial Advisory Services, Municipal Finance, since 1986. Ms. Corbin has also served as President and Chief Information Officer of P.G. Corbin Asset Management, Inc., Fixed Income Investment Management, since 1987. Ms. Corbin has served as Chairman of the Board of Directors of Delancey Capital Group, LP, Equity Investment Management since 1996, and Chairman of the Board of Directors of P.G. Corbin Group, Inc., Investment and Financial Advisory Services since 1996. Ms. Corbin has also served as a director for the Erie Insurance Company since 1999.

        David L. Hauser.    Mr. Hauser will be appointed as a director of our company upon consummation of this offering. He is currently the CFO and Group Vice President of Duke Energy, where he has been employed for 30 years. Mr. Hauser is a certified public accountant and a certified purchasing manager. He is a board member of the North Carolina Zoological Society and is a member of the North Carolina Association of Certified Public Accountants, American Institute of Certified Public Accountants and Financial Executives Institute.

        Claude C. Lilly.    Dr. Lilly will be appointed as a director of our company upon consummation of this offering. Dr. Lilly is currently dean and James J. Harris Chair of Risk Management and Insurance in The Belk College of Business Administration at The University of North Carolina at Charlotte. Dr. Lilly has served as Assistant Deputy Insurance Commissioner for the State of Georgia and as a director of several corporations. Mr. Lilly currently serves as a director of Erie Insurance Company. He holds the Chartered Property Casualty Underwriters and Chartered Life Underwriter designations and is a member of numerous professional associations.

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Composition of the Board of Directors after this Offering

        Pursuant to our restated certificate of incorporation, our board of directors will be divided into three classes. The members of each class, other than the members initially serving as Class I directors or Class II directors, will serve for a staggered, three-year term. Upon the expiration of the term of a class of directors, directors in that class will be elected for a three-year term at the annual meeting of stockholders in the year in which their term expires. We currently anticipate that the classes will be comprised as follows:

•

Class I directors. Eugene B. Johnson and Patricia Garrison-Corbin will be Class I directors whose terms will expire at the first annual meeting of stockholders held after the closing of this offering;



•

Class II directors. Frank K. Bynum, Jr. and David L. Hauser will be Class II directors whose terms will expire at the second annual meeting of stockholders held after the closing of this offering; and



•

Class III directors. Kent R. Weldon and Claude C. Lilly will be Class III directors whose terms will expire at the third annual meeting of stockholders held after the closing of this offering.

        Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of the company.

        In connection with this offering, we will enter into a nominating agreement with Thomas H. Lee Equity Fund and Kelso & Company pursuant to which we, acting through our corporate governance committee, will agree, subject to the requirements of our directors' fiduciary duties, that (i) Thomas H. Lee Equity Fund will be entitled to designate one Class III director to be nominated for election to our board of directors and Kelso & Company will be entitled to designate one Class II director to be nominated for election to our board of directors as long as Thomas H. Lee Equity Fund and Kelso & Company own in the aggregate at least 40% of the shares of our common stock which they owned immediately prior to the closing of this offering or (ii) Thomas H. Lee Equity Fund will be entitled to designate one Class III director to be nominated for election to our board of directors as long as Thomas H. Lee Equity Fund and Kelso & Company own in the aggregate less than 40% and at least 20% of the shares of our common stock which they owned immediately prior to the closing of this offering. In addition, at any time after Kelso & Company no longer owns any of our common stock, as long as Thomas H. Lee Equity Fund owns at least 40% of the shares of our common stock which Thomas H. Lee Equity Fund and Kelso & Company owned immediately prior to the closing of this offering, Thomas H. Lee Equity Fund will be entitled to designate one Class II director to be nominated for election to our board of directors in addition to its right to designate one Class III director to be nominated for election to our board of directors. Mr. Weldon (Class III) and Mr. Bynum (Class II) will be the initial designees for nomination pursuant to this agreement.

Committees of the Board of Directors

        Our board of directors has standing audit and compensation committees. Upon completion of this offering, we anticipate that we will appoint three independent directors to the audit committee and the compensation committee. Upon the closing of this offering, we will create a corporate governance committee. We anticipate our corporate governance committee will consist of three independent directors.

Audit Committee

        Our audit committee currently consists of Frank K. Bynum, Jr., George E. Matelich and Kent R. Weldon. The board of directors has determined that George E. Matelich is the current audit committee

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financial expert serving on the audit committee for purposes of the Securities Exchange Act of 1934. Upon the closing of this offering, our audit committee will consist of Claude C. Lilly, David L. Hauser and Kent R. Weldon. Claude C. Lilly will be the chair of the audit committee and David L. Hauser will serve as the audit committee financial expert. Upon the closing of this offering, among other functions, the principal duties and responsibilities of our audit committee will be to:

•

have direct responsibility for the selection, compensation, retention and oversight of the work of our independent auditors;



•

set clear hiring policies for employees or former employees of the independent auditors;



•

review, at least annually, the results and scope of the audit and other services provided by our independent auditors and discuss any audit problems or difficulties and management's response;



•

review our annual audited financial statement and quarterly financial statements and discuss the statements with management and the independent auditors (including our disclosure in "Management's Discussion and Analysis of Financial Condition and Results of Operations");



•

review and evaluate our internal control functions;



•

review our compliance with legal and regulatory independence;



•

review and discuss our earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies;



•

review and discuss our risk assessment and risk management policies;



•

prepare an audit committee report required by the Securities and Exchange Commission to be included in our annual proxy statement; and



•

establish procedures regarding complaints received by us or our employees regarding accounting, accounting controls or accounting matters.

        The audit committee will be required to report regularly to our board of directors to discuss any issues that arise with respect to the quality or integrity of our financial statements, our compliance with legal or regulatory requirements, the performance and independence of our independent auditors, or the performance of the internal audit function.

Compensation Committee

        Our compensation committee currently consists of Anthony J. DiNovi and George E. Matelich. Upon the closing of this offering, our compensation committee will consist of David L. Hauser, Patricia Garrison-Corbin and Kent R. Weldon. David L. Hauser will be the chair of the compensation committee. Upon the closing of this offering, among other functions, the principal duties and responsibilities of our compensation committee will be to:

•

review and approve corporate goals and objectives relevant to our Chief Executive Officer's and other named executive officers' compensation;



•

evaluate our Chief Executive Officer's and our other named executive officers' performance in light of the goals and objectives;



•

either as a committee, or together with the other independent directors, determine and approve the Chief Executive Officer's and our other named executive officers' compensation;



•

make recommendations to our board of directors regarding the salaries, incentive compensation plans and equity-based plans for our employees; and

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•

produce a compensation committee report on executive compensation as required by the Securities and Exchange Commission to be included in our annual proxy statement or annual report on Form 10-K filed with the Securities and Exchange Commission.

Compensation Committee Interlocks and Insider Participation

        For the fiscal year ended December 31, 2003, our compensation committee consisted of Anthony J. DiNovi and George E. Matelich. Mr. DiNovi has served as a director of our company since January 2000. Mr. Matelich has served as a director of our company since July 1997. None of our executive officers has served as a member of the compensation committee (or other committee serving an equivalent function) of any other entity, whose executive officers served as a director of our company or member of our compensation committee.

Corporate Governance Committee

        Upon the closing of this offering, we will create a corporate governance committee. Our corporate governance committee will consist of Patricia Garrison-Corbin, Claude C. Lilly and Frank K. Bynum, Jr. Patricia Garrison-Corbin will be the chair of the corporate governance committee. Upon the closing of this offering, among other functions, the principal duties and responsibilities of our corporate governance committee will be to:

•

identify candidates qualified to become board members, consistent with criteria approved by the board;



•

recommend the candidates identified be selected as nominees for the next annual meeting of shareholders;



•

develop and recommend to the board a set of corporate governance principles applicable to the corporation; and



•

oversee the evaluation of the board and management.

Director Compensation

        Currently, we reimburse non-employee directors for any expenses incurred in attending meetings of our board of directors and committees of our board. In addition, we provide Mr. Bergstein and his immediate family with certain medical benefits and provide Mr. Bergstein with a leased automobile as compensation for his services as a director. After this offering, we expect our non-employee directors to receive an annual fee of $45,000 for serving as directors and an annual fee of $5,000 for serving as the chair of our compensation committee and corporate governance committee and an annual fee of $10,000 for serving as the chair of our audit committee.

Executive Compensation

        The following table sets forth information concerning compensation paid to our chief executive officer and our other four most highly compensated executive officers in the years indicated.

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Summary Compensation Table

								Long-term Compensation Awards
		Annual Compensation							Number of Securities Underlying Options/SARs
Name and Principal Position						Other Annual Annual Compensation(1)		Restricted Stock Awards(2)		All Other Compensation(3)
	Year	Salary		Bonus
Eugene B. Johnson Chairman and Chief Executive Officer	2003 2002 2001	$	341,923 256,500 285,000	$	166,450 69,543 —	$	45,353 46,093 37,511	— —	— 67,861 —	$	13,252 11,038 10,540
Peter G. Nixon. Chief Operating Officer	2003 2002 2001	$	198,789 155,000 151,827	$	95,200 47,024 60,014		— — —	5,946 — —	23,785 8,418 —	$	9,690 9,690 8,243
Walter E. Leach, Jr. Executive Vice President and Chief Financial Officer	2003 2002 2001	$	199,219 171,074 186,250	$	95,200 45,752 33,000	$	36,130 20,077 21,191	4,737 — —	— 77,363 —	$	11,661 9,822 8,100
John P. Duda President(4)	2003 2002 2001	$	189,000 189,081 200,000	$	61,625 50,568 —	$	31,127 37,431 29,701	— — —	— 54,125 —	$	10,435 10,435 10,839
Shirley J. Linn Senior Vice President, General Counsel and Secretary	2003 2002 2001	$	188,758 180,000 168,294	$	76,700 40,157 64,782		— — —	3,552 — —	14,211 9,207 —	$	11,379 9,898 9,378

(1)

Reflects the value of certain benefits provided pursuant to employment arrangements.

(2)

There were 27,382 restricted stock units outstanding as of December 31, 2003, with an aggregate value of $890,000.

(3)

Reflects matching contributions made under our 401(k) plan and the value of group term life insurance coverage.

(4)

Mr. Duda served as our President from April 2001 until September 2004. Mr. Duda's employment with us ended effective as of September 30, 2004.

1995 Stock Option Plan

        Our 1995 Stock Option Plan, or the 1995 plan, was adopted on February 22, 1995. The 1995 plan provides for the grant of options to purchase up to an aggregate of 215,410 shares of our class A common stock. The 1995 plan is administered by our compensation committee, which has made discretionary grants of options to our officers, directors and employees. As of September 30, 2004, a total of 112,263 options to purchase shares of our class A common stock were outstanding under the 1995 plan. Such options all have an exercise price equal to $1.32 per share, and are vested and exercisable.

        Following the closing of this offering, the options outstanding under the 1995 plan will remain vested and exercisable and may be exercised in accordance with the terms of the 1995 plan.

1998 Stock Incentive Plan

        In August 1998, we adopted our 1998 Stock Incentive Plan, or the 1998 plan. The 1998 plan provides for grants to members of management of up to 1,317,425 nonqualified options to purchase our class A common stock, at the discretion of the compensation committee. As of September 30, 2004, a total of 836,344 options to purchase shares of our class A common stock were outstanding under the 1998 plan. 750,639 of these options have an exercise price equal to $9.02 per share and are vested, 34,866 have an exercise price equal to $14.46 per share and are vested, 3,467 have an exercise price equal to $17.31 per share and are vested and exercisable and 47,372 of these options have an exercise price equal to $36.94 per share and are vested. If the underwriters' over-allotment option is exercised

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and Kelso & Company sells all of the 3,448,590 shares of our common stock that it owns, an exit event will occur under the 1998 Plan.

        While all of the options granted under the 1998 plan are vested, these options will only become exercisable if there is an exit event (as defined in the 1998 plan) and certain specified thresholds are met. An exit event will occur if (i) Kelso & Company sells all of the shares of common stock it owns to one or more third parties or (ii) all or substantially all of our assets are sold. Upon an exit event, options granted under the 1998 plan will become exercisable only if Kelso & Company receives an internal rate of return, compounded annually and determined after giving effect to any exercisable options granted under any of our equity incentive plans. The number of options, if any, that become exercisable upon such an exit event will be based on the price per share of common stock received in the transaction, with the percentage of each option grant becoming exercisable increasing as the price per share increases. Assuming the public offering price per share of our common stock is $19.00, the midpoint of the anticipated price range per share of our common stock, none of the options outstanding under the 1998 Plan will become exercisable other than the 3,467 options which are vested, exercisable and in-the-money. Any options that do not become exercisable in connection with an exit event will be cancelled in connection with the exit event.

2000 Employee Stock Incentive Plan

        In May 2000, the Company adopted the 2000 Employee Stock Incentive Plan, or the 2000 plan. The 2000 plan provides for grants to members of our management and other key employees of up to 1,898,521 options to purchase shares of our class A common stock, at the discretion of the compensation committee. During 2002, the Company amended the 2000 plan to limit the number of shares available for grant to 448,236. As of September 30, 2004, 267,512 options to purchase shares of our class A common stock were outstanding under the 2000 plan. Such options have an exercise price of $36.94 per share.

        Options granted under the 2000 Plan generally become vested based upon the participant's completion of a minimum period of continued employment with us, with 10% of each option grant becoming vested on the first anniversary of grant, 15% of each option grant becoming vested on the second anniversary of grant and 25% of each option grant becoming vested on each of the third, fourth and fifth anniversaries of grant. Unless otherwise determined by our compensation committee, any options that are not vested upon a participant's termination of employment will be cancelled.

        Following the closing of this offering, any options outstanding under the 2000 plan that are vested and exercisable may continue to be exercised in accordance with the terms of the 2000 plan, although options held by our executive officers and directors will be subject to the 180-day "lock-up" described under the heading "Shares Eligible for Future Sales—Lock-up Agreements." Any unvested options under the 2000 plan will continue to become vested and exercisable following the completion of this offering in accordance with the terms of the 2000 plan.

        In December 2003, we amended the 2000 plan to allow for the grant to members of our management of restricted stock units in addition to stock options. As a result, the 2000 plan provides for the grant to members of management of up to 1,898,521 shares of our class A common stock represented by restricted stock units and/or options to purchase our class A common stock, at the discretion of the compensation committee. As of September 30, 2004, 27,382 restricted stock units were outstanding.

        Restricted stock units granted under the 2000 plan generally become vested based upon the participant's completion of a minimum period of continued employment with us, with 33¹/3% of each grant becoming vested on each of the third, fourth and fifth anniversaries of grant. Unless otherwise determined by our compensation committee, if the participant's employment terminates because of the participant's death, disability (as defined in the 2000 plan) or retirement (as defined in the 2000 plan), all of the participant's restricted stock units will become immediately vested. If the participant's

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employment terminates for any other reason, all unvested restricted stock units will be forfeited and cancelled.

        All of the restricted stock units granted under the 2000 plan are currently unvested. Following the completion of this offering, these restricted stock units will continue to become vested in accordance with the terms of the 2000 plan.

        The 2000 plan contains a change in control provision that, if triggered, will potentially accelerate the vesting of options and restricted stock units granted under the 2000 plan. In the event of a change in control (as defined in the 2000 plan), each outstanding option will be canceled in exchange for a payment in cash equal to the product of (i) the excess of the change in control price over the option exercise price and (ii) the number of shares of common stock covered by such stock option. All restricted stock units granted under the 2000 plan will become vested and shall be immediately payable. Notwithstanding the foregoing, if the compensation committee determines before the change in control either that all outstanding awards will be honored or assumed by the acquirer, or alternative awards with equal or better terms will be made available, such outstanding awards will not be canceled, their vesting and exercisability will not be accelerated, and there will be no payment in exchange for such awards. Any alternative awards offered must generally:

•

have rights and entitlements (such as vesting, exercisability and payment) that are substantially equivalent to or better than the rights and entitlements of the awards related to our stock;



•

have substantially equivalent economic value, at the time of the change in control, to the awards in respect of our stock; and



•

provide that, upon the involuntary termination or constructive termination, of the participant's employment, the awards will be deemed vested or exercisable and any restrictions on transfer shall lapse, as the case may be.

New Stock Incentive Plan

        Our board has adopted and our stockholders have approved, effective upon the consummation of this offering, the FairPoint Communications, Inc. 2005 stock incentive plan, or the 2005 stock incentive plan. The 2005 stock incentive plan will provide for the award to eligible participants of (i) restricted stock and restricted units; (ii) stock options, including incentive stock options (within the meaning of Section 422 of the Internal Revenue Code); (iii) stock appreciation rights; (iv) incentive stock and incentive units; and/or (v) deferred shares and supplemental units.

        A total of 947,441 shares of our common stock will be available for award under the 2005 stock incentive plan. The maximum number of shares with respect to which options or stock appreciation rights may be granted to any one participant in any calendar year is 500,000. The maximum number of shares that may be issued under the plan through tax-qualified incentive stock options is 947,441. Shares subject to awards that are forfeited, canceled or otherwise terminated without the issuance of our common stock under the 2005 stock incentive plan will again be available for future awards under the 2005 stock incentive plan. If we undergo a stock dividend, stock split, share combination, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares or other similar event affecting our common stock, our compensation committee will equitably adjust the number and kind of shares that are available under the 2005 stock incentive plan and that are subject to outstanding options or other awards. Unless our compensation committee determines otherwise, participants will not be entitled to dividends or dividend equivalents with respect to unvested restricted stock awards. Awards may be made to any of our current or prospective directors, officers, employees or consultants. The number of individuals participating in the 2005 stock incentive plan will vary from year to year.

        We have decided to award, on the closing date of this offering, 473,716 shares of restricted stock in the aggregate to nine of our employees.

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        The compensation committee will determine the terms for vesting of awards, which may include vesting based on a period of continuous employment, or vesting based on the attainment of one or more of the performance criteria specified in the 2005 stock incentive plan. The shares of restricted stock awarded on the closing date of this offering will generally become vested in four equal annual installments commencing on April 1, 2006 (three equal annual installments for one of our named executive officers) and will not be entitled to receive dividends for any period prior to April 1, 2006.

        A participant's termination of employment will have the important consequences described below on outstanding awards under the 2005 stock incentive plan, unless the compensation committee determines otherwise at or after the date of grant. Participants will become vested in a pro-rata portion (based on the number of days employed during the vesting period) of any outstanding restricted stock and restricted units if their employment terminates because of their death, disability (as defined in the 2005 stock incentive plan), normal retirement (as defined in the 2005 stock incentive plan) or early retirement with the consent of the compensation committee (these terminations are referred to as qualifying terminations). If a participant's employment is terminated for any reason other than a qualifying termination, outstanding unvested restricted stock and restricted units will be forfeited and cancelled unless the compensation committee determines otherwise.

        Participants will become vested in any outstanding stock options and stock appreciation rights if their employment terminates as a result of a qualifying termination, and will forfeit any unvested stock options and stock appreciation rights if their employment terminates for any reason other than a qualifying termination. Participants will become vested in a pro-rata portion (based on the number of days employed during the performance period) of any outstanding incentive stock and incentive units that are actually earned based on our performance if their employment terminates as a result of a qualifying termination, and will forfeit any outstanding unvested incentive stock and incentive units if their employment terminates for any reason other than a qualifying termination.

        In the event of a change in control (as defined in the 2005 stock incentive plan), all awards other than stock options and stock appreciation rights granted under the 2005 stock incentive plan will become vested and shall be immediately transferable or payable. All outstanding stock options and stock appreciation rights shall, at the discretion of the compensation committee, become fully exercisable or be canceled in exchange for a payment in cash equal to the product of (i) the excess of the change in control price over the option exercise price or stock appreciation right base price, as applicable, and (ii) the number of shares of common stock covered by such stock option or stock appreciation right. Notwithstanding the foregoing, if the compensation committee determines before the change in control either that all outstanding awards will be honored or assumed by the acquirer, or alternative awards with equal or better terms will be made available, such outstanding awards will not be canceled, their vesting and exercisability will not be accelerated, and there will be no payment in exchange for such awards. Any alternative awards offered must generally:

•

be based on stock that is traded on an established securities market, or that will be so traded within 60 days of the change in control;



•

have rights and entitlements (such as vesting, exercisability and payment) that are substantially equivalent to or better than the rights and entitlements of the awards related to our stock;



•

have substantially equivalent economic value, at the time of the change in control, to the awards in respect of our stock; and



•

provide that, upon the involuntary termination or constructive termination of the participant's employment (including a relocation of the participant's principal place of work to a location more than 50 miles from the pre-change in control location), the awards will be deemed vested or exercisable and any restrictions on transfer shall lapse, as the case may be.

        Awards under the 2005 stock incentive plan will generally not be assignable or transferable other than by will or by the laws of descent and distribution, except that the compensation committee may

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permit certain transfers to the participant's family members or to certain entities controlled by the participant or his or her family members.

        The 2005 stock incentive plan will expire on the day prior to the first meeting of our stockholders in 2009 at which directors will be elected. However, the board of directors or our compensation committee may at any time, and from time to time, amend, modify or terminate the 2005 stock incentive plan. The expiration of the term of the 2005 stock incentive plan, or any amendment, suspension or termination, will not adversely affect any outstanding award held by a participant without the consent of the participant. However, our compensation committee may, in its absolute discretion, alter or amend any of the provisions of the 2005 stock incentive plan if such alteration or amendment would be required to comply with Section 409A of the Internal Revenue Code or any regulations promulgated thereunder.

        The following table sets forth the awards of restricted stock under our 2005 stock incentive plan which will be granted to the executive officers named in our management table on the closing date of this offering:

Name	Number of Shares of Common Stock Underlying Awards Under our 2005 Stock Incentive Plan
Eugene B. Johnson	189,488
Peter G. Nixon	56,846
Valeri A. Marks	44,213
Walter E. Leach, Jr.	94,744
Shirley J. Linn	44,213
Lisa R. Hood	18,948
Timothy W. Henry	9,474

New Annual Incentive Plan

        Our board of directors has adopted, effective upon the consummation of this offering, an annual performance incentive plan that will provide for the award of incentive bonuses to our named executive officers and certain of our other officers and employees. Each year the compensation committee will establish target incentive bonuses for participants in the annual incentive plan and will select the eligible participants and performance criteria for that year for a participant or group of participants.

        The actual bonus payable to a participant, which may equal, exceed or be less than the target bonus, will be determined based on whether the applicable performance targets are met, exceeded or not met. Performance targets may be based on one or more of the following criteria: (i) revenue growth; (ii) earnings before interest, taxes, depreciation and amortization; (iii) earnings before interest, taxes and amortization; (iv) operating income; (v) pre- or after-tax income; (vi) cash flow; (vii) cash flow per share; (viii) net earnings; (ix) earnings per share; (x) return on equity; (xi) return on invested capital; (xii) return on assets; (xiii) economic value added (or an equivalent metric); (xiv) share price performance; (xv) total shareholder return; (xvi) improvement in or attainment of expense levels; (xvii) improvement in or attainment of working capital levels; (xviii) debt reduction; or (xix) any other criteria our compensation committee in its sole discretion deems appropriate. The maximum bonus payable to a participant in any plan year is $1,000,000.

        Bonuses will generally be payable as soon as practicable after the compensation committee certifies that the applicable performance criteria have been obtained, and will generally be payable only if the participant remains employed with us through the end of the plan year, subject to the discretion of the compensation committee to allow payment after a participant's termination of employment.

        If a participant in the plan dies, becomes disabled or retires prior to the end of any plan year, the compensation committee may award to the participant (or his or her estate or legal representative) a

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partial bonus as it determines appropriate based on the portion of the year the participant worked. In addition, the compensation committee may require that a portion of a participant's annual incentive bonus be payable in shares of common stock, options or other stock-based awards granted under our 2005 stock incentive plan described above, which awards may also be subject to additional vesting or other restrictions determined by the compensation committee.

        The annual incentive plan will be administered by our compensation committee, which may delegate its authority except to the extent that it relates to the compensation of our named executive officers or any other individual whose compensation the board of directors or the compensation committee reasonably believes may become subject to Section 162(m) of the Internal Revenue Code. The annual incentive plan will expire one day prior to the date of the first meeting of our stockholders in 2009 at which directors will be elected. However, the compensation committee may at any time amend, suspend, discontinue or terminate the annual incentive plan, provided that any such amendment, suspension, discontinuance or termination does not adversely affect participants' rights without their consent. The determination of the compensation committee on all matters relating to the annual incentive plan will be final and binding on us, participants and all other interested parties.

        Section 162(m) of the Internal Revenue Code generally limits the ability of a public corporation to deduct compensation greater than $1,000,000 paid with respect to a particular year to an individual who is, on the last day of that year, the corporation's chief executive officer or one of its four other most highly compensated executive officers, other than compensation that is "performance based" within the meaning of Section 162(m). Under a special rule that applies to corporations that become public through an initial public offering, this limitation generally will not apply to compensation that is paid pursuant to the plans described above before the first meeting of our stockholders in 2009 at which directors will be elected.

Options/SAR Grants in the Last Fiscal Year

        The following table sets forth the information with respect to the named executive officers set forth in the Summary Compensation Table concerning the grant of options during fiscal year 2003.

	Individual Grants						Grant-Date Value
Name	Number of Securities Underlying Options/SARs Granted	% of Total Options/SARs Granted to Employees in Fiscal Year		Exercise or Base Price($/sh)		Expiration Date	Grant-date Present Value $(1)
Peter G. Nixon	23,785	20.2	%	$	36.94	12/13/2013	$	8.39
Peter G. Nixon	5,946	5.0	%	$	0.00	12/13/2013	$	8.39
Walter E. Leach, Jr.	4,737	4.0	%	$	0.00	12/13/2013	$	8.39
Shirley J. Linn	14,211	12.0	%	$	36.94	12/13/2013	$	8.39
Shirley J. Linn	3,552	3.0	%	$	0.00	12/13/2013	$	8.39

(1)

The per share weighted average fair value of stock options granted under the 2000 plan during 2003 was $8.39 on the date of grant using the Black Scholes option-pricing model. Input variables used in the model included no expected dividend yields, a weighted average risk free interest rate of 4.26% and an estimated option life of 10 years. Because FairPoint was nonpublic on the date of grant, no assumption as to the volatility of the stock prices was made.

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Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values

        The following table sets forth the information with respect to the named executive officers set forth in the Summary Compensation Table concerning the exercise of options during fiscal year 2003, the number of securities underlying options as of December 31, 2003 and the year-end value of all unexercised in-the-money options held by such individuals.

Name	Shares Acquired on Exercise (#)	Value Realized ($)	Numbers of Securities Underlying Unexercised Options/SARs At Fiscal Year End (#) Exercisable/Unexercisable	Value of Unexercised In The Money Options/SARs at Fiscal Year End ($) Exercisable/Unexercisable(1)
Eugene B. Johnson	0	0	50,644/284,055	$1,260,012/$5,314,763
Peter G. Nixon	0	0	2,393/54,706	—/$627,807
Walter E. Leach, Jr.	0	0	38,682/158,893	—/$3,210,410
John P. Duda(2)	0	0	29,916/119,912	$561,805/$2,169,578
Shirley J. Linn	0	0	3,635/23,338	—/$115,500

(1)

Represents the difference between the exercise price and the fair market value of our common stock at December 31, 2003.

(2)

Mr. Duda's employment with the Company ended effective as of September 30, 2004.

Employment Agreements

Eugene B. Johnson

        In December 2002, we entered into an employment agreement with Mr. Johnson, pursuant to which we named Mr. Johnson Chief Executive Officer of the Company and/or Chairman of the Company's Board of Directors from December 31, 2002 to December 31, 2006. The employment agreement provides that Mr. Johnson will receive an annual base salary of $350,000, an annual discretionary bonus, and Mr. Johnson shall be entitled to participate in all incentive, savings, stock option and retirement plans, practices, policies and programs applicable generally to other senior management. The employment agreement also provides that upon (i) the expiration of Mr. Johnson's employment period, or (ii) the termination of Mr. Johnson's employment as Chief Executive Officer without cause, Mr. Johnson is entitled to receive certain benefits. These benefits include continued medical coverage for Mr. Johnson and his wife until each has reached age 65, the accelerated vesting of all options granted to Mr. Johnson under the Company's 1998 plan and 2000 plan and extension of Mr. Johnson's right to exercise all of his vested options under the 1995 plan and the 2000 plan within certain time periods. If we terminate Mr. Johnson for cause or he voluntarily resigns he is not entitled to any benefits under the employment agreement. If Mr. Johnson's employment is terminated without cause during the term of his employment agreement he is entitled to receive payment of his salary as of the termination event for two years, subject to suspension for a breach of Mr. Johnson's covenant not to compete with us. Upon the expiration of the term of Mr. Johnson's employment agreement at December 31, 2006, unless extended, he is entitled to receive payment of his salary as of such expiration date for one year thereafter, subject to suspension for a breach of Mr. Johnson's covenant not to compete with us. The employment agreement supersedes and terminates all prior employment agreements and severance arrangements between Mr. Johnson and us.

        In October 2004, we entered into a letter agreement with Mr. Johnson pursuant to which we extended his right to exercise the options granted to him under the 1995 plan until May 21, 2008. In addition, Mr. Johnson agreed that in connection with any public offering of equity securities by us prior to May 21, 2008, Mr. Johnson will be offered the same rights and will be subject to the same obligations in connection with any such offering as our executive officers then in office.

Jack H. Thomas

        In December 2001, we entered into a succession agreement with Mr. Thomas, pursuant to which Mr. Thomas resigned from his position as Chief Executive Officer of the Company and we retained

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him to serve as a non-executive member of our board of directors. In December 2003, Mr. Thomas resigned from his position as a member of the board of directors. The succession agreement provides for Mr. Thomas' right to exercise all of his vested options until the termination of the succession period and the immediate vesting of all unvested options upon a change of control or an early termination of the succession agreement without cause. In December 2003, we entered into a letter agreement with Mr. Thomas, supplementing and modifying the succession agreement. The letter agreement provides that Mr. Thomas and his wife shall continue to receive certain benefits until each is 65 years of age. In addition, the letter agreement extends Mr. Thomas' right to exercise certain fully vested options, subject to certain terms, conditions and trigger events. Furthermore, the letter agreement confirms that the restrictive covenants set forth in certain option plans continue to be in full force and effect until December 11, 2004, unless we subsequently waive the covenants.

        In October 2004, we entered into a letter agreement with Mr. Thomas pursuant to which we extended his right to exercise the options granted to him under the 1995 plan until May 21, 2008. In addition, Mr. Thomas agreed that in connection with any public offering of equity securities by us prior to May 21, 2008, Mr. Thomas will be offered the same rights and will be subject to the same obligations in connection with any such offering as our executive officers then in office.

Walter E. Leach, Jr.

        In January 2000, we entered into an employment agreement with Mr. Leach, which agreement expired on December 31, 2003. In December 2003, we entered into a letter agreement with Mr. Leach, supplementing and modifying his employment agreement. The letter agreement provides that following the expiration of his employment agreement, Mr. Leach shall continue as an employee at will. During this period, Mr. Leach is entitled to receive certain benefits. The letter agreement also provides that upon termination of Mr. Leach's employment by us without cause (including upon a change of control), Mr. Leach is entitled to receive from us in a lump sum payment an amount equal to his base salary as of the date of termination for a period of twelve months, plus all accrued and unpaid base salary and benefits as of the date of termination. In addition, Mr. Leach is also entitled to receive continued long-term disability, term life insurance and medical benefits following his termination for twelve months following such date of termination.

Peter G. Nixon, Valeri A. Marks and Shirley J. Linn

        In November 2002, we entered into a letter agreement with each of Mr. Nixon and Ms. Linn, and in October 2004, we entered into a letter agreement with Ms. Marks. The letter agreements provide that upon the termination of each person's respective employment with us without cause, each person is entitled to receive from us in a lump sum payment an amount equal to twelve months of such executive's base salary as of the date of termination, plus the continuation of certain benefits, including medical benefits, for twelve months.

John P. Duda

        In October 2004, we entered into an agreement with Mr. Duda. The letter agreement provides that Mr. Duda's last day of employment with us was September 30, 2004 and that we will provide Mr. Duda with certain benefits, including a separation payment equivalent to fifty-two weeks of base salary, medical and disability benefits through September 30, 2005 and eligibility for a discretionary bonus and any discretionary 401(k) corporate performance awards for the year ended December 31, 2004 on a pro rata basis. In addition, the letter agreement provides that (i) Mr. Duda's right to exercise the options granted to him under the 1995 plan will be extended until May 21, 2008, (ii) the options granted to him under the 1998 plan will remain in effect pursuant to the agreements governing such options, (iii) the vested options granted to him under the 2000 plan will terminate unless exercised within 60 days of his last day of employment and any unvested options thereunder will terminate on his last day of employment and (iv) in connection with any public offering of equity securities by us prior to May 21, 2008, Mr. Duda will be offered the same rights and will be subject to the same obligations in connection with any such offering as our executive officers then in office.

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Certain Relationships
and Related Party Transactions

Financial Advisory Agreements

        We entered into a Management Services Agreement with THL Equity Advisors IV, LLC, dated as of January 20, 2000, and an Amended and Restated Financial Advisory Agreement, dated as of January 20, 2000, with Kelso & Company, pursuant to which THL Equity Advisors IV, LLC and Kelso & Company provide us certain consulting and advisory services related, but not limited to, equity financings and strategic planning. Each of these agreements expires on the earlier to occur of (i) December 31, 2006 or (ii) solely with respect to the Management Services Agreement, the date that THL Equity Advisors IV, LLC ceases to own, and solely with respect to the Amended and Restated Financial Advisory Agreement, the date that Kelso Investment Associates V, L.P. and Kelso Equity Partners V, L.P. collectively cease to own at least 10% of the number of shares of our stock they held as of January 20, 2000. Pursuant to these agreements, we pay to each of THL Equity Advisors IV, LLC and Kelso & Company annual advisory fees of $500,000, payable on a quarterly basis, we reimburse them for out of pocket expenses, and we have agreed to indemnify them against certain liabilities they may incur in connection with their provision of advisory services. In addition, we agreed to pay a transaction fee of approximately $8.4 million to Kelso & Company, which fee is payable upon the earlier of (i) an initial public offering of our class A common stock, (ii) a sale of the Company to a third party or parties, whether structured as a merger, sale of stock, sale of assets, recapitalization or otherwise or (iii) Kelso Investment Associates V., LP and Kelso Equity Partners V, L.P. ceasing to own, collectively, at least 10% of the number of shares of our stock they held collectively as of January 20, 2000. In connection with our equity financing and recapitalization in January 2000, we terminated our financial advisory agreement with Carousel Capital Partners, L.P., a former significant stockholder, and the original financial advisory agreement with Kelso. The $8.4 million transaction fee referred to above will be paid to Kelso upon the consummation of this offering. We paid advisory fees and out of pocket expenses of approximately $1,020,850, $1,042,662 and $1,120,117 in the aggregate to THL Equity Advisors IV, LLC and Kelso & Company in 2003, 2002 and 2001, respectively. We will terminate the Management Services Agreement with THL Equity Advisors IV, LLC and the Amended and Restated Financial Advisory Agreement with Kelso & Company upon the closing of this offering. However, our obligations with respect to the indemnification of Kelso & Company will survive.

Legal Services

        Daniel G. Bergstein, a director of the Company, is a senior partner of Paul, Hastings, Janofsky & Walker LLP, a law firm which provides legal services to us. In the years ended December 31, 2003, 2002 and 2001, we paid Paul Hastings approximately $1,270,575, $791,724 and $820,206, respectively, for legal services and expenses.

        Dumont Clarke, the husband of Shirley J. Linn, our Senior Vice President, General Counsel and Secretary, is a partner of Moore & Van Allen PLLC, a law firm which provides legal services to us. In the years ended December 31, 2003, 2002 and 2001, we paid Moore & Van Allen PLLC approximately $127,000, $21,000 and $25,000, respectively, for legal services and expenses.

Stockholders Agreements, Nominating Agreement and Registration Rights Agreements

        In connection with our January 2000 equity financing and recapitalization, we entered into a stockholders agreement with our stockholders, dated as of January 20, 2000, which contains provisions relating to, among other things: (i) the designation of members to our board of directors (including two members to be designated by Thomas H. Lee Equity Fund, two members by Kelso & Company and the designation jointly by Thomas H. Lee Equity Fund and Kelso & Company of Daniel G. Bergstein, Eugene B. Johnson and Jack H. Thomas), (ii) restrictions on transfers of shares, (iii) procedures to be followed under certain circumstances with respect to a sale of the Company, (iv) the requirement that

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our stockholders take certain actions in connection with an initial public offering or a sale of the Company, (v) the requirement of the Company to sell shares to the stockholders under certain circumstances upon authorization of an issuance or sale of additional shares, (vi) the participation rights of stockholders in connection with a sale of shares by other stockholders, and (vii) our right to purchase all (but not less than all) of the shares of a management stockholder in the event of resignation, termination of employment, death or disability. The stockholders agreement also provides that we must obtain the consent of Thomas H. Lee Equity Fund and Kelso & Company in order for us to incur debt in excess of $5 million. The stockholders agreement will terminate upon the consummation of this offering.

        In connection with this offering, we will enter into a nominating agreement with Thomas H. Lee Equity Fund and Kelso & Company pursuant to which we, acting through our corporate governance committee, will agree, subject to the requirements of our directors' fiduciary duties, that (i) Thomas H. Lee Equity Fund will be entitled to designate one Class III director to be nominated for election to our board of directors and Kelso & Company will be entitled to designate one Class II director to be nominated for election to our board of directors as long as Thomas H. Lee Equity Fund and Kelso & Company own in the aggregate at least 40% of the shares of our common stock which they owned immediately prior to the closing of this offering or (ii) Thomas H. Lee Equity Fund will be entitled to designate one Class III director to be nominated for election to our board of directors as long as Thomas H. Lee Equity Fund and Kelso & Company own in the aggregate less than 40% and at least 20% of the shares of our common stock which they owned immediately prior to the closing of this offering. In addition, at any time after Kelso & Company no longer owns any of our common stock, as long as Thomas H. Lee Equity Fund owns at least 40% of the shares of our common stock which Thomas H. Lee Equity Fund and Kelso & Company owned immediately prior to the closing of this offering, Thomas H. Lee Equity Fund will be entitled to designate one Class II director to be nominated for election to our board of directors in addition to its right to designate one Class III director to be nominated for election to our board of directors.

        We entered into a registration rights agreement with certain of our stockholders, dated as of January 20, 2000, pursuant to which such stockholders have the right in certain circumstances and, subject to certain conditions, to require us to register shares of our common stock held by them under the Securities Act. Under the registration rights agreement, except in limited circumstances, we are obligated to pay all expenses in connection with such registration.

        In connection with this offering, we will terminate our existing registration rights agreement and enter into a new registration rights agreement with Thomas H. Lee Equity Fund, Kelso & Company, certain other significant stockholders and certain members of our management, which we refer to as the affiliate registration rights agreement. The affiliate registration rights agreement will require us to use our commercially reasonable efforts to file with the Securities and Exchange Commission on the 181st day following the closing of this offering a shelf registration statement covering the shares of our common stock held by such parties and to use our commercially reasonable efforts to have such shelf registration statement declared effective by the Securities and Exchange Commission as soon as reasonably practicable thereafter.

Founder Compensation Arrangements

        Daniel G. Bergstein, Jack H. Thomas, Meyer Haberman and Eugene B. Johnson, our founding stockholders, have entered into an arrangement with Walter E. Leach, Jr. and John P. Duda pursuant to which such stockholders have agreed to provide compensation to Mr. Leach and Mr. Duda upon the occurrence of certain specified liquidation events with respect to us, based on our value at the time of such liquidation event. In connection with this offering, our founding stockholders will satisfy their obligations to Mr. Leach and Mr. Duda pursuant to this arrangement.

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Principal and Selling Stockholders

        The following table sets forth information regarding beneficial ownership of our common stock as of December 31, 2004 before and after giving effect to the offering for (i) each executive officer named in the "Summary Compensation Table", (ii) each director, (iii) all executive officers named in the "Summary Compensation Table" and directors as a group, (iv) each person who beneficially owns 5% or more of the outstanding shares of our common stock, and (v) each person who will sell shares of our common stock in this offering if the underwriters exercise their over-allotment option.

        The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission governing the determination of beneficial ownership of securities. Under the rules of the Securities and Exchange Commission, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose of or direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated.

        Our class C common stock will be converted into shares of our class A common stock and our class A common stock will be reclassified into common stock upon the closing of this offering.

		Shares Beneficially Owned Prior to this Offering(1)				Shares Beneficially Owned After this Offering Assuming No Exercise of the Over-Allotment Option (3)			Shares Beneficially Owned After this Offering Assuming Exercise in Full of the Over-Allotment Option (3)
					Shares to be Sold in this Offering Assuming Full Exercise of the Over-Allotment Option (2)
		Number	%			Number	%		Number	%
Executive Officers and Directors:
Eugene B. Johnson(4)		136,710	1.4	%	—	136,710	0.4	%	136,710	0.4	%
Peter G. Nixon(5)		8,164	0.1	%	—	8,164	**		8,164	**
Valeri A. Marks(6)
Walter E. Leach, Jr.(7)		58,023	0.6	%	—	58,023	0.2	%	58,023	0.2	%
John P. Duda(8)		18,012	0.2	%	—	18,012	0.1	%	18,012	0.1	%
Shirley J. Linn(9)		7,115	0.1	%	—	7,115	**		7,115	**
Daniel G. Bergstein(10)		438,738	4.6	%	83,768	438,738	1.3	%	354,970	1.0	%
Frank K. Bynum, Jr.(11)		3,448,590	36.4	%	3,448,590	3,448,590	10.0	%	0	**
Anthony J. DiNovi(12)		4,066,731	43.0	%	—	4,066,731	11.8	%	4,066,731	11.8	%
George E. Matelich(11)		3,448,590	36.4	%	3,448,590	3,448,590	10.0	%	0	**
Kent R. Weldon(12)		4,066,731	43.0	%	—	4,066,731	11.8	%	4,066,731	11.8	%
All Executive Officers and Directors as a group (10 persons)		8,182,083	85.1	%	3,532,358	8,182,083	23.6	%	4,649,725	13.5	%
5% Stockholders:
Kelso Investment Associates V, L.P. and Kelso Equity Partners V, L.P.(11)		3,448,590	36.4	%	3,448,590	3,448,590	10	%	0	**
	320 Park Avenue, 24th Floor New York, New York 10022
Thomas H. Lee Equity Fund IV, L.P. and affiliates(12)		4,066,731	43.0	%	—	4,066,731	11.8	%	4,066,731	11.8	%
	100 Federal Street, 35th Floor Boston, Massachusetts 02110
Other Selling Stockholders:
Meyer Haberman(13)		268,662	2.8	%	73,568	268,662	0.8	%	195,094	0.6	%
Jack H. Thomas(14)		333,042	3.5	%	57,395	333,042	1.0	%	275,647	0.8	%
Magnetite Asset Investors LLC		57,786	0.6	%	57,786	57,786	0.2	%	0	**
CoInvestment I, LLC		28,893	0.3	%	28,893	28,893	0.1	%	0	**

**

Less than .1%.

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(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 9,468,121 shares of our common stock outstanding as of December 31, 2004.

(2)

The selling stockholders will sell shares of our common stock in connection with this offering only to the extent the underwriters exercise their over-allotment option. To the extent the over-allotment option is exercised and the number of shares exceeds the amount held by Kelso Investment Associates V, L.P., Kelso Equity Partners V, L.P. and Magnetite Asset Investors LLC, Daniel G. Bergstein, Meyer Haberman and Jack H. Thomas will sell certain of their shares.

(3)

The percentage of beneficial ownership is based on 34,451,719 shares of our common stock outstanding as of the closing of this offering. This amount of shares outstanding does not include 473,716 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares will begin to vest on April 1, 2006.

(4)

With respect to shares beneficially owned prior to and after this offering: (i) includes 55,765 shares of our common stock issuable upon exercise of stock options that are either currently exercisable or become exercisable during the next 60 days, and (ii) does not include 278,932 shares of our common stock issuable upon exercise of stock options that are not currently exercisable or do not become exercisable during the next 60 days. With respect to shares beneficially owned after this offering, does not include 189,488 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares are subject to certain vesting requirements.

(5)

With respect to shares beneficially owned prior to and after this offering: (i) includes 6,421 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 44,729 shares of our common stock issuable upon exercise of stock options that are not currently exercisable or do not become exercisable during the next 60 days and (iii) does not include 5,946 shares of our common stock underlying unvested restricted stock units. With respect to shares beneficially owned after this offering, does not include 56,846 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares are subject to certain vesting requirements.

(6)

With respect to shares beneficially owned after this offering, does not include 44,213 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares are subject to certain vesting requirements.

(7)

With respect to shares beneficially owned prior to and after this offering: (i) includes 58,023 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 134,814 shares of our common stock issuable upon exercise of stock options that are not currently exercisable or do not become exercisable during the next 60 days and (iii) does not include 4,737 shares of our common stock underlying unvested restricted stock units. With respect to shares beneficially owned after this offering, does not include 94,744 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares are subject to certain vesting requirements.

(8)

With respect to shares beneficially owned prior to and after this offering: (i) includes 18,012 shares of our common stock issuable upon exercise of stock options that are either currently exercisable or become exercisable during the next 60 days and (ii) does not include 77,690 shares of our common stock issuable upon exercise of stock options that are not currently exercisable or do not become exercisable during the next 60 days.

(9)

With respect to shares beneficially owned prior to and after this offering: (i) includes 7,115 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 16,304 shares of our common stock issuable upon exercise of stock options that are not currently exercisable or do not become exercisable during the next 60 days and (iii) does not include 3,552 shares of our common stock underlying unvested restricted stock units. With respect to shares beneficially owned after this offering, does not include 44,213 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares are subject to certain vesting requirements.

(10)

With respect to shares beneficially owned prior to and after this offering, includes 407,423 shares of our common stock owned by JED Communications Associates, Inc., a corporation owned 100% by Mr. Bergstein and members of his immediate family and 31,265 shares of our common stock owned by certain of Mr. Bergstein's family members, for which Mr. Bergstein has both voting and disposition power.

(11)

Share amounts include 3,112,861 shares of our common stock owned by Kelso Investment Associates V, L.P. and 335,729 shares of our common stock owned by Kelso Equity Partners V, L.P. Kelso Investment Associates V, L.P. and Kelso Equity Partners V, L.P., due to their common control, could be deemed to beneficially own each other's shares, but each disclaims such beneficial ownership. Joseph S. Schuchert, Frank T. Nickell, Thomas R. Wall, IV, George E. Matelich, Michael B. Goldberg, David I. Wahrhaftig, Frank K. Bynum, Jr., Philip E. Berney, Frank J. Loverro and Michael B. Lazar may be deemed to share beneficial ownership of shares of our common stock owned of record by Kelso Investment Associates V, L.P. and Kelso Equity Partners V, L.P., by virtue of their status as general partners of the general partner of Kelso Investment Associates V, L.P. and as general partners of Kelso Equity Partners V, L.P. Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig, Bynum, Berney, Loverro and Lazar share investment and voting power with respect to securities owned by Kelso Investment Associates V, L.P. and Kelso Equity Partners V, L.P., but disclaim beneficial ownership of such securities.

(12)

Shares of our common stock held by Thomas H. Lee Equity Fund IV, L.P. may be deemed to be beneficially owned by THL Equity Advisors IV, LLC, the general partner of Thomas H. Lee Equity Fund IV, L.P.; Thomas H. Lee Partners, L.P.; and Thomas H. Lee Advisors, LLC, the general partner of Thomas H. Lee Partners, L.P. Thomas H. Lee Advisors, LLC is controlled by its managing group, consisting of Thomas H. Lee, Anthony J. DiNovi, Scott A. Schoen, Scott M. Sperling, David V. Harkins, Thomas M. Hagerty and C. Hunter Boll. All decisions must be approved by a majority of the managing group. Each of such persons disclaims beneficial ownership of such shares.

(13)

Share amounts include 122,946 shares owned by Meyer Haberman and 145,716 shares owned by certain family members of Meyer Haberman.

(14)

With respect to shares beneficially owned prior to and after this offering, includes 53,852 shares of our common stock issuable upon exercise of stock options that are currently exercisable.

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Shares Eligible For Future Sales

        Future sales or the availability for sale of substantial amounts of our common stock in the public market could adversely affect prevailing market prices and could impair our ability to raise capital through future sales of our securities. Upon the closing of this offering, we will have 34,925,435 shares of our common stock outstanding (including 473,716 shares of restricted stock which will begin to vest on April 1, 2006). The 25,000,000 shares of our common stock offered pursuant to this prospectus will be freely tradable without restriction or further registration under the Securities Act, unless the shares of our common stock are held by our "affiliates," as that term is defined in Rule 144 under the Securities Act. The remaining shares of our common stock owned as of the closing of this offering by our existing equity investors, our directors, certain members of our management and our current and former employees will be "restricted securities," as that term is defined in Rule 144 under the Securities Act. In addition, following this offering, members of our management and other employees will hold fully vested, exercisable and in-the-money stock options to purchase a total of 115,730 shares of our common stock.

Lock-Up Agreements

        We, our executive officers and directors and substantially all of our significant stockholders have agreed to a 180-day "lock-up," subject to certain exceptions, with respect to all shares of our common stock, including securities that are convertible into shares of our common stock and securities that are exchangeable or exercisable for shares of our common stock, which we may issue or they may own prior to this offering or purchase in or after this offering, as the case may be. This means that for a period of 180 days following the date of this prospectus, we and such persons may not offer, sell, pledge or otherwise dispose of any of these securities or request or demand that we file a registration statement related to any of these securities without the prior written consent of the representatives of the underwriters, subject to the following exceptions: (a) the sale of shares of our common stock to the underwriters; (b) the issuance by us of shares of our common stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date of this prospectus and described in this prospectus; (c) transactions by any person other than us relating to shares of our common stock or other securities acquired in open market transactions after the completion of this offering, provided that no filing by any party under the Securities Exchange Act of 1934, or the Exchange Act, shall be required or shall be voluntarily made in connection with subsequent sales of our common stock or other securities acquired in such open market transactions; (d) grants by us of options to purchase shares of our common stock pursuant to employee or management stock option, incentive or other plans or arrangements described in this prospectus; (e) the issuance, offer or sale by us of shares of our common stock pursuant to employee or management stock option, incentive or other plans or arrangements described in this prospectus and the filing by us of any registration statement on Form S-8 in connection therewith; (f) transfers of shares of our common stock or any security convertible into shares of our common stock as a bona fide gift or gifts; or (g) distributions of shares of our common stock or any security convertible into shares of our common stock to members, limited partners or stockholders of the selling stockholders; provided that in the case of any transfer or distribution pursuant to clause (f) or (g), each donee or distributee agrees in writing to be bound by the transfer restrictions described above and no filing by any party under the Exchange Act shall be required or shall be voluntarily made reporting a reduction in beneficial ownership of shares of common stock during the lock-up period.

        The representatives of the underwriters do not have any current intention to release shares of common stock or other securities subject to the lock-up. Any determination to release any shares subject to the lock-up would be based on a number of factors at the time of any such determination, including the market price of the common stock, the liquidity of the trading market for the common

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stock, general market conditions, the number of shares proposed to be sold, and the timing, purpose and terms of the proposed sale.

Registration Rights Agreement

        The affiliate registration rights agreement will require us to use our commercially reasonable efforts to file with the Securities and Exchange Commission on the 181st day following the closing of this offering a shelf registration statement covering the shares of our common stock held by Thomas H. Lee Equity Fund, Kelso & Company, certain other significant stockholders and certain members of our management and to use our commercially reasonable efforts to have such shelf registration statement declared effective by the Securities and Exchange Commission as soon as reasonably practicable thereafter. See "Certain Relationships and Related Party Transactions—Stockholders Agreement, Nominating Agreement and Registration Rights Agreements." Upon completion of this offering, our existing equity investors will own shares of our common stock representing an aggregate 21.8% ownership interest in us, or 11.8% if the underwriters' over-allotment option is exercised in full.

Rule 144

        In general, under Rule 144, as currently in effect, beginning 90 days after the date of this prospectus, any person, including an affiliate, who has beneficially owned shares of our common stock for a period of at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of:

•

1% of the then-outstanding shares of our common stock; and



•

the average weekly trading volume in the common stock on the New York Stock Exchange during the four calendar weeks preceding the date on which the notice of the sale is filed with the Securities and Exchange Commission.

        Sales under Rule 144 are also subject to provisions relating to notice, manner of sale, volume limitations and the availability of current public information about us.

        Subject to the underwriters' lock-up, we estimate that 9,468,121 shares of our common stock that are restricted securities or are held by our affiliates as of the date of this prospectus will be eligible for sale in the public market in compliance with Rule 144 under the Securities Act.

        Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares for at least two years, including the holding period of any prior owner other than an "affiliate," is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.

        Subject to certain limitations, we may issue shares of our common stock or other securities from time to time as consideration for future acquisitions and investments. In the event any such acquisition or investment is significant, the number of shares of our common stock or other securities that we may issue may in turn be significant. In addition, we may also grant registration rights covering those shares of our common stock or other securities in connection with any such acquisitions and investments.

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Description of Certain Indebtedness

New Credit Facility

        Concurrently with the closing of this offering, FairPoint will enter into a new secured credit facility, which will replace its existing credit facility. We expect that the new credit facility will consist of a credit agreement among FairPoint and certain financial institutions, with Deutsche Bank Trust Company Americas, as administrative agent. FairPoint will be the borrower under the new credit facility and each of FairPoint's direct subsidiaries will guarantee FairPoint's obligations. The terms of the new credit facility have not yet been agreed upon. Because the terms, conditions and covenants of the new credit facility are subject to negotiation, execution and delivery of definitive loan documents, certain of the actual terms, conditions and covenants of the new credit facility may differ from those described below. This offering is conditioned upon the closing of the new credit facility.

        We expect that the new credit facility will consist of:

•

a revolving facility, or the new revolver, in a total principal amount of $100.0 million; and



•

a term loan facility, or the new term loan, in a total principal amount of $590.0 million.

        We expect that the new revolver will have a swingline subfacility in an amount to be determined and a letter of credit subfacility in an amount to be determined, which will allow issuances of standby letters of credit for our account. The new credit facility will also permit interest rate and currency exchange swaps and similar arrangements that we may enter into with the lenders under the new credit facility and/or their affiliates.

        We expect that $590.0 million of the new term loan will be drawn upon the closing of this offering, and we will have $100.0 million of available borrowings under the new revolver. We intend to use the borrowings under the new term loan together with the proceeds of this offering to, among other things, repay all outstanding loans under our existing credit facility, consummate the tender offer and consent solicitation in respect of our existing 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% notes and repurchase our series A preferred stock. We expect to borrow additional amounts under the new revolver from time to time to provide for working capital and general corporate needs, including to finance permitted acquisitions. In the event that less than all of our existing 12¹/2% notes or 11⁷/8% notes are tendered in the tender offers and consent solicitations for such notes, a corresponding portion of our new term loan facility may be drawn for a period of one year following the closing of this offering to redeem or repurchase those notes, subject to the terms and conditions of the new credit facility.

        We expect that the new term loan will mature in February 2012 and the new revolver will mature in February 2011.

        We expect that the new credit facility will have several features similar to credit facilities of this nature, including but not limited to:

        Interest Rate and Fees.    Borrowings will bear interest, at our option, for the new revolver and for the new term loan at either (a) the Eurodollar rate plus an applicable margin or (b) a base rate, as such term will be defined in the new credit agreement, plus an applicable margin.

        The Eurodollar rate applicable margin and the base rate applicable margin for loans under our new credit facility are expected to be between 2.0% and 2.5% and 1.0% and 1.5%, respectively. Interest on swing line loans will bear interest at the base rate plus the base rate applicable margin. Interest with respect to base rate loans will be payable quarterly in arrears and interest with respect to Eurodollar loans will be payable at the end of the applicable interest period and every three months in the case of interest periods in excess of three months.

        The new credit facility will provide for payment to the lenders of a commitment fee on any unused commitments initially equal to 0.5% per annum, payable quarterly in arrears, as well as other fees.

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        We intend to enter into an interest rate swap agreement which will fix the interest rate on approximately $191.8 million of the floating rate borrowings under the new term loan for a period of five years after the closing of this offering and an interest rate swap agreement which will fix the interest rate on approximately $191.8 million of floating rate borrowings under the new term loan for a period of three years after the closing of this offering. The floating rate borrowings under our new credit facility will bear interest at the Eurodollar rate plus an applicable margin, which is expected to be between 2.0% and 2.5%. These interest rate swaps will effectively limit the interest rate on 65% of our floating rate debt to a blended interest rate of not more than 5.7% per annum for the first three years following the closing of this offering.

        Mandatory Prepayments.    The new credit facility will require us first to prepay outstanding term loans under the new credit facility and, thereafter, to repay loans under the new revolver and/or reduce revolver commitments (or commitments under the delayed draw feature of our new term loan facility) under the new credit facility with, subject to certain conditions and exceptions, 100% of the net cash proceeds we receive from any sale, transfer or other disposition of any assets, 100% of net casualty insurance proceeds and 100% of the net cash proceeds we receive from the issuance of permitted securities and, at certain times if we are not permitted to pay dividends, with 50% of the increase in our cumulative distributable cash (as defined below) during the prior fiscal quarter. Reductions to the revolving commitments under the new credit facility from the foregoing recapture events will not reduce the revolving commitments under the new credit facility below $50.0 million.

        Voluntary Prepayments.    The new credit agreement will provide for voluntary prepayments of the new revolver and the new term loan and voluntary commitment reductions of the new revolver (and the delayed draw feature of the new term loan facility), subject to giving proper notice and compensating the lenders for standard Eurodollar breakage costs, if applicable.

        Covenants.    We expect that the new credit facility will contain financial covenants, including, without limitation, the following tests: a minimum interest coverage ratio and a maximum leverage ratio.

        The new credit facility will contain customary affirmative covenants. The new credit facility will also contain negative covenants and restrictions, including, among others, with respect to redeeming and repurchasing our other indebtedness, loans and investments, additional indebtedness, liens, capital expenditures, changes in the nature of our business, mergers, acquisitions, asset sales and transactions with affiliates.

        Payment of Dividends.    Subject to the second sentence of the first paragraph under "Suspension of Dividend Payments" below, under the new credit facility, we will be permitted to pay dividends for the period from the closing date of this offering through March 31, 2005. In addition, we may use all of our Cumulative Distributable Cash accumulated after April 1, 2005 to pay dividends, but we may not in general pay dividends in excess of such amount.

        Set forth below is a summary of certain of the defined terms that will be used in the provisions governing the payment of dividends and mandatory payments during suspension of dividends under our new credit facility.

        "Available Cash" means, for any reference period, an amount of cash equal to the sum (which may be negative) of (without duplication) (I) our Adjusted EBITDA for such reference period minus (II) the sum of (i) our consolidated interest expense during such reference period, to the extent included in determining such Adjusted EBITDA, (ii) all scheduled, mandatory and voluntary principal repayments in respect of our indebtedness made during such reference period (other than (x) repayments made during such reference period with the proceeds of indebtedness, equity issuances, asset sales or insurance recovery events, (y) repayments of revolving and swingline loans during such reference period, except to the extent resulting in a corresponding reduction of the total revolving

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commitment in an amount equal to such repayment) and (z) certain mandatory prepayments of term loans during such reference period, (iii) capital expenditures made by us in cash during such reference period (other than capital expenditures financed with the proceeds of indebtedness (other than revolving loans or swingline loans), equity issuances, assets sales and insurance recovery events), (iv) tax payments paid in cash during such reference period, (v) cash consideration paid by us during such reference period for acquisitions of equity interests and/or assets comprising a business or product line (whether pursuant to a permitted acquisition or otherwise), except to the extent financed with the proceeds of indebtedness or issuances of equity, (vi) investments (other than certain excluded investments) made by us during such reference period, (vii) the cash cost of any extraordinary losses and of any losses on sales of assets (other than in the ordinary course of business) during such reference period, in any such case to the extent included in determining Adjusted EBITDA for such reference period and (viii) cash payments made by us during such reference period on account of non-cash losses or non-cash charges accrued or expensed during or prior to such reference period, plus (III) the sum of (i) the cash amount of any extraordinary gains, and the cash amount realized on gains on asset sales other than in the ordinary course of business, during such reference period, in any such case to the extent deducted in determining Adjusted EBITDA for such reference period, and (ii) cash received by us during such reference period on account of non-cash gains or non-cash income excluded from Adjusted EBITDA during or prior to such reference period.

        "Adjusted EBITDA" means, for any period, Consolidated Net Income for such period adjusted by (A) adding thereto (in each case (other than for purposes of clauses (v) and (vi) below), to the extent deducted in determining Consolidated Net Income for such period), without duplication, the sum of the amounts for such period of (i) provisions for taxes based on income, (ii) consolidated interest expense, (iii) amortization and depreciation expense (including any amortization or write-off related to the write-up of any assets as a result of purchase accounting and the write-off of deferred financing costs), (iv) losses on sales of assets (excluding sales in the ordinary course of business) and other extraordinary losses, (v) non-core income relating to non-core assets, to the extent not included in any determination of Consolidated Net Income for such period, (vi) dividends paid by CoBank to us on common stock of CoBank held by us, to the extent not included in any determination of Consolidated Net Income, (vii) the non-cash portion of any retirement or pension plan expense incurred by us, (viii) all one-time costs and expenses paid during such period in respect of the transactions and our abandoned offering of income deposit securities and (ix) any other non-cash charges (including non-cash costs arising from implementation of SFAS 106 and SFAS 109) accrued by us during such period (except to the extent any such charge will require a cash payment in a future period) and (B) subtracting therefrom (to the extent included in arriving at Consolidated Net Income for such period), without duplication, the sum of the amounts for such period of (i) gains on sales of assets (excluding sales in the ordinary course of business) and other extraordinary gains and (ii) all non-cash gains and non-cash income, all as determined for us on a consolidated basis in accordance with GAAP. Notwithstanding the foregoing, for purposes of determining the leverage ratio, Adjusted Consolidated EBITDA shall be determined on a pro forma basis.

        "Consolidated Net Income" means, for any period, our net income (or loss) on a consolidated basis for such period (taken as a single accounting period) determined in conformity with GAAP (after any deduction for minority interests), provided that there shall be excluded from the calculation thereof (without duplication) (i) the income (or loss) of any person (other than our subsidiaries) in which any other person (other than us) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to us by such person during such period, (ii) except for determinations expressly required to be made on a pro forma basis, the income (or loss) of any person accrued prior to the date it becomes a subsidiary of us or is merged into or consolidated with us or that person's assets are acquired by us and (iii) the income of any of our subsidiaries to the extent that the declaration or payment of dividends or similar distributions by that subsidiary of that income is not at

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the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that subsidiary.

        "Cumulative Distributable Cash" means, as at any date of determination, an amount equal to the remainder of (i) Available Cash for the reference period most recently ended prior to such date less (ii) the sum of the aggregate amount of dividends paid by us during such reference period (other than dividends paid by us during the period from the closing of this offering through March 31, 2005) and the amount used to make certain investments.

        Suspension of Dividend Payments.    If we fail to meet the leverage ratio test of equal to or less than 5.00 to 1.00 (or fail to timely deliver financial statements with respect to such test), we will be required to suspend the payment of dividends on our common stock after the payment covering the period from the closing date of this offering through March 31, 2005. In addition, the payment of dividends will be suspended at any time a default or event of default exists under our new credit facility or when we do not have at least $10.0 million of cash on hand (including unutilized commitments under the new revolver).

        The leverage ratio will be tested quarterly. A determination as to whether dividend payments may be made will be based on the leverage ratio as of the end of the quarter ending immediately prior to the date of the proposed dividend payment.

        As of September 30, 2004, on a pro forma basis after giving effect to the transactions, our leverage ratio would have been 4.30 to 1.00.

        If we fail to achieve any of these financial levels for any quarter but resume compliance thereafter, we may resume dividend payments unless some other event described in the new credit facility requiring suspension of dividend payments occurs.

        Guarantees/Collateral.    The new credit facility will be guaranteed, jointly and severally, subject to certain exceptions, by all first tier subsidiaries of FairPoint. We will provide to Deutsche Bank Trust Company Americas, as collateral agent for the benefit of the lenders under the new credit agreement and certain hedging creditors under permitted hedging agreements, collateral consisting of (subject to certain exceptions) 100% of the equity interests and promissory notes owned by us, the subsidiary guarantors and certain other intermediate holding company subsidiaries. Newly acquired or formed direct or indirect subsidiaries of FairPoint which own equity interests of any subsidiary that is an operating company will be required to provide the collateral described above.

        Events of Default.    The new credit facility will contain customary events of default, including but not limited to, failure to pay principal, interest or other amounts when due, breach of covenants or representations, cross-defaults to certain other indebtedness in excess of specified amounts, judgment defaults in excess of specified amounts, certain ERISA defaults, the failure of any guaranty or security document supporting the new credit facility and certain events of bankruptcy and insolvency.

Our Existing Credit Facility

        Our existing credit facility consists of an $85.0 million revolving loan facility of which $38.2 million was outstanding at September 30, 2004 and two term facilities, a tranche A term loan facility of $40.0 million with $40.0 million principal amount outstanding at September 30, 2004 that matures on March 31, 2007, and a tranche C term loan facility with $106.9 million principal amount outstanding at September 30, 2004 that matures on March 31, 2007. We will repay all of the borrowings under our existing credit facility with a portion of the net proceeds from this offering, together with borrowings under our new credit facility. See "The Transactions" and "Use of Proceeds."

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9¹/2% Notes and Floating Rate Notes issued in 1998

        FairPoint issued $125.0 million aggregate principal amount of the 9¹/2% notes and $75.0 million of the floating rate notes in 1998. In March 2003, we repurchased $9.8 million aggregate principal amount of the 9¹/2% notes. The 9¹/2% notes bear interest at the rate of 9¹/2% per annum and the floating rate notes bear interest at a rate per annum equal to LIBOR plus 418.75 basis points, in each case payable semi-annually in arrears. The LIBOR rate on the floating rate notes is determined semi-annually.

        The 9¹/2% notes and floating rate notes mature on May 1, 2008. We may redeem the 9¹/2% notes and the floating rate notes at any time, in each case, at the redemption prices stated in the indenture under which those notes were issued, together with accrued and unpaid interest, if any, to the redemption date. In the event of a change of control, we must offer to repurchase the outstanding 9¹/2% notes and floating rate notes for cash at a purchase price of 101% of the principal amount of such notes, together with all accrued and unpaid interest, if any, to the date of repurchase.

        The 9¹/2% notes and floating rate notes are general unsecured obligations of FairPoint subordinated in right of payment to all existing and future senior indebtedness of FairPoint, including all obligations under our existing credit facility.

        The indenture governing the 9¹/2% notes and floating rate notes contains certain customary covenants and events of default.

        On January 5, 2005, we commenced tender offers and consent solicitations for all of the outstanding principal amount of the 9¹/2% notes and the floating rate notes. As of January 27, 2005, approximately 99.8% of the 9¹/2% notes and 67.7% of the floating rate notes had been irrevocably tendered and consents related thereto had been irrevocably delivered. We have executed a supplemental indenture with respect to the indenture governing such notes which eliminates substantially all of the covenants and the events of default in such indenture and permits the transactions to be consummated on the terms described herein. This supplemental indenture will become effective upon the closing of this offering.

12¹/2% Notes issued in 2000

        FairPoint issued $200.0 million aggregate principal amount of the 12¹/2% notes in 2000. In March 2003, we repurchased $7.0 million aggregate principal amount of the 12¹/2% notes. The 12¹/2% notes bear interest at the rate of 12¹/2% per annum payable semi-annually in arrears.

        The 12¹/2% notes mature on May 1, 2010. We may redeem the 12¹/2% notes at any time on or after May 1, 2005 at the redemption prices stated in the indenture under which the 12¹/2% notes were issued, together with accrued and unpaid interest, if any, to the redemption date. In the event of a change of control, we must offer to repurchase the outstanding 12¹/2% notes for cash at a purchase price of 101% of the principal amount of such notes, together with all accrued and unpaid interest, if any, to the date of repurchase.

        The 12¹/2% notes are general unsecured obligations of FairPoint subordinated in right of payment to all existing and future senior indebtedness of FairPoint, including all obligations under our existing credit facility.

        The indenture governing the 12¹/2% notes contains certain customary covenants and events of default.

        On January 5, 2005, we commenced a tender offer and consent solicitation for all of the outstanding principal amount of the 12¹/2% notes. As of January 27, 2005, approximately 89.7% of the 12¹/2% notes had been irrevocably tendered and consents related thereto had been irrevocably delivered. We have executed a supplemental indenture with respect to the indenture governing the 12¹/2% notes which eliminates substantially all of the covenants and the events of default in such

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indenture and permits the transactions to be consummated on the terms described herein. This supplemental indenture will become effective upon the closing of this offering.

11⁷/8% Notes issued in 2003

        FairPoint issued $225.0 million aggregate principal amount of the 11⁷/8% notes in 2003. The 11⁷/8% notes bear interest at the rate of 11⁷/8% per annum payable semi-annually in arrears.

        The 11⁷/8% notes mature on March 1, 2010. We may redeem the 11⁷/8% notes at any time on or after March 1, 2007 at the redemption prices stated in the indenture under which the 11⁷/8% notes were issued, together with accrued and unpaid interest, if any, to the redemption date. In the event of a change of control, we must offer to repurchase the outstanding senior notes for cash at a purchase price of 101% of the principal amount of such notes, together with all accrued and unpaid interest, if any, to the date of repurchase.

        The 11⁷/8% notes are general unsecured obligations of FairPoint, ranking pari passu in right of payment with all existing and future senior debt of FairPoint, including all obligations under our existing credit facility, and senior in right of payment to all existing and future subordinated indebtedness of FairPoint.

        The indenture governing the 11⁷/8% notes contains certain customary covenants and events of default.

        On January 5, 2005, we commenced a tender offer and consent solicitation for all of the outstanding principal amount of the 11⁷/8% notes. As of January 27, 2005, approximately 99.1% of the 11⁷/8% notes had been irrevocably tendered and consents related thereto had been irrevocably delivered. We have executed a supplemental indenture with respect to the indenture governing the 11⁷/8% notes which eliminates substantially all of the covenants and the events of default in such indenture and permits the transactions to be consummated on the terms described herein. This supplemental indenture will become effective upon the closing of this offering.

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Description of Capital Stock

        The following is a description of the terms of our restated certificate of incorporation and amended and restated by-laws, the forms of which have been filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is part and which will become effective upon the consummation of this offering.

Authorized Capitalization

        Upon the closing of this offering, our authorized capital stock will consist of:

•

200,000,000 shares of common stock, par value $0.01 per share, all such shares will be designated common stock; and



•

100,000,000 shares of preferred stock, par value $0.01 per share.

        After this offering, and including the 5.2773714 for 1 reverse stock split of our class A common stock and our class C common stock effected on January 28, 2005, the conversion of all of our class C common stock into our class A common stock and the reclassification of our class A common stock into our common stock, 34,925,435 shares of our common stock and no shares of our preferred stock will be issued and outstanding. The number of shares of our common stock issued and outstanding includes 473,716 shares of restricted stock to be awarded under our 2005 stock incentive plan on the closing date of this offering, which shares will begin to vest on April 1, 2006 and will not be entitled to receive dividends for any period prior to April 1, 2006.

        Our board of directors will adopt a dividend policy, effective upon the closing of this offering, pursuant to which, in the event and to the extent we have cash available for distribution to the holders of our common stock, and subject to applicable law and the terms of our new credit facility and any other outstanding indebtedness of ours, our board of directors will declare cash dividends on our common stock. This policy reflects our judgment that our stockholders would be better served if we distributed a substantial portion of our cash available for distribution to them instead of retaining it in our business.

        As of December 31, 2004, there were approximately 69 record holders of our class A common stock and 14 record holders of our class C common stock.

Common Stock

        All shares of common stock to be outstanding upon completion of this offering will be validly issued, fully paid and nonassessable.

        Dividends.    Holders of shares of our common stock will be entitled to receive dividends and other distributions in cash, stock or property of ours as may be declared by our board of directors from time to time out of our assets or funds legally available for dividends or other distributions. Dividends on our common stock will not be cumulative. Consequently, if dividends on our common stock are not declared and/or paid at the targeted level, our stockholders will not be entitled to receive such payments in the future.

        Our board of directors will adopt a dividend policy, effective upon the closing of this offering, pursuant to which, in the event and to the extent we have cash available for distribution to the holders of shares of our common stock, and subject to applicable law and the terms of our new credit facility, and any other then outstanding indebtedness of ours, our board of directors will declare cash dividends on our common stock. The initial dividend rate on our common stock is expected to be equal to $1.59125 per share per annum, subject to adjustment. See "Dividend Policy and Restrictions."

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        Our board of directors may, in its discretion, amend or repeal the dividend policy with respect to our common stock to decrease the level of dividends provided for or discontinue entirely the payment of dividends.

        Rights Upon Liquidation.    In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of shares of our common stock will be entitled to share in our assets remaining after payment of all debts and other liabilities, subject to the liquidation preference of any outstanding preferred stock.

        Voting Rights.    Shares of our common stock carry one vote per share. Except as otherwise required by law, holders of our common stock are not entitled to vote on any amendment to our restated certificate of incorporation that relates solely to the terms of one or more outstanding series of preferred stock if the holders of the affected shares are entitled to vote on the amendment. Holders of shares of our common stock will not be entitled to cumulative voting rights.

        Except as otherwise required by the Delaware General Corporation Law and our restated certificate of incorporation and amended and restated by-laws, action requiring stockholder approval may be taken by a vote of the holders of a majority of the common stock at a meeting at which a quorum is present. See "—Anti-Takeover Effects of Various Provisions of Delaware Law and Our Restated Certificate of Incorporation and Amended and Restated By-laws."

        Other Rights.    Holders of shares of our common stock have no preemptive rights. The holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Preferred Stock

        Our restated certificate of incorporation provides that we may issue up to 100,000,000 shares of our preferred stock in one or more series as may be determined by our board of directors.

        Our board of directors has broad discretionary authority with respect to the rights of issued series of our preferred stock and may take several actions without any vote or action of the holders of our common stock, including:

•

determining the number of shares to be included in each series;



•

fixing the designation, powers, preferences and relative rights of the shares of each series and any qualifications, limitations or restrictions with respect to each series, including provisions related to dividends, conversion, voting, redemption and liquidation, which may be superior to those of our common stock; and



•

increasing or decreasing the number of shares of any series.

        The board of directors may authorize, without approval of holders of our common stock, the issuance of preferred stock with voting and conversion rights that could adversely affect the voting power and other rights of holders of our common stock. For example, our preferred stock may rank prior to our common stock as to dividend rights, liquidation preferences or both, may have full or limited voting rights and may be convertible into shares of our common stock.

        Our preferred stock could be issued quickly with terms designed to delay or prevent a change in the control of our company or to make the removal of our management more difficult. This could have the effect of discouraging third party bids for our common stock or may otherwise adversely affect the market price of our common stock.

        We believe that the ability of our board of directors to issue one or more series of our preferred stock will provide us with flexibility in structuring possible future financings and acquisitions, and in

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meeting other corporate needs that might arise. The authorized shares of our preferred stock, as well as shares of our common stock, will be available for issuance without action by our common stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded.

        Although our board of directors has no intention at the present time of doing so, it could issue a series of our preferred stock that could, depending on the terms of such series, be used to implement a stockholder rights plan or otherwise impede the completion of a merger, tender offer or other takeover attempt of our company. Our board of directors could issue preferred stock having terms that could discourage an acquisition attempt through which an acquirer may be able to change the composition of the board of directors, including a tender offer or other transaction that some, or a majority, of our stockholders might believe to be in their best interest or in which stockholders might receive a premium for their stock over the then best current market price.

Anti-Takeover Effects of Various Provisions of Delaware Law and Our Restated Certificate of Incorporation and Amended and Restated By-laws

        Provisions of the Delaware General Corporation Law, our restated certificate of incorporation and amended and restated by-laws contain provisions that may have some anti-takeover effects and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders.

Delaware Anti-Takeover Statute

        We are subject to Section 203 of the Delaware General Corporation Law. Subject to specific exceptions, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the time the person became an interested stockholder, unless:

•

the business combination, or the transaction in which the stockholder became an interested stockholder, is approved by our board of directors prior to the time the interested stockholder attained that status;



•

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or



•

at or after the time a person became an interested stockholder, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

        "Business combinations" include mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to various exceptions, in general an "interested stockholder" is a person who, together with his or her affiliates and associates, owns, or within three years did own, 15% or more of the shares of the corporation's outstanding voting stock. These restrictions could prohibit or delay the accomplishment of mergers or other takeover or change in control attempts with respect to us and, therefore, may discourage attempts to acquire us.

        In addition, provisions of our restated certificate of incorporation and amended and restated by-laws, which are summarized in the following paragraphs, may have an anti-takeover effect.

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        Classified Board of Directors.    Our restated certificate of incorporation provides that our board of directors be divided into three classes of directors, as nearly equal in size as is practicable, serving staggered three-year terms.

        Quorum Requirements; Removal of Directors.    Our restated certificate of incorporation provides for a minimum quorum of one-third in voting power of the outstanding shares of our capital stock entitled to vote, except that a minimum quorum of a majority in voting power of the outstanding shares of our capital stock entitled to vote is necessary to hold a vote for any director in a contested election, the removal of a director or the filling of a vacancy on our board of directors. Our amended and restated by-laws provide that directors may be removed only for cause by the affirmative vote of at least a majority in voting power of the outstanding shares of our capital stock entitled to vote generally in the election of directors.

        No Cumulative Voting.    The Delaware General Corporation Law provides that stockholders are denied the right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise. Our restated certificate of incorporation does not expressly address cumulative voting.

        No Stockholder Action by Written Consent; Calling of Special Meeting of Stockholders.    Our restated certificate of incorporation prohibits stockholder action by written consent. It and our amended and restated by-laws also provide that special meetings of our stockholders may be called only by (1) the chairman of our board of directors or (2) our board of directors or (3) our board of directors upon a request by holders of at least 50% in voting power of all the outstanding shares entitled to vote at that meeting.

        Advance Notice Requirements for Stockholder Proposals and Director Nominations.    Our amended and restated by-laws provide that stockholders seeking to bring business before or to nominate candidates for election as directors at an annual meeting of stockholders must provide timely notice of their proposal in writing to the corporate secretary. To be timely, a stockholder's notice must be delivered or mailed and received at our principal executive offices not less than 90 nor more than 120 days in advance of the anniversary date of the immediately preceding annual meeting of stockholders. Our amended and restated by-laws also specify requirements as to the form and content of a stockholder's notice. These provisions may impede stockholders' ability to bring matters before an annual meeting of stockholders or make nominations for directors at an annual meeting of stockholders. Stockholder nominations for the election of directors at a special meeting must be received by our corporate secretary by the later of 10 days following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made or 90 days prior to the date that meeting is proposed to be held and not more than 120 days prior to such meeting.

        Limitations on Liability and Indemnification of Officers and Directors.    The Delaware General Corporation Law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors' fiduciary duties as directors. Our restated certificate of incorporation includes a provision that eliminates the personal liability of directors to us or our stockholders for monetary damages for breaches of their fiduciary duty as directors to the fullest extent permitted by the Delaware General Corporation Law.

        Our amended and restated by-laws provide that we must indemnify our directors and officers to the fullest extent authorized by the Delaware General Corporation Law and that such indemnitees shall generally also be entitled to an advancement of expenses. We are also expressly authorized to, and do, carry directors' and officers' insurance for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.

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        The limitation of liability and indemnification provisions in our amended and restated by-laws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

        There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.

        Authorized but Unissued Shares.    Our authorized but unissued shares of common stock and preferred stock will be available for future issuance without your approval. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

        Supermajority Provisions.    The Delaware General Corporation Law provides generally that the affirmative vote of a majority in voting power of the outstanding shares entitled to vote is required to amend a corporation's certificate of incorporation, unless the certificate of incorporation requires a greater percentage. Our restated certificate of incorporation provides that the following provisions in the restated certificate of incorporation may be amended only by a vote of two-thirds or more in voting power of all the outstanding shares of our capital stock entitled to vote:

•

the prohibition on stockholder action by written consent;



•

the ability to call a special meeting of stockholders being vested solely in (1) the chairman of our board of directors, (2) our board of directors and (3) our board of directors upon a request by holders of at least 50% in voting power of all the outstanding shares entitled to vote at that meeting;



•

the provisions requiring that our business and affairs be managed by or under the direction of our board of directors;



•

the provisions relating to the classification of our board of directors;



•

the provisions relating to the size of our board of directors;



•

the provisions relating to the filling of vacancies on our board of directors;



•

the provisions relating to the quorum requirements at stockholder meetings for the transaction of business and at stockholder meetings regarding votes for any director in a contested election, the removal of a director, or the filling of a vacancy on our board of directors by our stockholders;



•

the provisions relating to advance notice requirements for stockholder proposals and director nominations;



•

the limitation on the liability of our directors to us and our stockholders;



•

the provisions granting authority to our board of directors to amend or repeal our by-laws without a stockholder vote, as described below in more detail;



•

the provisions granting stockholders representing no less than two-thirds of the voting power of our capital stock the authority to amend our by-laws, as described below in more detail; and



•

the supermajority voting requirements listed above.

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        Our restated certificate of incorporation grants our board of directors the authority to amend and repeal our by-laws without a stockholder vote in any manner not inconsistent with the laws of the State of Delaware or our restated certificate of incorporation.

        In addition, our restated certificate of incorporation provides that our amended and restated by-laws may be amended by stockholders representing no less than two-thirds of the voting power of all the outstanding shares of our capital stock entitled to vote.

Regulatory Ownership Provisions

        The Company and its operating subsidiaries are subject to regulation by federal and state regulatory commissions. Certain of these regulatory commissions limit the amount of the Company's common stock which may be held by an investor or group of related investors without the approval of such commissions. Accordingly, our restated certificate of incorporation will provide that so long as we hold any authorization, license, permit, order, filing or consent from the Federal Communications Commission or any state regulatory commission having jurisdiction over us, if we have reason to believe that the ownership, or proposed ownership, of shares of our capital stock by any stockholder or any person presenting any shares of our capital stock for transfer into its name, which we refer to as a transferee, may be inconsistent with, or in violation of, any provision of any applicable communications law, or if the Company needs information in order to make a determination as to whether the ownership, or proposed ownership, of shares of capital stock of the Company by any stockholder or any transferee may be inconsistent with, or in violation of, any provision of any applicable communications laws, such stockholder or transferee, upon our request, shall furnish promptly to us such information (including, without limitation, information with respect to citizenship, other ownership interests and affiliations) as we shall reasonably request to determine whether the ownership of, or the existence or the exercise of any rights with respect to, shares of our capital stock by such stockholder or transferee is inconsistent with, or in violation of, any applicable communications law.

        If any stockholder or transferee from whom such information is requested should fail to respond to such a request or we conclude that the ownership of, or the existence or exercise of any rights of stock ownership with respect to, shares of our capital stock by such stockholder or transferee could result in any inconsistency with, or violation of, any applicable communications law, we may suspend those rights of stock ownership the existence or exercise of which would result in any inconsistency with, or violation of, any applicable communications law, such suspension to remain in effect until the requested information has been received and we have determined the existence or exercise of such suspended rights is permissible under such applicable communications law, and we may exercise any and all appropriate remedies, at law or in equity, in any court of competent jurisdiction, against any stockholder or transferee, with a view towards obtaining such information or preventing or curing any situation which would cause an inconsistency with, or violation of, any provision of any applicable communications law.

Listing

        Our common stock has been approved for listing on the New York Stock Exchange under the trading symbol "FRP", subject to official notice of issuance.

Transfer Agent and Registrar

        The Bank of New York is the transfer agent and registrar for our shares of common stock.

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Certain United States Federal Tax Considerations

        The following discussion describes certain material United States federal income tax consequences (and certain U.S. federal estate tax consequences to Non-U.S. Holders (as defined below)) of the purchase, ownership and disposition of the common stock as of the date hereof by U.S. Holders and Non-U.S. Holders (both as defined below). Except where noted, the following discussion addresses only common stock held as capital assets by holders and does not deal with special situations, such as those of:

•

dealers in securities or currencies,



•

financial institutions,



•

regulated investment companies,



•

real estate investment trusts,



•

tax-exempt entities,



•

insurance companies,



•

persons holding common stock as a part of a hedging, integrated, conversion or constructive sale transaction or a straddle,



•

traders in securities that elect to use a mark-to-market method of accounting for their securities holdings,



•

persons liable for alternative minimum tax,



•

U.S. expatriates,



•

investors in pass-through entities or



•

U.S. Holders (as defined below) of common stock whose "functional currency" is not the U.S. dollar.

        Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof, and such authorities may be repealed, revoked, modified or subject to differing interpretations, possibly with retroactive effect, so as to result in U.S. federal income tax consequences different from those discussed below.

        A "U.S. Holder" of common stock means a holder that is for U.S. federal income tax purposes:

•

an individual citizen or resident of the United States,



•

a corporation (or other entity taxable as a corporation) created or organized in or under the laws of the United States or any political subdivision thereof,



•

an estate the income of which is subject to U.S. federal income taxation regardless of its source, or



•

a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

        If a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes holds common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding common stock, you should consult your own tax advisors.

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If you are considering the purchase of common stock, you should consult your own tax advisors concerning the particular U.S. federal income tax consequences to you of the ownership of common stock, as well as any consequences to you arising under the laws of any other taxing jurisdiction.

Considerations for U.S. Holders

Dividends

        The gross amount of dividends paid to you will be treated as dividend income to you to the extent paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Such income will be includible in your gross income on the day received by you. Distributions to you in excess of earnings and profits will be treated first as a return of capital that reduces your tax basis in the shares of common stock, and then as gain from the sale or exchange of shares of common stock. Under current legislation, which is scheduled to "sunset" at the end of 2008, dividend income will generally be taxed to you (if you are an individual) at the rates applicable to long- term capital gains, provided that a minimum holding period and other requirements are satisfied. Dividends received after 2008 will be taxable to you at ordinary income rates, absent intervening legislation. Corporate U.S. Holders may be entitled to a dividends-received deduction with respect to distributions treated as dividend income for U.S. federal income tax purposes, subject to numerous limitations and requirements.

Sale, Exchange or Other Disposition of Common Stock

        Upon the sale, exchange or other disposition of shares of our common stock, you will recognize capital gain or loss in an amount equal to the difference between the amount realized for your shares of common stock and your tax basis in the shares of common stock. Capital gains of individuals derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding

        In general, information reporting requirements will apply to dividends paid on common stock and to the proceeds of sale of common stock paid to a U.S. Holder other than certain exempt recipients (such as corporations). A backup withholding tax will apply to such payments if you fail to provide a taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income.

        Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished to the IRS.

Consequences to Non-U.S. Holders

        The following discussion applies only to Non-U.S. Holders. A "Non-U.S. Holder" is a beneficial owner, other than an entity or arrangement classified as a partnership for U.S. federal income tax purposes, that is not a U.S. Holder.

Dividends

        Dividends paid to you (to the extent paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes) generally will be subject to withholding at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with your conduct of a trade or business within the United States or, if certain tax treaties apply, are attributable to your U.S. permanent establishment, are not subject to the withholding tax, but instead are subject to U.S. federal income tax on a net income basis at applicable graduated individual or corporate rates. Special certification and disclosure requirements must be satisfied for effectively connected income to be exempt from withholding. If you are a corporation, any

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such effectively connected dividends received by you may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

        If you wish to claim the benefit of an applicable treaty rate (and avoid backup withholding as discussed below) for dividends, you must provide the withholding agent with a properly executed IRS Form W-8BEN claiming an exemption from or reduction in withholding under an applicable income tax treaty. Applicable Treasury Regulations provide alternative methods for satisfying this requirement. Under these Treasury Regulations, in the case of common stock held by a foreign intermediary (other than a "qualified intermediary") or a foreign partnership (other than a "withholding foreign partnership"), the foregoing intermediary or partnership, as the case may be, generally must provide an IRS Form W-8IMY and attach thereto an appropriate certification by each beneficial owner or partner.

        If you are eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.

Sale, Exchange or Other Disposition of Common Stock

        You generally will not be subject to U.S. federal income tax with respect to gain recognized on a sale or other disposition of shares of our common stock unless:

•

the gain is effectively connected with your conduct of a trade or business in the United States, or, if certain tax treaties apply, is attributable to your U.S. permanent establishment,



•

if you are an individual and hold shares of our common stock as a capital asset, you are present in the United States for 183 or more days in the taxable year of the sale or other disposition, and you have a "tax home" in the United States, or



•

we are or have been during a specified testing period a "United States real property holding corporation" for U.S. federal income tax purposes.

        If you are an individual and are described in the first bullet above, you will be subject to tax on any gain derived from the sale, exchange or other disposition under regular graduated U.S. federal income tax rates. If you are an individual and are described in the second bullet above, you will be subject to a flat 30% tax on any gain derived from the sale, exchange or other disposition which may be offset by U.S. source capital losses (even though you are not considered a resident of the United States). If you are a corporation and are described in the first bullet above, you will be subject to tax on your gain under regular graduated U.S. federal income tax rates and, in addition, may be subject to the branch profits tax on your effectively connected earnings and profits for the taxable year, which would include such gain, at a rate of 30% or at such lower rate as may be specified by an applicable income tax treaty, subject to adjustments.

        We believe that we have not been and we are not, and we do not anticipate becoming, a "United States real property holding corporation" for U.S. federal income tax purposes.

U.S. Federal Estate Tax

        Shares of our common stock held by an individual Non-U.S. Holder at the time of death will be included in such holder's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Information Reporting and Backup Withholding

        You may be subject to information reporting requirements and backup withholding at a rate of 28% with respect to dividend payments on, and the proceeds from dispositions of, shares of common stock, unless you comply with certain reporting procedures (usually satisfied by providing an IRS Form W-8BEN) or otherwise establish an exemption. Additional information reporting requirements

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and backup withholding with respect to the payment of proceeds from the disposition of shares of common stock are as follows:

•

if the proceeds are paid to or through the U.S. office of a broker, they generally will be subject to backup withholding and information reporting unless you certify that you are not a United States person under penalties of perjury (usually on an IRS Form W-8BEN) or otherwise establish an exemption.



•

If the proceeds are paid to or through a non-U.S office of a broker that is not a United States person and is not a foreign person with certain specified U.S. connections (a "U.S. Related Person"), they will not be subject to backup withholding or information reporting.



•

If the proceeds are paid to or through a non-U.S. office of a broker that is a United States person or a U.S. Related Person, they generally will be subject to information reporting (but not backup withholding) unless you certify that you are not a United States person under penalties of perjury (usually on an IRS Form W-8BEN) or otherwise establish an exemption.

        In addition, the amount of dividends paid to you and the amount of tax, if any, withheld from such payment must generally be reported annually to you and the IRS. The IRS may make such information available under the provisions of an applicable income tax treaty to the tax authorities in the country in which you are resident.

        Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished by you to the IRS.

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Underwriters

        Under the terms and subject to the conditions contained in an underwriting agreement dated                        , 2005, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Banc of America Securities LLC, Deutsche Bank Securities Inc., Credit Suisse First Boston LLC and Wachovia Capital Markets, LLC are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, the number of shares of our common stock indicated below.

Name		Number of Shares
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Banc of America Securities LLC
Deutsche Bank Securities Inc.
Credit Suisse First Boston LLC
Wachovia Capital Markets, LLC
	Total	25,000,000

        The underwriters are offering the shares of our common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of our common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of our common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters' over-allotment option described below.

        The underwriters initially propose to offer part of the shares of our common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to securities dealers at a price that represents a concession not in excess of $            a share under the public offering price. After the initial offering of the shares of our common stock, the offering price and other selling terms may from time to time be varied by the representatives of the underwriters.

        Certain existing common stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of 3,750,000 additional shares of our common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of our common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of the additional shares of our common stock as the number listed next to the underwriter's name in the preceding table bears to the total number of shares of our common stock listed next to the names of all underwriters in the preceding table.

        If the underwriters' option is exercised in full, the total price to the public would be $            , the total underwriters' discounts and commissions would be $            , the total proceeds to us would be $            and the total proceeds to the selling stockholders would be $            . We will not receive any of the proceeds from the sale of our common stock by the selling stockholders.

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        The following table shows the per share and total underwriting discounts and commissions to be paid by us and the selling stockholders assuming no exercise and full exercise of the underwriters' over-allotment option to purchase 3,750,000 additional shares from the selling stockholders.

	Per Share		Total
Underwriting discounts and commissions to be paid by	No Exercise	Full Exercise	No Exercise	Full Exercise
FairPoint Communications, Inc.
Selling Stockholders	—		—

        Our estimated offering expenses, in addition to the underwriting discounts and commissions, are approximately $3.0 million, which includes legal, accounting and printing costs and various other fees associated with registration and listing of our common stock.

        The underwriters have informed us that they will not execute sales in discretionary accounts without the prior specific written approval of the customer.

        We, our executive officers and directors and substantially all of our significant stockholders have agreed that, without the prior written consent of the representatives, neither we nor they will, during the period ending 180 days after the date of this prospectus:

•

offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, or file any registration statement with the Securities and Exchange Commission relating to the offering of, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock; or



•

enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock,

whether any such transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise. Notwithstanding the foregoing, if the 180th day after the date of this prospectus occurs within 17 days following an earnings release by us, or the occurrence of material news or a material event related to us, or if we intend to issue an earnings release within 16 days following the 180th day, the 180-day period will be extended to the 18th day following such earnings release or the occurrence of the material news or material event unless such extension is waived by the representatives on behalf of the underwriters.

        The 180-day restricted period described above shall not apply to: (a) the sale of shares of our common stock to the underwriters; (b) the issuance by us of shares of our common stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date of this prospectus and described in this prospectus; (c) transactions by any person other than us relating to shares of our common stock or other securities acquired in open market transactions after the completion of this offering, provided that no filing by any party under the Exchange Act shall be required or shall be voluntarily made in connection with subsequent sales of common stock or other securities acquired in such open market transactions; (d) grants by us of options to purchase shares of our common stock pursuant to employee or management stock option, incentive or other plans or arrangements described in this prospectus; (e) the issuance, offer or sale by us of shares of our common stock pursuant to employee or management stock option, incentive or other plans or arrangements described in this prospectus and the filing by us of any registration statement on Form S-8 in connection therewith; (f) transfers of shares of our common stock or any security convertible into our common stock as a bona fide gift or gifts; or (g) distributions of shares of our common stock or any security convertible into shares of our common stock to members, limited partners or stockholders of the selling stockholders; provided that in the case of any transfer or distribution pursuant to clause (f) or (g), each donee or distributee agrees in writing to be bound by the transfer

117

restrictions described above and no filing by any party under the Exchange Act shall be required or shall be voluntarily made reporting a reduction in beneficial ownership of shares of common stock during the lock-up period. In addition, each of the selling stockholders has agreed that, without the prior written consent of the representatives on behalf of the underwriters, it will not, during the period ending 180 days after the date of this Prospectus, make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock.

        The representatives of the underwriters do not have any current intention to release shares of common stock or other securities subject to the lock-up. Any determination to release any shares subject to the lock-up would be based on a number of factors at the time of any such determination, including the market price of the common stock, the liquidity of the trading market for the common stock, general market conditions, the number of shares proposed to be sold, and the timing, purpose and terms of the proposed sale.

        Our common stock has been approved for listing on the New York Stock Exchange under the trading symbol "FRP", subject to official notice of issuance.

        In connection with the listing of our common stock on the New York Stock Exchange, the underwriters will undertake to sell round lots of 100 shares or more to a minimum of 2,000 beneficial owners.

        In order to facilitate the offering of our common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position in our common stock for their own account. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are convinced that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. In addition, in order to cover any over-allotments or to stabilize the price of our common stock, the underwriters may bid for, and purchase, shares of our common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing our common stock in this offering, if the syndicate repurchases previously distributed shares of our common stock to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of our common stock above independent market levels. The underwriters are not required to engage in these activities and may end any of these activities at any time.

        Each underwriter has represented, warranted and agreed that: (a) it has not offered or sold and, prior to the expiry of a period of six months from the Closing date, will not offer or sell any shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 ("FSMA")) received by it in connection with

118

the issue or sale of any shares in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and (c) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.

        The shares may not be offered or sold, transferred or delivered, as part of their initial distribution or at any time thereafter, directly or indirectly, to any individual or legal entity in the Netherlands other than to individuals or legal entities who or which trade or invest in securities in the conduct of their profession or trade, which includes banks, securities intermediaries, insurance companies, pension funds, other institutional investors and commercial enterprises which, as an ancillary activity, regularly trade or invest in securities.

        The shares may not be offered or sold by means of any document other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong, and no advertisement, invitation or document relating to the shares may be issued, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder.

        This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation or subscription or purchase, of the securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than under circumstances in which such offer, sale or invitation does not constitute an offer or sale, or invitation for subscription or purchase, of the securities to the public in Singapore.

        The securities have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

        A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. The representatives will allocate shares to underwriters that may make Internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell to online brokerage account holders.

        We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

Pricing of this Offering

        Prior to this offering, there has been no public market for our common stock. The initial public offering price has been determined by negotiations among us, our existing equity investors and the

119

representatives of the underwriters. Among the factors considered in determining the initial public offering price were our future prospects and future prospects of our industry in general, our sales, earnings and other financial and operating information in recent periods, and the price-earnings ratios, market prices of securities and financial and operating information of companies engaged in activities similar to ours.

        An active trading market for our shares may not develop. It is also possible that after the offering, the shares of our common stock will not trade in the public market at or above the initial public offering price.

Relationships

        An affiliate of Deutsche Bank Securities Inc. and an affiliate of Wachovia Capital Markets, LLC each own greater than 10% of our outstanding series A preferred stock. Because of these relationships, Deutsche Bank Securities Inc. and Wachovia Capital Markets, LLC may each be deemed to have a conflict of interest under NASD Conduct Rule 2720. This offering will be conducted in accordance with such rule.

        NASD Conduct Rule 2720(c) requires that the public offering price of a security be no higher than the price recommended by a qualified independent underwriter who has participated in the preparation of the registration statement and performed its usual standard of due diligence with respect to that registration statement. The price of our common stock will be no higher than that recommended by Morgan Stanley & Co. Incorporated, who has agreed to act as the qualified independent underwriter for this offering.

        We will use the net proceeds received by us from the sale of the common stock to (a) repay all outstanding loans under our existing credit facility, (b) consummate tender offers and consent solicitations for all of our outstanding 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% notes, (c) repurchase all of our series A preferred stock from the holders thereof, and (d) pay certain bank fees. As lenders under our existing credit facility, affiliates of Morgan Stanley & Co. Incorporated, Banc of America Securities LLC, Deutsche Bank Securities Inc. and Wachovia Capital Markets, LLC will receive an aggregate of approximately $38 million in repayments in respect of loans outstanding under our existing credit facility. Credit Suisse First Boston LLC holds a portion of the 12¹/2% notes and the 11⁷/8% notes that are being repurchased in the tender offers and will receive a portion of the proceeds of the tender offers in connection with such repurchases. Affiliates of Deutsche Bank Securities Inc. and Wachovia Capital Markets, LLC will receive approximately $19 million and approximately $38 million, respectively, from the repurchase by us of our series A preferred stock that they currently own. Affiliates of Banc of America Securities LLC, Credit Suisse First Boston LLC and Wachovia Capital Markets, LLC currently own shares of our class C common stock that upon completion of this offering will be converted and reclassified into common stock. See "The Transactions" and "Use of Proceeds".

        Deutsche Bank Trust Company Americas will be the administrative agent for our new credit facility. Affiliates of the underwriters will be lenders and/or agents under our new credit facility. See "Description of Certain Indebtedness—New Credit Facility." Banc of America Securities LLC is the dealer manager for the tender offers and the solicitation agent for the consent solicitations. Deutsche Bank Securities Inc., Banc of America Securities LLC, Credit Suisse First Boston LLC and Wachovia Capital Markets, LLC were initial purchasers in the March 2003 offering of the 11⁷/8% notes.

        In addition, from time to time, some of the underwriters and their affiliates may continue to provide investment banking and other services to us for which they may receive customary fees.

120

Legal Matters

        The legality of the issuance of the shares of our common stock will be passed upon for us by Paul, Hastings, Janofsky & Walker LLP, New York, New York. Daniel G. Bergstein, a senior partner at Paul, Hastings, Janofsky & Walker LLP, is a director and significant stockholder of our company. Debevoise & Plimpton LLP, New York, New York, is acting as counsel for the underwriters. Debevoise & Plimpton LLP has in the past provided, and continues to provide, legal services to Kelso & Company and us.

Experts

        The consolidated financial statements of FairPoint Communications, Inc. and subsidiaries as of December 31, 2002 and 2003, and for each of the years in the three-year period ended December 31, 2003, have been included herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audit report refers to the Company's adoption of SFAS No. 142, Goodwill and Other Intangible Assets, as required for goodwill and other intangible assets effective January 1, 2002 and to the Company's adoption of SFAS No. 150 Accounting for Certain Financial Instruments with Characterizations of both Liabilities and Equity effective July 1, 2003.

        The balance sheets of Orange County—Poughkeepsie Limited Partnership as of December 31, 2003 and 2002 and the related statements of operations, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 2003, included in this prospectus, have been audited by Deloitte & Touche LLP, independent registered public accounting firm, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

        The balance sheets of Illinois Valley Cellular RSA 2-I Partnership and Illinois Valley Cellular RSA 2-III Partnership as of December 31, 2002 and 2001, and the related statements of income, partners' capital, and cash flows for each of three years ended December 31, 2002, included in this prospectus have been audited by Kiesling Associates LLP, independent registered public accounting firm, as stated in their reports appearing herein.

121

Where You Can Find More Information

        We have filed a Registration Statement on Form S-1 with the Securities and Exchange Commission regarding this offering. This prospectus, which is part of the registration statement, does not contain all of the information included in the registration statement, and you should refer to the registration statement and its exhibits to read that information. As a result of the filing of the registration statement, we are subject to the informational reporting requirements of the Exchange Act of 1934 and, under that Act, we will file reports and proxy statements with, and furnish other information to, the Securities and Exchange Commission. As required by the terms of the indentures governing our 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% notes, we have filed these reports with, and furnished this information to, the Securities and Exchange Commission. You may read and copy the registration statement, the related exhibits and the reports, proxy statements and other information we file with or furnish to the Securities and Exchange Commission at the Securities and Exchange Commission's public reference facilities maintained by the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the Securities and Exchange Commission. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The Securities and Exchange Commission also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file with the Securities and Exchange Commission. The site's Internet address is www.sec.gov.

        You may also request a copy of these filings, at no cost, by writing or telephoning us at:

FairPoint Communications, Inc.
521 East Morehead Street
Suite 250
Charlotte, NC 28202
(704) 344-8150
Attention: Secretary

122

Index To Financial Statements

Audited financial statements for FairPoint Communications, Inc. and subsidiaries as of December 31, 2002 and 2003 and for the years ended December 31, 2001, 2002 and 2003 and unaudited financial statements for FairPoint Communications, Inc. and subsidiaries as of September 30, 2004 and for the nine-month periods ended September 30, 2003 and 2004	F-2
Audited financial statements for Orange County-Poughkeepsie Limited Partnership as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001	F-48
Audited financial statement for the Illinois Valley Cellular RSA-2-I Partnership for the years ended December 31, 2002 and 2001	F-63
Unaudited financial statements for the Illinois Valley Cellular RSA 2-I Partnership for the six months ended June 30, 2003	F-77
Audited financial statements for the Illinois Valley Cellular RSA 2-III Partnership for the years ended December 31, 2002 and 2001	F-80
Unaudited financial statements for the Illinois Valley Cellular RSA 2-III Partnership for the six months ended June 30, 2003	F-95

F-1

FAIRPOINT COMMUNICATIONS, INC.

Financial Statements

As of December 31, 2002 and 2003 and September 30, 2004 (unaudited)
For the Years Ended December 31, 2001, 2002 and 2003
and the nine-month periods ended September 30, 2003 and 2004 (unaudited)

F-2

INDEX TO FINANCIAL STATEMENTS

		Page
FairPoint Communications, Inc. and Subsidiaries:
	Report of Independent Registered Public Accounting Firm	F-4
Consolidated Financial Statements for the Years Ended December 31, 2001, 2002 and 2003 and the nine months ended September 30, 2003 and 2004 (unaudited):
	Consolidated Balance Sheets as of December 31, 2002 and 2003 and September 30, 2004 (unaudited)	F-5
	Consolidated Statements of Operations for the Years Ended December 31, 2001, 2002, and 2003 and the nine-month periods ended September 30, 2003 and 2004 (unaudited)	F-7
	Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2001, 2002, and 2003 and the nine-month period ended September 30, 2004 (unaudited)	F-8
	Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2001, 2002, and 2003 and the nine-month periods ended September 30, 2003 and 2004 (unaudited)	F-9
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2002, and 2003 and the nine-month periods ended September 30, 2003 and 2004 (unaudited)	F-10
Notes to Consolidated Financial Statements for the Years Ended December 31, 2001, 2002, and 2003 and the nine-month periods ended September 30, 2003 and 2004 (unaudited)		F-12

F-3

Report of Independent Registered Public Accounting Firm

The Board of Directors
FairPoint Communications, Inc.:

        We have audited the accompanying consolidated balance sheets of FairPoint Communications, Inc. and subsidiaries (the Company) as of December 31, 2002 and 2003, and the related consolidated statements of operations, stockholders' equity (deficit), comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of FairPoint Communications, Inc.'s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

        As described in note 1 to the consolidated financial statements, the Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as required for goodwill and intangible assets effective January 1, 2002.

        As described in notes 1 and 7 to the consolidated financial statements, the Company adopted the provisions of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, effective July 1, 2003.

        /s/ KPMG LLP

Omaha, Nebraska
March 12, 2004, except as to
Note 19, which is as of
January 28, 2005

F-4

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2002 and 2003 and September 30, 2004

(Amounts in thousands, except per share data)

			December 31,			September 30,
			2002		2003	2004
						(unaudited)
Assets
Current assets:
	Cash		$	5,394	5,603	6,413
	Accounts receivable, net			25,024	28,845	30,675
	Materials and supplies			3,355	4,139	4,485
	Prepaid and other			1,548	1,517	1,971
	Notes receivable—related party			—	—	1,000
	Income tax recoverable			—	—	182
	Investments available-for-sale			560	1,889	—
	Assets of discontinued operations			806	105	105
	Assets held for sale			16,647	—	—
		Total current assets		53,334	42,098	44,831
Property, plant, and equipment, net				271,690	266,706	253,704
Other assets:
	Goodwill, net of accumulated amortization			443,781	468,845	468,814
	Investments			43,627	41,792	37,942
	Debt issue costs, net of accumulated amortization			15,157	21,614	24,578
	Notes receivable—related party			—	1,000	—
	Covenants not to compete, net of accumulated amortization			806	151	54
	Other			858	862	994
		Total other assets		504,229	534,264	532,382
		Total assets	$	829,253	843,068	830,917

F-5

Liabilities and Stockholders' Deficit
Current liabilities:
	Accounts payable			$	20,664		14,671		12,834
	Other accrued liabilities				18,797		13,116		13,826
	Accrued interest payable				10,501		16,739		18,981
	Current portion of long-term debt				5,704		21,982		28,337
	Accrued property taxes				2,192		1,968		2,701
	Current portion of obligation for covenants not to compete				536		145		99
	Demand notes payable				427		407		387
	Income taxes payable				219		70		—
	Liabilities of discontinued operations				5,065		4,461		3,887
	Liabilities held for sale				639		—		—
			Total current liabilities		64,744		73,559		81,052
Long-term liabilities:
	Long-term debt, net of current portion				798,486		803,578		785,139
	Preferred shares subject to mandatory redemption				—		96,699		111,519
	Other liabilities				13,070		12,278		12,342
	Liabilities of discontinued operations				5,265		2,571		1,773
	Obligation for covenants not to compete, net of current portion				245		100		—
	Unamortized investment tax credits				134		85		56
			Total long-term liabilities		817,200		915,311		910,829
Minority interest					16		15		12
Common stock subject to put options, 45 shares at December 31, 2002 and 31 shares at December 31, 2003 and 16 shares at September 30, 2004					3,136		2,136		1,136
Redeemable preferred stock, Series A nonvoting, nonconvertible, par value $0.01 per share. Authorized 1,000 shares; issued and outstanding 105 shares; redemption value of $104,779					90,307		—		—
Commitments and contingencies
Stockholders' deficit:
	Common stock:
		Class A voting, par value $0.01 per share. Authorized 44,757 shares; issued and outstanding 8,643 shares at December 31, 2002 and 2003 and September 30, 2004			86		86		86
		Class B nonvoting, convertible, par value $0.01 per share. Authorized 28,423 shares			—		—		—
		Class C nonvoting, convertible, par value $0.01 per share. Authorized 2,615 shares; issued and outstanding 809 shares at December 31, 2002 and 2003 and September 30, 2004			8		8		8
	Additional paid-in capital				207,347		198,470		198,603
	Accumulated other comprehensive income (loss)				(1,132	)	1,366		—
	Accumulated deficit				(352,459	)	(347,883	)	(360,809	)
			Total stockholders' deficit		(146,150	)	(147,953	)	(162,112	)
			Total liabilities and stockholders' deficit	$	829,253		843,068		830,917

See accompanying notes to consolidated financial statements.

F-6

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 2001, 2002, and 2003

and Nine-month periods ended September 30, 2003 and 2004

(Dollars in thousands)

			December 31,							September 30,
			2001			2002		2003		2003		2004
										(unaudited)
Revenues			$	230,176		230,819		231,432		171,663		188,838
Operating expenses:
	Operating expenses, excluding depreciation and amortization and stock-based compensation			115,763		110,265		111,188		81,624		96,355
	Depreciation and amortization			55,081		46,310		48,089		36,181		36,876
	Stock-based compensation			1,337		924		15		—		133
		Total operating expenses		172,181		157,499		159,292		117,805		133,364
		Income from operations		57,995		73,320		72,140		53,858		55,474
Other income (expense):
	Net gain (loss) on sale of investments and other assets			(648	)	34		608		595		(240	)
	Interest and dividend income			1,998		1,898		1,792		1,264		1,330
	Interest expense			(76,314	)	(69,520	)	(90,224	)	(64,640	)	(77,698	)
	Impairment on investments			—		(12,568	)	—		—		—
	Equity in net earnings of investees			4,930		7,798		10,092		7,235		7,929
	Realized and unrealized losses on interest rate swaps			(12,873	)	(9,577	)	(1,387	)	(1,211	)	(112	)
	Other nonoperating, net			(77	)	441		(1,505	)	(1,503	)	—
		Total other expense		(82,984	)	(81,494	)	(80,624	)	(58,260	)	(68,791	)
		Loss from continuing operations before income taxes		(24,989	)	(8,174	)	(8,484	)	(4,402	)	(13,317	)
Income tax benefit (expense)				(431	)	(518	)	236		(250	)	(279	)
Minority interest in income of subsidiaries				(2	)	(2	)	(2	)	(1	)	(1	)
		Loss from continuing operations		(25,422	)	(8,694	)	(8,250	)	(4,653	)	(13,597	)
Discontinued operations:
	Income (loss) from discontinued operations			(90,894	)	2,433		1,929		1,929		671
	Income (loss) on disposal of assets of discontinued operations			(95,284	)	19,500		7,992		7,797		—
		Income (loss) from discontinued operations		(186,178	)	21,933		9,921		9,726		671
		Net income (loss)		(211,600	)	13,239		1,671		5,073		(12,926	)
Redeemable preferred stock dividends and accretion				—		(11,918	)	(8,892	)	(8,892	)	—
Gain on repurchase of redeemable preferred stock				—		—		2,905		2,905		—
		Net income (loss) attributed to common shareholders	$	(211,600	)	1,321		(4,316	)	(914	)	(12,926	)
Weighted average shares outstanding:
	Basic			9,499		9,498		9,483		9,483		9,468
	Diluted			9,499		9,498		9,483		9,483		9,468
Basic and diluted loss from continuing operations per share			$	(2.68	)	(2.17	)	(1.50	)	(1.12	)	(1.44	)
Basic and diluted earnings (loss) from discontinued operations per share			$	(19.60	)	2.31		1.04		1.02		0.07
Basic and diluted earnings (loss) per share			$	(22.28	)	0.14		(0.46	)	(0.10	)	(1.37	)

See accompanying notes to consolidated financial statements.

F-7

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Deficit)

Years ended December 31, 2001, 2002, and 2003

and Nine-month period ended September 30, 2004

(Amounts in thousands)

	Class A Common				Class B Common			Class C Common
															Accumulated other comprehensive income (loss)				Total stockholders' equity (deficit)
											Additional paid-in capital		Unearned compensation				Accumulated deficit
	Shares		Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2000	8,627		$	86	—	$	—	809	$	8	227,649		(9,707	)	440		(154,098	)	64,378
Net loss	—			—	—		—	—		—	—		—		—		(211,600	)	(211,600	)
Compensation expense for stock-based awards	—			—	—		—	—		—	1,337		(1,138	)	—		—		199
Forfeit of unvested stock options	—			—	—		—	—		—	(10,845	)	10,845		—		—		—
Other comprehensive loss from available-for-sale securities	—			—	—		—	—		—	—		—		(118	)	—		(118	)
Exercise of stock options	17			—	—		—	—		—	300		—		—		—		300
Other comprehensive loss from cash flow hedges	—			—	—		—	—		—	—		—		(2,569	)	—		(2,569	)
Repurchase and cancellation of shares of common stock	(1	)		—	—		—	—		—	(100	)	—		—		—		(100	)
Balance at December 31, 2001	8,643			86	—		—	809		8	218,341		—		(2,247	)	(365,698	)	(149,510	)
Net income	—			—	—		—	—		—	—		—		—		13,239		13,239
Compensation expense for stock-based awards	—			—	—		—	—		—	924		—		—		—		924
Other comprehensive loss from available-for-sale securities	—			—	—		—	—		—	—		—		(322	)	—		(322	)
Other comprehensive income from cash flow hedges	—			—	—		—	—		—	—		—		1,437		—		1,437
Preferred stock accretion	—			—	—		—	—		—	(1,000	)	—		—		—		(1,000	)
Preferred stock dividends	—			—	—		—	—		—	(10,918	)	—		—		—		(10,918	)
Balance at December 31, 2002	8,643			86	—		—	809		8	207,347		—		(1,132	)	(352,459	)	(146,150	)
Net income	—			—	—		—	—		—	—		—		—		1,671		1,671
Compensation expense for stock-based awards	—			—	—		—	—		—	15		—		—		—		15
Other comprehensive income from available-for-sale securities	—			—	—		—	—		—	—		—		1,469		—		1,469
Other comprehensive income from cash flow hedges	—			—	—		—	—		—	—		—		1,029		—		1,029
Repurchase redeemable preferred stock	—			—	—		—	—		—	—		—		—		2,905		2,905
Preferred stock accretion	—			—	—		—	—		—	(729	)	—		—		—		(729	)
Preferred stock dividends	—			—	—		—	—		—	(8,163	)	—		—		—		(8,163	)
Balance at December 31, 2003	8,643			86	—		—	809		8	198,470		—		1,366		(347,883	)	(147,953	)
Net loss (unaudited)	—			—	—		—	—		—	—		—		—		(12,926	)	(12,926	)
Compensation expense for stock-based awards (unaudited)	—			—	—		—	—		—	133		—		—		—		133
Other comprehensive loss from available-for-sale securities (unaudited)	—			—	—		—	—		—	—		—		(1,469	)	—		(1,469	)
Other comprehensive income from cash flow hedges (unaudited)	—			—	—		—	—		—	—		—		103		—		103
Balance at September 30, 2004 (unaudited)	8,643		$	86	—	$	—	809	$	8	198,603		—		—		(360,809	)	(162,112	)

See accompanying notes to consolidated financial statements.

F-8

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

Years ended December 31, 2001 2002, and 2003

and Nine-month Periods ended September 30, 2003 and 2004

(Dollars in thousands)

			December 31,													September 30,
			2001						2002				2003			2003			2004
																(unaudited)
Net income (loss)						$	(211,600	)			13,239				1,671			5,073			(12,926	)
Other comprehensive income (loss):
	Available-for-sale securities:
		Unrealized holding gains (losses)	$	833					(8,491	)			1,618			289			(1,255	)
		Less reclassification adjustment for gain realized in net income (loss)		(951	)				(7	)			(149	)		(114	)		(214	)
		Reclassification for other than temporary loss included in net income		—			(118	)	8,176		(322	)	—		1,469	—		175	—		(1,469	)
	Cash flow hedges:
		Cumulative effect of a change in accounting principle		(4,664	)				—				—			—			—
		Reclassification adjustment		2,095			(2,569	)	1,437		1,437		1,029		1,029	852		852	103		103
Other comprehensive income (loss)							(2,687	)			1,115				2,498			1,027			(1,366	)
Comprehensive income (loss)						$	(214,287	)			14,354				4,169			6,100			(14,292	)

See accompanying notes to consolidated financial statements.

F-9

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2001, 2002, and 2003
and Nine-months ended September 30, 2003 and 2004

(Dollars in thousands)

					December 31,							September 30,
					2001			2002		2003		2003		2004
												(unaudited)
Cash flows from operating activities:
	Net income (loss)				$	(211,600	)	13,239		1,671		5,073		(12,926	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations:
		(Income) loss from discontinued operations				186,178		(21,933	)	(9,921	)	(9,726	)	(671	)
		Dividends and accretion on shares subject to mandatory redemption				—		—		9,049		4,440		14,820
		Depreciation and amortization				55,081		46,310		48,089		36,181		36,876
		Amortization of debt issue costs				4,018		3,664		4,171		3,118		3,452
		Provision for uncollectible revenue				1,035		2,997		1,028		926		1,310
		Income from equity method investments				(4,930	)	(7,798	)	(10,092	)	(7,235	)	(7,929	)
		Deferred patronage dividends				(394	)	(253	)	(233	)	(174	)	(44	)
		Minority interest in income of subsidiaries				2		2		2		1		1
		Loss on early retirement of debt				—		—		1,503		1,503		—
		Net loss (gain) on sale of investments and other assets				648		(34	)	(608	)	(595	)	240
		Impairment on investments				—		12,568		—		—		—
		Amortization of investment tax credits				(138	)	(85	)	(37	)	(28	)	(20	)
		Stock-based compensation				1,337		924		15		—		133
		Change in fair value of interest rate swaps and reclassification of transition adjustment recorded in comprehensive income (loss)				8,134		(698	)	(6,664	)	(5,724	)	(772	)
		Changes in assets and liabilities arising from continuing operations, net of acquisitions:
			Accounts receivable			707		2,534		(3,801	)	(2,902	)	(3,131	)
			Prepaid and other assets			(939	)	1,266		(771	)	(2,068	)	(796	)
			Accounts payable			(175	)	900		(7,185	)	(6,679	)	(2,676	)
			Accrued interest payable			233		506		7,786		11,502		2,356
			Other accrued liabilities			(4,009	)	1,640		418		3,264		2,712
			Income taxes			306		379		(149	)	(6,760	)	(254	)
			Other assets/liabilities			223		(496	)	(1,437	)	(459	)	177
				Total adjustments		247,317		42,393		31,163		18,585		45,784
				Net cash provided by operating activities of continuing operations		35,717		55,632		32,834		23,658		32,858
Cash flows from investing activities of continuing operations:
	Acquisition of telephone properties, net of cash acquired					(18,862	)	—		(33,114	)	(1,795	)	45
	Acquisition of property, plant, and equipment					(43,175	)	(38,803	)	(33,595	)	(19,613	)	(24,392	)
	Proceeds from sale of property, plant, and equipment					131		377		377		343		436
	Distributions from investments					5,013		9,018		10,775		8,650		11,810
	Payment on covenants not to compete					(945	)	(805	)	(536	)	(491	)	(145	)
	Acquisition of investments					(652	)	(493	)	(17	)	(17	)	—
	Proceeds from sale of investments and other assets					1,329		448		2,100		1,763		167
				Net cash used in investing activities of continuing operations		(57,161	)	(30,258	)	(54,010	)	(11,160	)	(12,079	)
Cash flows from financing activities of continuing operations:
	Proceeds from issuance of long-term debt					316,215		129,080		317,680		295,180		137,660
	Repayment of long-term debt					(211,973	)	(140,560	)	(294,414	)	(285,579	)	(149,881	)
	Repurchase of shares of common stock subject to put options					(975	)	(1,000	)	(1,000	)	(1,000	)	(1,000	)
	Repurchase of redeemable preferred stock					—		—		(8,645	)	(8,645	)	—
	Loan origination and offering costs					(2,322	)	(63	)	(15,593	)	(15,077	)	(5,631	)
	Dividends paid to minority stockholders					—		(3	)	(4	)	(2	)	(4	)
	Proceeds from exercise of stock options					300		—		—		—		—
	Repayment of capital lease obligation					(11	)	—		—		—		—
				Net cash provided by (used in) financing activities of continuing operations		101,234		(12,546	)	(1,976	)	(15,123	)	(18,856	)
Net cash contributed (from) to continuing operations (to) from discontinued operations						(80,862	)	(10,353	)	23,361		30,313		(1,113	)
				Net increase (decrease) in cash		(1,072	)	2,475		209		27,688		810
Cash, beginning of year						3,991		2,919		5,394		5,394		5,603
Cash, end of year					$	2,919		5,394		5,603		33,082		6,413

F-10

Supplemental disclosures of cash flow information:
	Interest paid	$	91,807	76,611	77,351	53,778	58,116
	Income taxes paid, net of refunds	$	111	252	701	232	496
Supplemental disclosures of noncash financing activities:
	Redeemable preferred stock issued in connection with long-term debt settlement	$	—	93,861	—	—	—
	Long-term debt forgiveness in connection with Carrier Services' debt settlement	$	—	2,000	—	—	—
	Redeemable preferred stock dividends paid in-kind	$	—	10,918	8,163	8,163	—
	Gain on repurchase of redemmable preferred stock	$	—	—	2,905	2,905	—
	Accretion of redeemable preferred stock	$	—	1,000	729	729	—
	Long-term debt issued in connection with Carrier Services' interest rate swap settlement	$	—	3,003	—	—	—
	Long-term debt issued in connection with Carrier Services' Tranche B interest payment	$	—	887	1,548	1,188	115

See accompanying notes to consolidated financial statements.

F-11

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1)   Organization and Summary of Significant Accounting Policies

(a) Organization

        FairPoint Communications, Inc. (FairPoint) provides management services to its wholly owned subsidiaries: ST Enterprises, Ltd. (STE); MJD Ventures, Inc. (Ventures); MJD Services Corp. (Services); FairPoint Carrier Services, Inc. (Carrier Services) (formerly known as FairPoint Communications Solutions Corp.); FairPoint Broadband, Inc. (Broadband); and MJD Capital Corp. STE, Ventures, and Services also provide management services to their wholly owned subsidiaries.

        Collectively, the wholly owned subsidiaries of STE, Ventures, and Services primarily provide telephone local exchange services in various states. Operations also include resale of long distance services, internet services, cable services, equipment sales, and installation and repair services. MJD Capital Corp. leases equipment to other subsidiaries of FairPoint. Carrier Services provides wholesale long distance services. Broadband provides wireless broadband services and wholesale data products.

        STE's wholly owned subsidiaries include Sunflower Telephone Company, Inc. (Sunflower); Northland Telephone Company of Maine, Inc. and Northland Telephone Company of Vermont (Collectively, the Northland Companies); and ST Long Distance, Inc. (ST Long Distance). Ventures' wholly owned subsidiaries include Sidney Telephone Company (Sidney); C-R Communications, Inc. (C-R); Taconic Telephone Corp. (Taconic); Ellensburg Telephone Company (Ellensburg); Chouteau Telephone Company (Chouteau); Utilities, Inc. (Utilities); Chautauqua and Erie Telephone Corporation (C&E); The Columbus Grove Telephone Company (Columbus Grove); The Orwell Telephone Company (Orwell); GTC Communications, Inc. (GT Com); Peoples Mutual Telephone Company (Peoples); Fremont Telcom Co. (Fremont); Fretel Communications, LLC (Fretel); Comerco, Inc. (Comerco); Marianna and Scenery Hill Telephone Company (Marianna); Community Service Telephone Co. (CST); and Commtel Communications Inc. (Commtel). Services' wholly owned subsidiaries include Bluestem Telephone Company (Bluestem); Big Sandy Telecom, Inc. (Big Sandy); Columbine Telecom Company (Columbine); Odin Telephone Exchange, Inc. (Odin); Ravenswood Communications, Inc. (Ravenswood); and Yates City Telephone Company (Yates).

(b) Principles of Consolidation and Basis of Presentation

        The consolidated financial statements include the accounts of FairPoint and its subsidiaries (the Company). All intercompany transactions and accounts have been eliminated in consolidation.

        On November 7, 2001, the Company announced Carrier Services' plan to sell certain of its assets and to discontinue competitive communications operations. As a result of the adoption of this plan, the financial results have been reclassified in the accompanying consolidated financial statements to present these operations as discontinued (see note 12).

        On September 30, 2003, the Company completed the sale of all of the capital stock owned by Services of Kadoka Telephone Co., Union Telephone Company of Hartford, Armour Independent Telephone Co. and WMW Cable TV Co. As a result of this sale, the financial results have been reclassified in the accompanying consolidated financial statements to present these operations as discontinued and the assets and liabilities of these operations were reclassified as held for sale at December 31, 2002 (see note 2). This divestiture is referred to herein as the South Dakota Divestiture.

        The Company's telephone subsidiaries follow the accounting for regulated enterprises prescribed by Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS No. 71). This accounting recognizes the economic effects of rate regulation by recording costs and a return on investment; as such amounts are recovered through rates authorized

F-12

by regulatory authorities. Accordingly, SFAS No. 71 requires the Company's telephone subsidiaries to depreciate telephone plant over useful lives that would otherwise be determined by management. SFAS No. 71 also requires deferral of certain costs and obligations based upon approvals received from regulators to permit recovery of such amounts in future years. The Company's telephone subsidiaries periodically review the applicability of SFAS No. 71 based on the developments in their current regulatory and competitive environments.

(c) Interim Financial Information (unaudited)

        In the opinion of our management, the accompanying interim financial information and related disclosures as of September 30, 2004 and for the nine-month periods ended September 30, 2003 and 2004, all of which are unaudited, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations, financial position, and cash flows. The results of operations for the interim periods are not necessarily indicative of the results of operations which might be expected for the entire year.

(d) Use of Estimates

        The Company's management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.

(e) Revenue Recognition

        Revenues are recognized as services are rendered and are primarily derived from the usage of the Company's networks and facilities or under revenue sharing arrangements with other communications carriers. Revenues are primarily derived from: access, pooling, long distance services, internet and data services, and other miscellaneous services. Local access charges are billed to local end users under tariffs approved by each state's Public Utilities Commission. Access revenues are derived for the intrastate jurisdiction by billing access charges to interexchange carriers and to regional Bell operating companies. These charges are billed based on toll or access tariffs approved by the local state's Public Utilities Commission. Access charges for the interstate jurisdiction are billed in accordance with tariffs filed by the National Exchange Carrier Association (NECA) or by the individual company and approved by the Federal Communications Commission.

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

        Long distance retail and wholesale services are usage sensitive and are billed in arrears and recognized when earned. Internet and data services revenues are substantially all recurring revenues and billed are one month in advance and deferred until earned. The majority of the Company's

F-13

miscellaneous revenue is provided from billing and collection and directory services. The Company earns revenue from billing and collecting charges for toll calls on behalf of interexchange carriers. The interexchange carrier pays a certain rate per each message billed by the Company. The Company recognizes revenue from billing and collection services when the services are provided. The Company recognizes directory services revenue over the subscription period of the corresponding directory. Billing and collection is normally billed under contract or tariff supervision. Directory services are normally billed under contract.

(f) Accounts Receivable

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

        The following is activity in the Company's allowance for doubtful accounts receivable for the years ended December 31 (dollars in thousands):

	2001			2002		2003
Balance, beginning of period	$	1,434		1,355		1,235
Additions due to acquisitions		4		—		202
Provision charged to expense		1,035		2,997		292
Amounts written off, net of recoveries		(1,118	)	(3,117	)	(701	)
Balance, end of period	$	1,355		1,235		1,028

(g) Credit Risk

        Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and trade receivables. The Company places its cash with high-quality financial institutions. Concentrations of credit risk with respect to trade receivables are principally related to receivables from other interexchange carriers and are otherwise limited to the Company's large number of customers in several states.

        The Company is also exposed to credit losses in the event of nonperformance by the counterparties to its interest rate swap agreements. The Company anticipates, however, that the counter parties will be able to fully satisfy their obligations under the contracts.

(h) Investments

        Investments consist of stock in CoBank, ACB (CoBank), Rural Telephone Bank (RTB), the Rural Telephone Finance Cooperative (RTFC), Choice One Communications Inc. (Choice One), various cellular companies and partnerships and other minority equity investments, and Non-Qualified Deferred Compensation Plan assets. The stock in CoBank, RTB, and the RTFC is nonmarketable and stated at cost. For investments in partnerships, the equity method of accounting is used.

        The investment in Choice One stock is a marketable security classified as available for sale. Non-Qualified Deferred Compensation Plan assets are classified as trading. The Company uses fair value reporting for marketable investments in debt and equity securities classified as either

F-14

available-for-sale or trading. For available-for-sale securities, the unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of comprehensive income until realized. Unrealized holding gains and losses on trading securities are included in other income.

        To determine if an impairment of an investment exists, the Company monitors and evaluates the financial performance of the business in which it invests and compares the carrying value of the investee to quoted market prices (if available), or the fair values of similar investments, which in certain instances, is based on traditional valuation models utilizing multiples of cash flows. When circumstances indicate that a decline in the fair value of the investment has occurred and the decline is other than temporary, the Company records the decline in value as a realized impairment loss and a reduction in the cost of the investment.

        The Company currently receives patronage dividends from its investments in businesses organized as cooperatives for Federal income tax purposes (CoBank and RTFC stock). Patronage dividends represent cash distributions of the cooperative's earnings and notices of allocations of earnings to the Company. Deferred and uncollected patronage dividends are included as part of the basis of the investment until collected. The RTB investment pays dividends annually at the discretion of its board of directors.

(i) Property, Plant, and Equipment

        Property, plant, and equipment are carried at cost. Repairs and maintenance are charged to expense as incurred and major renewals and improvements are capitalized. For traditional telephone companies, the original cost of depreciable property retired, together with removal cost, less any salvage realized, is charged to accumulated depreciation. For all other companies, the original cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations. Depreciation is determined using the straight-line method for financial reporting purposes.

(j) Debt Issue Costs

        Debt issue costs are being amortized over the life of the related debt, ranging from 3 to 10 years. During 2003, $5.0 million in net book value of debt issue costs were written off in association with refinancing activity classified as other nonoperating expense in the statements of operations. Accumulated amortization of loan origination costs from continuing operations was $13.0 million and $10.3 million at December 31, 2002 and 2003, respectively, and $13.7 million at September 30, 2004 (unaudited).

(k) Goodwill and Other Intangible Assets

        Goodwill consists of the difference between the purchase price incurred in acquisitions using the purchase method of accounting and the fair value of net assets acquired.

        In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, which the Company adopted effective January 1, 2002, goodwill is no longer amortized, but instead is assessed for impairment at least annually. During this assessment, management relies on a number of factors, including operating results, business plans, and anticipated future cash flows. In fiscal year 2001, goodwill was amortized using the straight-line method over an estimated useful life of 40 years. Accumulated amortization of goodwill at December 31, 2002 and 2003 and September 30, 2004 (unaudited) is $33.7 million.

F-15

(l) Impairment of Long-lived Assets

        Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases.

        Goodwill and intangible assets not subject to amortization are tested annually for impairment following the adoption of SFAS No. 142. Prior to the adoption of SFAS No. 142, the Company evaluated the recoverability of goodwill pursuant to Accounting Principles Board Opinion No. 17, Intangible Assets, and used estimates of future cash flows in periodically evaluating goodwill for impairment. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's estimated fair value.

(m) Income Taxes

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

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

(n) Interest Rate Swap Agreements

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

        The Company uses variable and fixed-rate debt to finance its operations, capital expenditures, and acquisitions. The variable-rate debt obligations expose the Company to variability in interest payments due to changes in interest rates. The Company believes it is prudent to limit the variability of a portion of its interest payments. To meet this objective, the Company enters into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk. These swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of the interest rate swaps, the Company receives variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt. As of December 31, 2003, the Company

F-16

had two interest rate swap agreements with a combined notional amount of $50.0 million and expiration dates of May 2004.

        In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Certain Hedging Activities (SFAS No. 133). In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment to SFAS No. 133 (SFAS No. 138). SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded on the balance sheet at their respective fair values. The Company adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. In accordance with the transition provisions of SFAS No. 133, the Company recorded a cumulative-effect-type loss adjustment (the "transition adjustment") of $(4.7) million in other comprehensive income (loss) to recognize at fair value all interest rate swap agreements. The fair value of the Company's interest rate swap agreements is determined from valuations received from financial institutions. The fair value indicates an estimated amount the Company would pay if the contracts were cancelled or transferred to other parties. At December 31, 2003, the Company expects to reclassify to nonoperating income (expense) during the next 12 months $0.1 million from the transition adjustment that was recorded in other comprehensive income (loss).

        Effective January 1, 2001, the Company discontinued hedge accounting prospectively on its existing interest rate swap agreements because the agreements do not qualify as accounting hedges under SFAS No. 133. As of December 31, 2002 and 2003, the fair value of all outstanding interest rate swap agreements used in continuing operations was $8.6 million and $0.9 million, respectively.

        On May 1, 2001, the Company entered into an interest swap with a notional amount of $25 million that was being accounted for as a cash flow hedge under the provisions of SFAS No. 133. The effective portion of the loss on this interest rate swap ($0.6 million) was being recorded in other comprehensive income (loss) through the third quarter of 2001. In association with the discontinued operations of the competitive communications business at Carrier Services and the bank negotiations in relation to Carrier Services' Credit Facility, as of December 31, 2001, the Company discontinued hedge accounting on this swap. As of December 31, 2001, the fair value of this interest rate swap was $0.6 million, and was recorded in the statements of operations as a charge to discontinued operations. In addition, the Company reclassified $0.6 million from other comprehensive income (loss) to discontinued operations from the translation adjustment recorded on January 1, 2001 for the other remaining interest rate swap (notional amount of $50 million) used by the Company for Carrier Services' Credit Facility. The fair market value of this swap was $2.6 million at December 31, 2001. At December 31, 2001, these interest rate swaps were classified as current liabilities of discontinued operations on the consolidated balance sheet at their respective fair values. These interest rate swaps were settled in May 2002 in conjunction with the restructuring of Carrier Services' Credit Facility.

        Amounts receivable or payable under interest rate swap agreements are accrued at each balance sheet date and included as adjustments to realized and unrealized gains (losses) on interest rate swaps.

        The following is a summary of amounts included in realized and unrealized gains (losses) on interest rate swaps (dollars in thousands):

		December 31,							September 30,
		2001			2002		2003		2003		2004
									(unaudited)
Change in fair value of interest rate swaps		$	(6,896	)	2,135		7,693		6,576		874
Reclassification of transition adjustment included in other comprehensive income (loss)			(1,238	)	(1,437	)	(1,029	)	(852	)	(103	)
Realized losses			(4,739	)	(10,275	)	(8,051	)	(6,935	)	(883	)
	Total	$	(12,873	)	(9,577	)	(1,387	)	(1,211	)	(112	)

F-17

(o) Stock Appreciation Rights

        Stock appreciation rights have been granted to certain members of management by principal shareholders of the Company. The Company accounts for stock appreciation rights in accordance with FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans. The Company measures compensation as the amount by which the market value of the shares of the Company's stock covered by the grant exceeds the option price or value specified, by reference to a market price or otherwise, subject to any appreciation limitations under the plan and a corresponding credit to additional paid-in capital. Changes, either increases or decreases, in the market value of those shares between the date of the grant and the measurement date result in a change in the measure of compensation for the right. Valuation of stock appreciation rights is typically based on traditional valuation models utilizing multiples of cash flows, unless there is a current market value for the Company's stock.

(p) Stock Option Plans

        At December 31, 2003, the Company has three stock-based employee compensation plans. The Company accounts for its stock option plans using the intrinsic value-based method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. SFAS No. 123 allows entities to continue to apply the provisions of APB No. 25 and provide pro forma net income disclosures as if the fair-value method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the intrinsic value-based method of accounting under APB No. 25 and has adopted the disclosure requirements of SFAS No. 123.

        The Company calculates stock-based compensation pursuant to the disclosure provisions of SFAS No. 123 using the straight-line method over the vesting period of the option. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income (loss) would have been (dollars in thousands):

								September 30,
	December 31, 2001			December 31, 2002		December 31, 2003
								2003		2004
								(unaudited)
Net income (loss), as reported	$	(211,600	)	13,239		1,671		5,073		(12,926	)
Stock-based compensation expense included in reported net income (loss)		2,203		1,260		15		—		133
Stock-based compensation determined under fair value based method		40		(1,387	)	(658	)	(473	)	(593	)
Pro forma net income (loss)	$	(209,357	)	13,112		1,028		4,600		(13,386	)
Basic and diluted earnings per share, as reported	$	(22.28	)	0.14		(0.46	)	(0.10	)	(1.37	)
Basic and diluted earnings per share, pro forma	$	(22.04	)	0.13		(0.52	)	(0.15	)	(1.41	)

        The pro forma impact on income for the year ended December 31, 2001 assumes estimated forfeitures for those employees subject to termination due to the discontinued competitive communications operations. The pro forma impact on income for the year ended December 31, 2002 assumes estimated forfeitures for an employee who retired in January 2003. The pro forma impact on

F-18

income for the year ended December 31, 2003 assumes estimated forfeitures for an employee who retired in December 2003. The stock-based compensation expense does not agree to the consolidated statements of operations due to the credit adjustments related to the stock appreciation rights of $(0.9) million and $(0.3) million for the years ended December 31, 2001 and 2002, respectively. There were no adjustments to the stock appreciation rights in the year ended December 31, 2003, as the fair market value per share of the Company's common stock remained flat during the year. The pro forma effects are not representative of the effects on reported net income for future years.

(q) Certain Financial Instruments with Characteristics of Liabilities and Equity

        The Company prospectively adopted SFAS No. 150, effective July 1, 2003. The SFAS No. 150 adoption had no impact on net income (loss) attributed to common shareholders for any of the periods presented. SFAS No. 150 requires the Company to classify as a long-term liability its Series A Preferred Stock and to reclassify dividends and accretion from the Series A Preferred Stock as interest expense. Such stock is now described as "Preferred Shares Subject to Mandatory Redemption" in the Consolidated Balance Sheet as of December 31, 2003 and dividends and accretion on these shares are now included in pre-tax income whereas previously they were presented as a reduction to equity (a dividend) and, therefore, a reduction of net income available to common shareholders.

(r) Business Segments

        Under the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company's only separately reportable business segment is its traditional telephone operations. The Company's traditional telephone operations are conducted in rural, suburban and small urban communities in various states. The operating income of this segment is reviewed by the chief operating decision maker to assess performance and make business decisions. Due to the sale of the Company's competitive communications operations, such operations (which were previously reported as a separate segment) are classified as discontinued operations.

(s) Earnings Per Share

        Earnings per share has been computed in accordance with SFAS No. 128, Earnings Per Share. Basic earnings per share is computed by dividing net income (loss) less dividends accrued on Series A preferred shares subject to mandatory redemption and plus discounts on the redemption of such shares by the weighted average number of common shares outstanding for the period. Except when the effect would be anti-dilutive, the diluted earnings per share calculation includes the impact of restricted stock units and shares that could be issued under outstanding stock options.

        The number of potential common shares excluded from the calculation of diluted net loss per share, prior to the application of the treasury stock method, is as follows (amounts in thousands):

		Year ended December 31,			September 30,
		2001	2002	2003	2003	2004
					(unaudited)
Contingent stock options		789	789	785	785	785
Shares excluded as effect would be anti-dilutive:
	Stock options	158	395	464	374	431
	Restricted stock units	—	—	27	—	27
		947	1,184	1,276	1,159	1,243

F-19

(t) Reclassifications

        Certain amounts previously reported have been reclassified to conform to current year presentation.

(2)   Acquisitions

        On September 4, 2001, the Company acquired 100% of the capital stock of Marianna. This acquisition is not deductible for tax purposes. On September 28, 2001, the Company acquired certain assets of Illinois Consolidated Telephone Company. This acquisition is deductible for tax purposes. The aggregate purchase price for these acquisitions was $23.5 million.

        On December 1, 2003, the Company acquired 100% of the capital stock of CST and Commtel. The purchase for this acquisition was $32.6 million. The Company believes the entire amount of goodwill will be deductible for income tax purposes.

        Acquisition costs were $0.3 million and $0.3 million in 2001 and 2003, respectively. The Company's 2001 and 2003 acquisitions have been accounted for using the purchase method and, accordingly, the results of their operations have been included in the Company's consolidated financial statements from the date of acquisition. The excess of the purchase price and acquisition costs over the fair value of the net identifiable assets acquired was $14.4 million and $25.1 million and has been recognized as goodwill in 2001 and 2003, respectively.

        The allocation of the total net purchase price for the 2001 and 2003 acquisitions are shown in the table below:

		2001			2003
		(Dollars in thousands)
Current assets		$	5,659		1,027
Property, plant, and equipment			4,953		8,301
Excess cost over fair value of net assets acquired			14,358		25,064
Other assets			6		—
Current liabilities			(111	)	(1,182	)
Other liabilities			(1,098	)	(268	)
	Total net purchase price	$	23,767		32,942

F-20

        The following unaudited pro forma information presents the combined results of operations of the Company as though the acquisitions made in each of the following years occurred at the beginning of the preceding year. These results include certain adjustments, including increased interest expense on debt related to the acquisitions, certain preacquisition transaction costs, and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations if the acquisitions had been in effect at the beginning of the period or which may be attained in the future.

	Pro forma year ended December 31,
	2001			2002			2003
	(Dollars in thousands) (Unaudited)
Revenues	$	233,640		$	238,466		$	238,663
Loss from continuing operations		(25,182	)		(8,321	)		(8,190	)
Net income (loss)		(211,360	)		13,612			1,731
Basic and diluted loss from continuing operations per share	$	(2.65	)		(2.13	)		(1.49	)
Basic and diluted earnings (loss) per share	$	(22.25	)		0.18			(0.45	)

(3)   Goodwill and Other Intangible Assets

        Changes in the carrying amount of goodwill were as follows (dollars in thousands):

Balance, December 31, 2001 and 2002	$	454,306
Disposal of South Dakota Divestiture		(10,525	)
Balance, December 31, 2002, adjusted for discontinued operations		443,781
Acquisition of CST and Commtel		25,064
Balance, December 31, 2003		468,845
Acquisition adjustment of CST and Commtel (unaudited)		(31	)
Balance, September 30, 2004 (unaudited)	$	468,814

        In connection with the transitional goodwill impairment evaluation performed as of January 1, 2002, SFAS No. 142 required the Company to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. To accomplish this, the Company was required to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. The Company was required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit within six months of January 1, 2002. In performing the initial transitional impairment test, the Company determined that the carrying amount of its reporting unit did not exceed its estimated fair value and, therefore, the Company did not record an impairment loss upon adoption of SFAS No. 142. The Company updated its annual impairment testing of goodwill as of October 1, 2002 and 2003, and determined that no impairment loss was required to be recognized.

        As of the date of adoption of SFAS No. 142, the Company had unamortized goodwill of $443.8 million and equity method goodwill of $10.3 million. The loss from continuing operation as of

F-21

December 31, 2001, adjusted as if SFAS No. 142 had been effective as of January 1, 2001, compared to actual results for the years ended 2002 and 2003 (dollars in thousands) is as follows:

			2001			2002			2003
Reported loss from continuing operations			$	(25,422	)	$	(8,694	)	$	(8,250	)
Amortization of goodwill				11,680			—			—
Amortization of equity method goodwill				282			—			—
		Adjusted loss from continuing operations	$	(13,460	)	$	(8,694	)	$	(8,250	)
Basic and diluted earnings per share:
	Reported loss from continuing operations		$	(2.68	)		(2.17	)		(1.50	)
	Amortization of goodwill			1.23			—			—
	Amortization of equity method goodwill			0.03			—			—
		Adjusted loss from continuing operations	$	(1.42	)		(2.17	)		(1.50	)

        As of the date of adoption, the Company had $1.7 million in covenants not to compete that are intangible assets subject to amortization under SFAS No. 142. The covenants not to compete are being amortized over their useful lives of three to five years. Accumulated amortization of covenants not to compete was $3.9 million and $4.6 million at December 31, 2002 and 2003, respectively. The Company recorded amortization of $0.9 million, $0.9 million, and $0.7 million for the years ended December 31, 2001, 2002, and 2003, respectively. The Company will continue to amortize the covenants over their remaining estimated useful lives and will record amortization of $0.1 million during 2004.

(4)   Property, Plant, and Equipment

        A summary of property, plant, and equipment from continuing operations is shown below:

			December 31,
		Estimated life (in years)							September 30, 2004
			2002			2003
			(Dollars in thousands)						(unaudited)
Land		—	$	3,667		$	3,861		3,851
Buildings and leasehold improvements		2 - 40		34,122			36,331		36,202
Telephone equipment		3 - 50		548,152			591,621		612,614
Cable equipment		3 - 20		1,456			1,568		1,634
Furniture and equipment		3 - 34		15,448			18,184		17,867
Vehicles and equipment		3 - 20		19,200			20,712		21,057
Computer software		3 - 5		2,046			2,277		2,312
	Total property, plant, and equipment			624,091			674,554		695,537
Accumulated depreciation				(352,401	)		(407,848	)	(441,833	)
	Net property, plant, and equipment		$	271,690		$	266,706		253,704

        The telephone company composite depreciation rate for property and equipment was 7.61%, 7.62%, and 7.46% in 2001, 2002, and 2003, respectively. Depreciation expense from continuing operations for the years ended December 31, 2001, 2002, and 2003 and the nine-month periods ended September 30, 2003 and 2004 was $41.9 million, $45.3 million, $47.1 million, $35.3 million and $36.9 million, respectively (unaudited).

F-22

(5)   Investments

        The cost, unrealized holding gains and losses, and fair value of the Company's marketable equity investments classified as available-for-sale, at December 31, 2002 and 2003 and September 30, 2004 are summarized below (dollars in thousands):

	Cost		Unrealized holding gains	Unrealized holding loss	Fair value
December 31, 2002	$	560	—	—	560
December 31, 2003		420	1,469	—	1,889
September 30, 2004 (unaudited)		—	—	—	—

        Proceeds from sales of available-for-sale securities were $1.1 million, $0.4 million, and $0.3 million in 2001, 2002, and 2003, respectively, and $0.3 million and $0.3 million for the nine-month periods ended September 30, 2003 and 2004 (unaudited). Gross gains of $1.0 million, approximately $7,000 and $0.1 million in 2001, 2002, and 2003, respectively, and $0.1 for the nine-month period ended September 30, 2003 (unaudited), were realized on those sales.

        The Company's noncurrent investments at December 31, 2002 and 2003 and September 30, 2004 consist of the following (dollars in thousands):

		December 31,
					September 30, 2004
		2002		2003
					(unaudited)
Investment in cellular companies and partnerships		$	16,341	14,399	10,480
RTB stock			20,125	20,125	20,125
CoBank stock and unpaid deferred CoBank patronage			4,903	5,136	5,180
RTFC secured certificates and unpaid deferred RTFC patronage			534	478	419
Other nonmarketable minority equity investments and Non-Qualified Deferred Compensation Plan assets			1,724	1,654	1,738
	Total investments	$	43,627	41,792	37,942

        The Company records its share of the earnings or losses of the investments accounted for under the equity method on a three-month lag. The investments accounted for under the equity method and the Company's ownership percentage as of December 31, 2002 and 2003 and September 30, 2004 are summarized below:

	December 31,
					September 30, 2004
	2002		2003
					(unaudited)
Chouteau Cellular Telephone Company	33.7	%	33.7	%	33.7	%
Illinois Valley Cellular RSA 2—I Ptnrs	13.3	%	—		—
Illinois Valley Cellular RSA 2—II Ptnrs	13.3	%	—		—
Illinois Valley Cellular RSA 2—III Ptnrs	13.3	%	—		—
ILLINET Communications, LLC	9.1	%	9.1	%	9.1	%
Orange County-Poughkeepsie Limited Partnership	7.5	%	7.5	%	7.5	%
ILLINET Communications of Central IL LLC	5.2	%	5.2	%	5.2	%
Syringa Networks, LLC	13.9	%	13.9	%	13.9	%

F-23

        Proceeds from sales of investments accounted for under the equity method were $0.2 million and $1.8 million in 2001 and 2003, respectively. Gross gains of approximately $43,000 and $0.5 million, respectively, were realized on those sales. There were no sales of investments accounted for under the equity method during 2002 (unaudited). As discussed below, the Company disposed of certain interest in equity method investments of Illinois Valley Cellular during the period ended September 30, 2003 and for the Chouteau Cellular Telephone Company during the period ended September 30, 2004.

        Chouteau Cellular Telephone Company (a limited partnership in which the Company holds a 1.0% general partner interest and a 32.67% limited partner interest) (Chouteau) is an investment vehicle which holds a 25% member interest in Independent Cellular Telephone, LLC (ICT). ICT in turn is an investment vehicle which holds a 44.45% member interest in United States Cellular Telephone of Greater Tulsa, LLC (Tulsa, LLC). Because Tulsa, LLC is the actual operating entity within the overall investment structure, its summary financial information is presented below, rather than summary information for the Chouteau Cellular Telephone Company, which is the actual entity accounted for under the equity method on the books of the Company:

		September 30
		2002		2003
		(Dollars in thousands)
Current assets		$	12,346	10,060
Property, plant, and equipment, net			65,394	90,060
Other			20,648	20,834
	Total assets	$	98,388	120,954
Current liabilities		$	55,070	70,718
Noncurrent liabilities			2,878	1,165
Members' equity			40,440	49,071
	Total liabilities and members' equity	$	98,388	120,954

	Twelve months ended September 30
	2001			2002	2003
	(Dollars in thousands)
Revenues	$	95,852		96,361	98,747
Operating income		7,338		12,407	12,482
Net income before cumulative effect of a change in accounting principle		4,950		10,402	13,232
Cumulative effect of a change in accounting principle		(963	)	—	—
Net income		3,987		10,402	13,232

        In addition to holding the 44.45% member interest in Tulsa, LLC, ICT has long-term debt consisting of variable rate borrowings (5.50% at December 31, 2003) under a loan agreement with RTFC, due in quarterly installments of $0.7 million including interest through 2006. The note is collateralized by the assets of ICT, including its investment in Tulsa, LLC. The RTFC debt balance at December 31, 2003 was $6.0 million. The Company has issued an unsecured guarantee of the RTFC debt. As of December 31, 2003, the amount of the unsecured guarantee was $1.5 million.

F-24

        In January 2004, ICT sold its membership interest in Tulsa, LLC and as a result, Chouteau Cellular Telephone Company made a $2.5 million distribution to the Company. In conjunction with this sale, ICT paid the long-term debt owed to RTFC thereby eliminating the Company guarantee of the RTFC debt. Subsequent to the sale, the Company continues to have an investment in Chouteau Cellular Telephone Company, but the partnership assets are minimal and do not include any interests in the cellular telephone business of Chouteau.

        During 2003, the Company sold its ownership percentages of Illinois Valley Cellular RSA 2-I Partnership, Illinois Valley Cellular RSA 2-II Partnership and Illinois Valley Cellular RSA 2-III Partnership. Proceeds from the sales of these investments were $1.8 million and gross gains of approximately $0.4 million were realized on these sales.

        The Company continually evaluates its investment holdings for evidence of impairment. During 2002, the Company determined that the decline in market value of its Choice One common stock was "other than temporary." As such, the Company recorded a noncash charge of $8.2 million. This charge is classified with the impairment on investments in the consolidated statements of operations.

        Following an August 2, 2004 announcement by Choice One of a financial restructuring under Chapter 11 of the United States Bankruptcy Code, the quoted market value of the Company's investment in Choice One Communications Inc.'s common stock declined from $0.5 million (unaudited) at June 30, 2004, to $33,000 (unaudited) at September 30, 2004. The Company expects that the decline in fair value is other-than-temporary, and has recorded an impairment loss of $0.5 million (unaudited) in the third quarter of 2004, of which $0.4 million (unaudited) was recorded as an expense in the statements of operations and $0.1 million (unaudited) was recorded as a reduction in accumulated other comprehensive income.

        During 2002, the Company determined that the carrying amount exceeded the estimated fair value of some investments accounted for under the equity method, and such declines were "other than temporary." As such, the Company recorded a noncash charge of $1.7 million and $2.7 million, respectively, for the Chouteau and the Illinois Valley Cellular RSA 2—I, II, and III partnership investments. These charges are classified with the impairment on investments in the consolidated statements of operations.

F-25

(6)   Long-term Debt

        Long-term debt at December 31, 2002 and 2003 and September 30, 2004 is shown below (dollars in thousands):

			December 31,					September 30,
			2002			2003		2004
								(unaudited)
Senior secured notes, variable rates ranging from 4.25% to 10.57% at December 31, 2003 (5.8750% to 10.57% at September 30, 2004—unaudited), due 2004 to 2007			$	351,778		171,091		185,068
Senior subordinated notes due 2008:
	Fixed Rate Notes, 9.50%			125,000		115,207		115,207
	Variable Rate Notes, 5.81% at December 31, 2003 (5.425% at September 30, 2004—unaudited)			75,000		75,000		75,000
Senior subordinated notes, 12.50%, due 2010				200,000		193,000		193,000
Senior subordinated notes, 11.875% due 2010				—		225,000		225,000
Carrier Services' senior secured notes, 8.00%, due 2007				28,829		24,570		—
Senior notes to RTFC:
	Fixed rate, 9.20%, due 2009			3,250		2,776		2,399
	Variable rate ranging from 6.95% to 8.80% at December 31, 2003 (5.15% to 9.20% at September 30, 2004 (unaudited)), due 2009			4,871		4,162		3,596
Subordinated promissory notes, 7.00%, due 2005				7,000		7,000		7,000
First mortgage notes to Rural Utilities Service, fixed rates ranging from 2.00% to 10.78%, due 2003 to 2016				7,090		6,492		6,034
Senior notes to RTB, fixed rates ranging from 7.50% to 8.00%, due 2008 to 2014				1,372		1,262		1,172
		Total outstanding long-term debt		804,190		825,560		813,476
Less current portion				(5,704	)	(21,982	)	(28,337	)
		Total long-term debt, net of current portion	$	798,486		803,578		785,139

F-26

        The approximate aggregate maturities of long-term debt for each of the five years subsequent to December 31, 2003 and September 30, 2004 are as follows (dollars in thousands):

		December 31, 2003		September 30,
				(unaudited)
Fiscal year:
	2005	$	21,982	28,337
	2006		32,119	28,544
	2007		37,591	141,740
	2008		119,619	192,672
	2009		192,700	1,411
	Thereafter		421,549	420,772
		$	825,560	813,476

Senior Secured Notes

        On March 30, 1998, the Company closed a $315 million senior secured credit facility (the Credit Facility) which committed $75 million of term debt (tranche C) amortized over nine years, $155 million of term debt (tranche B) amortized over eight years, and $85 million of reducing revolving credit facility debt (revolving facility) with a term of 6.5 years. On March 14, 2000, an additional $165 million of reducing revolving credit facility debt (acquisition facility) with a term of 4.5 years was committed and made available to the Company under the Credit Facility. The Credit Facility requires that the Company maintain certain financial covenants.

        The Credit Facility was amended and restated as part of a refinancing completed on March 6, 2003. Our amended and restated credit facility provides for, among other things, rescheduled amortization and an excess cash flow sweep with respect to the tranche C term facility. Our amended and restated credit facility consists of term loan facilities (consisting of tranche A loans and tranche C loans) in an aggregate principal amount of $156.4 million and a revolving credit facility in an aggregate principal amount of $70.0 million. All of our obligations under our amended and restated credit facility are unconditionally and irrevocably guaranteed jointly and severally by four of our mid-tier subsidiaries. Outstanding debt under our amended and restated credit facility is secured by a first priority perfected security interest in all of the capital stock of certain of our subsidiaries.

        Our amended and restated credit facility is comprised of the following facilities:

Revolving loan facility.    A revolving loan facility of $85.0 million. As of December 31, 2003 and September 30, 2004, $14.7 million and $38.2 million (unaudited), respectively, was outstanding under the revolving loan facility. These loans mature on March 31, 2007 and bear interest per annum at either a base rate plus 3.00% or LIBOR plus 4.00%. On January 30, 2004, the Company increased the revolving loan facility from $70.0 to $85.0 million.

Tranche A term loan facility.    A tranche A term loan facility of $40 million. As of December 31, 2003 and September 30, 2004, $30.0 million and $40.0 million (unaudited), respectively, of tranche A term loans were outstanding. These loans mature on March 31, 2007 and bear interest per annum at either a base rate plus 3.00% or LIBOR plus 4.00%. On January 30, 2004, the Company increased the tranche A term loan facility from $30.0 to $40.0 million.

Tranche C term loan facility.    As of December 31, 2003 and September 30, 2004, approximately $126.4 million and $106.9 million (unaudited), respectively, of tranche C term loans remained

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outstanding. These loans mature on March 31, 2007. Mandatory repayments under the tranche C term loan facility are scheduled to be $20.0 million, $20.0 million, $30.0 million and a final $56.4 million in years 2004, 2005, 2006, and on March 31, 2007, respectively. Tranche C term loans bear interest per annum at either a base rate plus 3.50% or LIBOR plus 4.50%.

        Our amended and restated credit facility contains certain customary covenants and other credit requirements of the Company and its subsidiaries and certain customary events of default. Our amended and restated credit facility limits our ability to make investments in Carrier Services and its subsidiaries.

        Net cash proceeds from asset sales are required to be applied as mandatory prepayments of principal on outstanding loans unless such proceeds are used by us to finance acquisitions permitted under our amended and restated credit facility within 180 days (270 days with respect to a Special Asset Sale, as defined in the credit facility) of our receipt of such proceeds. Change of control transactions trigger a mandatory prepayment obligation. Voluntary prepayments of loans, including interim prepayments of revolving loans with proceeds of asset sales that are not used to prepay term loans in anticipation of being subsequently applied to fund a permitted acquisition or acquisitions within 180 days (270 days in the event described above) of the asset sale, may be made at any time without premium or penalty, provided that voluntary prepayments of Eurodollar loans made on a date other than the last day of an interest period applicable thereto shall be subject to customary breakage costs.

        In addition, our amended and restated credit facility provides that on the date occurring 90 days after the last day of each of our fiscal years, commencing December 31, 2003, 50% of excess cash flow (as defined in our amended and restated credit facility) for the immediately preceding fiscal year shall be applied as a mandatory repayment of the then outstanding tranche C term loan facility; provided, however, that such requirement shall terminate at such time as (i) we first meet a senior secured leverage ratio (as defined in our credit facility) of less than or equal to 1.00 to 1.00 and (ii) no default or event of default exists under our amended and restated credit facility.

        On January 30, 2004, the Company amended its amended and restated credit facility to increase its revolving loan facility from $70.0 million to $85.0 million and its tranche A term loan facility from $30.0 million to $40.0 million. The Company used all of the additional borrowing under the Tranche A term loan facility and a portion of the borrowings under the revolving loan facility to repay in full all of the indebtedness under Carrier Services' Senior Secured Notes. There was no gain or loss on the extinguishment of this indebtedness.

        The Company used two interest rate swap agreements, with notional amounts of $25 million each, to effectively convert a portion of its variable interest rate exposure under the Credit Facility to fixed rates ranging from 8.07% to 10.34%. The expiration date of the swap agreements is May 2004.

        The Company's amended and restated credit facility allows the Company to request letters of credit to support obligations of the Company incurred in the ordinary course of business in an aggregate principal amount not to exceed $5.0 million and subject to limitations on the aggregate amount outstanding under the amended and restated credit facility. As of December 31, 2003, $1.0 million had been issued under this letter of credit. As of September 30, 2004, one letter of credit had been issued for $0.8 million, (unaudited).

Fixed Rate and Floating Rate Senior Subordinated Notes issued in 1998

        FairPoint issued $125.0 million aggregate principal amount of Senior Subordinated Notes (the 1998 Fixed Rate Notes) and $75.0 million of Floating Rate Notes (the 1998 Floating Rate Notes) in 1998.

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The 1998 Fixed Rate Notes bear interest at the rate of 9¹/2% per annum and the 1998 Floating Rate Notes bear interest at a rate per annum equal to LIBOR plus 418.75 basis points, in each case payable semi-annually in arrears. The LIBOR rate on the 1998 Floating Rate Notes is determined semi-annually.

        The 1998 Fixed Rate Notes and 1998 Floating Rate Notes mature on May 1, 2008. FairPoint may redeem the 1998 Fixed Rate Notes and the 1998 Floating Rate Notes at any time, in each case, at the redemption prices stated in the indenture under which those notes were issued, together with accrued and unpaid interest, if any, to the redemption date. In the event of a change of control, FairPoint must offer to repurchase the outstanding 1998 Fixed Rate Notes and 1998 Floating Rate Notes for cash at a purchase price of 101% of the principal amount of such notes, together with all accrued and unpaid interest, if any, to the date of repurchase.

        The 1998 Fixed Rate Notes and 1998 Floating Rate Notes are general unsecured obligations of FairPoint, subordinated in right of payment to all existing and future senior indebtedness of FairPoint, including all obligations under the Company's amended and restated credit facility.

        The indenture governing the 1998 Fixed Rate Notes and 1998 Floating Rate Notes contains certain customary covenants and events of default.

        At December 31, 2003 and September 30, 2004 the Company's restricted covenants do not allow the Company to make any dividend payments.

Senior Subordinated Notes issued in 2000

        FairPoint issued $200.0 million aggregate principal amount of Senior Subordinated Notes (the 2000 Notes) in 2000. The 2000 Notes bear interest at the rate of 12¹/2% per annum, payable semi-annually in arrears.

        The 2000 Notes mature on May 1, 2010. FairPoint may redeem the 2000 Notes at any time on or after May 1, 2005 at the redemption prices stated in the indenture under which the 2000 Notes were issued, together with accrued and unpaid interest, if any, to the redemption date. In the event of a change of control, FairPoint must offer to repurchase the outstanding 2000 Notes for cash at a purchase price of 101% of the principal amount of such notes, together with all accrued and unpaid interest, if any, to the date of repurchase.

        The 2000 Notes are general unsecured obligations of FairPoint, subordinated in right of payment to all existing and future senior indebtedness of FairPoint, including all obligations under the Company's amended and restated credit facility.

        The indenture governing the 2000 Notes contains certain customary covenants and events of default.

Senior Notes issued in 2003

        FairPoint issued $225.0 million aggregate principal amount of Senior Notes in 2003 (the 2003 Notes). The 2003 Notes bear interest at the rate of 11⁷/8% per annum, payable semi-annually in arrears.

        The 2003 Notes mature on March 1, 2010. FairPoint may redeem the 2003 Notes at any time on or after March 1, 2007 at the redemption prices stated in the indenture under which the 2003 Notes were issued, together with accrued and unpaid interest, if any, to the redemption date. In the event of a change of control, FairPoint must offer to repurchase the outstanding 2003 Notes for cash at a purchase price of 101% of the principal amount of such notes, together with all accrued and unpaid interest, if any, to the date of repurchase.

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        The 2003 Notes are general unsecured obligations of FairPoint, ranking pari passu in right of payment with all existing and future senior debt of FairPoint, including all obligations under the Company's amended and restated credit facility, and senior in right of payment to all existing and future subordinated indebtedness of FairPoint.

        The indenture governing the 2003 Notes contains certain customary covenants and events of default.

        The proceeds from the offering of the 2003 Notes and borrowings under the Company's amended and restated credit facility's tranche A term loan facility were used to: (i) repay the entire amount of all loans outstanding under FairPoint's then outstanding credit facility's revolving facility, acquisition facility and tranche B term loan facility; (ii) repurchase $13.3 million aggregate liquidation preference of the Company's Series A Preferred Stock (together with accrued and unpaid dividends thereon) at 65% of its liquidation preference; (iii) repurchase $9.8 million aggregate principal amount of the 1998 Fixed Rate Notes (together with accrued and unpaid interest thereon) for approximately $7.9 million; (iv) repurchase $7.0 million aggregate principal amount of the 2000 Notes (together with accrued and unpaid interest thereon) for approximately $6.1 million; (v) make a capital contribution of approximately $1.5 million to Carrier Services, which used these proceeds to retire $2.2 million of its debt; and (vi) pay transaction fees.

        As a result of the issuance of the 2003 Notes, the Company recorded $2.8 million and $0.7 million of non-operating gains on the extinguishment of the 1998 Fixed Rate Notes and 2000 Notes and the Carrier Services debt, respectively. The Company also repurchased some Series A Preferred Stock at a discount of $2.9 million. Additionally, the Company recorded a non-operating loss of $5.0 million for the write-off of debt issue costs related to this extinguishment of debt in 2003.

Carrier Services' Senior Secured Notes

        On May 10, 2002, Carrier Services entered into an Amended and Restated Credit Agreement with its lenders to restructure the obligations of Carrier Services and its subsidiaries under Carrier Services' Credit Facility. In connection with such restructuring, (i) Carrier Services paid certain of its lenders $5.0 million to satisfy $7.0 million of the obligations under Carrier Services' Credit Facility, (ii) the lenders converted $93.9 million of the loans and obligations under Carrier Services' Credit Facility into shares of the Company's Series A Preferred Stock having a liquidation preference equal to the amount of the loans and obligations under Carrier Services' Credit Facility, and (iii) the remaining loans under Carrier Services' Credit Facility and Carrier Services' obligations under its swap arrangements were converted into $27.9 million aggregate principal amount of new term loans.

        As a result of this restructuring, in 2002, the Company recorded a gain classified within discontinued operations of $17.5 million for the extinguishment of debt and settlement of its interest rate swap agreements. The gain represents the difference between the May 10, 2002 carrying value of $128.8 million of retired debt ($125.8 million) and related swap obligations ($3.0 million) and the sum of the aggregate value of the cash paid ($5.0 million) plus principal amount of new term loans ($27.9 million) plus the estimated fair value of the Company's Series A Preferred Stock issued ($78.4 million).

        The converted loans under the new Carrier Services' Amended and Restated Credit Agreement consist of two term loan facilities: (i) Tranche A Loans in the aggregate principal amount of $8.7 million and (ii) Tranche B Loans in the aggregate principal amount of $19.2 million, each of which matures in May 2007. Interest on the new loans is payable monthly and accrues at a rate of 8% per

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annum; provided, however, that upon an event of default the interest rate shall increase to 10% per annum. Interest on the Tranche A Loans must be paid in cash and interest on Tranche B Loans may be paid, at the option of Carrier Services, either in cash or in kind. For the years ended December 31, 2002 and 2003, $0.9 million and $1.5 million, respectively, in additional debt was issued to satisfy the accrued in kind interest on the Tranche B loans. The principal of the Tranche A Loans is due at maturity and the principal of the Tranche B Loans is payable as follows: (a) $3,026,000 is due on September 30, 2005; (b) $5,372,000 is due on September 30, 2006; and (c) the remaining principal balance is due at maturity. On May 6, 2003, Carrier Services extinguished $2.2 million of the tranche A and tranche B loans. Carrier Services has made mandatory prepayments on the tranche B loans utilizing payments received under its tax sharing agreement with the Parent and proceeds from asset sales. As of December 31, 2003, approximately $7.9 million tranche A and $16.7 million of tranche B loans remained outstanding. On January 30, 2004, these loans were paid in full utilizing borrowings under the Company's amended and restated credit facility.

Other

        In conjunction with the senior notes payable to the RTFC and the RTB and the first mortgage notes payable to the Rural Utilities Service, certain of the Company's subsidiaries are subject to restrictive covenants limiting the amounts of dividends that may be paid.

        The Company also has $0.4 million of unsecured demand notes payable to various individuals and entities with interest payable at 5.25% at December 31, 2003.

(7)   Redeemable Preferred Stock

        The Series A Preferred Stock was issued to the lenders in connection with the Carrier Services debt restructuring. The Series A Preferred Stock is nonvoting and is not convertible into common stock of the Company. The Series A Preferred Stock provides for the payment of dividends at a rate equal to 17.428% per annum. Dividends on the Series A Preferred Stock are payable, at the option of the Company, either in cash or in additional shares of Series A Preferred Stock. The Company has the option to redeem any outstanding Series A Preferred Stock at any time. The redemption price for such shares is payable in cash in an amount equal to $1,000 per share plus any accrued but unpaid dividends thereon (the Preference Amount). Under certain circumstances, the Company would be required to pay a premium of up to 6% of the Preference Amount in connection with the redemption of the Series A Preferred Stock. In addition, upon the occurrence of certain events, such as (i) a merger, consolidation, sale, transfer or disposition of at least 50% of the assets or business of the Company and its subsidiaries, (ii) a public offering of the Company's common stock which yields in the aggregate at least $175.0 million, or (iii) the first anniversary of the maturity of the Company's senior subordinated notes (which first anniversary will occur in May 2011), the Company would be required to redeem all outstanding shares of the Series A Preferred Stock at a price per share equal to the Preference Amount, unless prohibited by the Company's credit facility or by the indentures governing its senior subordinated notes. In connection with the March refinancing, certain holders of the Series A Preferred Stock agreed to reduce the dividend rate payable on the shares they hold from 17.428% to 15% for the period from March 6, 2003 to March 6, 2005.

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section,

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rather than as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of a nonpublic entity, in which this statement shall be effective for fiscal periods beginning after December 15, 2003. For purposes of SFAS No. 150, the Company meets the definition of a nonpublic entity. The Company prospectively adopted SFAS No. 150, effective July 1, 2003. The SFAS No. 150 adoption had no impact on net income (loss) attributed to common shareholders for any of the periods presented.

        SFAS No. 150 requires the Company to classify as a long-term liability its Series A Preferred Stock and to classify dividends and accretion from the Series A Preferred Stock as interest expense. Such stock is now described as "Preferred Shares Subject to Mandatory Redemption" in the Balance Sheets as of December 31, 2003 and dividends and accretion on these shares are now included in pre-tax income whereas previously they were presented as a reduction to equity (a dividend) and, therefore, a reduction of net income available to common shareholders.

        The initial carrying amount of the Series A Preferred Stock has been recorded at its fair value at the date of issuance ($78.4 million). The carrying amount is being increased by periodic accretions, using the interest method, so that the carrying amount will equal the mandatory redemption amount ($82.3 million) at the mandatory redemption date (May 2011). On March 6, 2003, in connection with the Company's issuance of the 2003 Notes, the Company used a portion of these proceeds to repurchase $13.3 million aggregate liquidation preference of its Series A Preferred Stock at a 35% discount (together with accrued and unpaid dividends thereon). For the years ended December 31, 2002 and 2003 and for the nine-month periods ended September 30, 2003 and 2004, the Series A Preferred Stock has been increased by $1.0 million, $1.4 million, $1.1 million (unaudited) and $1.1 million (unaudited) respectively, to reflect the periodic accretions. The carrying amount of the Series A Preferred Stock has been further increased by $10.9 million and $16.5 million in connection with dividends paid in-kind on the outstanding shares of the Series A Preferred Stock for the years ended December 31, 2002 and 2003, respectively, and by $12.3 million (unaudited) and $13.8 million (unaudited) for the nine month periods ended September 30, 2003 and 2004. Prior to the adoption of SFAS No. 150, additional paid-in capital has been decreased $11.9 million and $8.9 million for the increases in the carrying balance of the Series A Preferred Stock for the year ended December 31, 2002 and the period ended June 30, 2003, respectively. Upon the adoption of SFAS No. 150, pre-tax income has been decreased $9.0 million for the increases in the carrying balance of the Series A Preferred Stock for the period July 1, 2003 through December 31, 2003.

(8)   Employee Benefit Plans

        The Company sponsors a voluntary 401(k) savings plan (the 401(k) Plan) that covers substantially all eligible employees. Each 401(k) Plan year, the Company contributes to the 401(k) Plan an amount of matching contributions determined by the Company at its discretion. For the 401(k) Plan years ended December 31, 2001, 2002, and 2003, the Company matched 100% of each employee's contribution up to 3% of compensation and 50% of additional contributions up to 6%. The 401(k) Plan also allows for a profit sharing contribution that is made based upon management discretion. Total Company contributions to the 401(k) Plan were $1.8 million, $1.4 million, and $2.7 million for the years ended December 31, 2001, 2002, and 2003, respectively, and $0.8 million and $0.9 million (unaudited) for the nine-month periods ended September 30, 2003 and 2004, respectively.

        In 1999, the Company began a Non-Qualified Deferred Compensation Plan (the NQDC Plan) that covers certain employees. The NQDC Plan allows highly compensated individuals to defer additional compensation beyond the limitations of the 401(k) Plan. Company matching contributions are subject

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to the same percentage as the 401(k) Plan. Total Company contributions to the NQDC Plan were approximately $16,000, $1,000, and $7,000 for the years ended December 31, 2001, 2002, and 2003, respectively, and $1,000 and $2,000 for the nine-month periods ended September 30, 2003 and 2004, respectively (unaudited). At December 31, 2002 and 2003 and September 30, 2004 (unaudited), the NQDC Plan assets were $0.6 million. The related deferred compensation obligation is included in other liabilities in the accompanying consolidated balance sheets.

        C&E, Taconic, and GT Com also sponsor defined contribution 401(k) retirement savings plans for union employees. C&E, Taconic, and GT Com match contributions to these plans based upon a percentage of pay of all qualified personnel and make certain profit sharing contributions. Contributions to the plans were $0.2 million, $0.3 million, and $0.2 million for the years ended December 31, 2001, 2002, and 2003, respectively, and approximately $0.2 million (unaudited) for the nine-month periods ended September 30, 2003 and 2004.

(9)   Income Taxes

        Income tax benefit (expense) from continuing operations for the years ended December 31, 2001, 2002, and 2003 consists of the following components:

			2001			2002		2003
			(Dollars in thousands)
Current:
	Federal		$	—		—		—
	State			(569	)	(603	)	199
		Total current income tax benefit (expense) from continuing operations		(569	)	(603	)	199
Investment tax credits				138		85		37
Deferred:
	Federal			—		—		—
	State			—		—		—
		Total deferred income tax benefit (expense) from continuing operations		—		—		—
		Total income tax benefit (expense) from continuing operations	$	(431	)	(518	)	236

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        Total income tax benefit (expense) from continuing operations was different than that computed by applying U.S. Federal income tax rates to losses from continuing operations before income taxes for the years ended December 31, 2001, 2002, and 2003. The reasons for the differences are presented below:

		2001			2002		2003
		(Dollars in thousands)
Computed "expected" tax benefit from continuing operations		$	7,791		1,952		2,880
State income tax benefit (expense), net of Federal income tax expense			(376	)	(398	)	131
Amortization of investment tax credits			138		85		37
Goodwill amortization			(3,339	)	—		—
Dividends on preferred stock			—		—		(3,077	)
Dividends received deduction			—		—		94
Stock-based compensation			(749	)	(428	)	—
Valuation allowance			(4,067	)	(1,851	)	—
Disallowed expenses and other			171		122		171
	Total income tax benefit (expense) from continuing operations	$	(431	)	(518	)	236

        The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2002 and 2003 are presented below:

			2002			2003
			(Dollars in thousands)
Deferred tax assets:
	Federal and state tax loss carryforwards		$	94,223		91,527
	Employee benefits			632		784
	Restructure charges and exit liabilities			2,873		1,917
	Allowance for doubtful accounts			451		375
	Alternative minimum tax and other state credits			2,861		2,209
		Total gross deferred tax assets		101,040		96,812
Valuation allowance				(71,733	)	(64,392	)
		Net deferred tax assets		29,307		32,420
Deferred tax liabilities:
	Property, plant, and equipment, principally due to depreciation differences			16,716		17,244
	Goodwill, due to amortization differences			8,906		10,654
	Basis in investments			3,685		4,522
		Total gross deferred tax liabilities		29,307		32,420
		Net deferred tax assets	$	—		—

        The valuation allowance for deferred tax assets as of December 31, 2002 and 2003 was $71.7 million and $64.4 million, respectively. The change in the valuation allowance was $(4.9) million and $(7.3) million of which $1.9 million and $0.0 million was allocated to continuing operations and $(6.8) million and $(7.3) million to discontinued operations for the years ended December 31, 2002 and

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2003, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of $176.4 million prior to the expiration of the net operating loss carryforwards in 2022. Taxable income (loss) for the years ended December 31, 2002 and 2003 was $(11.2) million and $7.6 million, respectively. Based upon the level of projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2003. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

        At December 31, 2003, federal and state net operating loss carryforwards of $250.8 million expire in 2019 to 2022. At December 31, 2003, the Company has alternative minimum tax credits of $1.7 million which may be carried forward indefinitely.

(10) Stockholders' Equity

        The following summarizes the authorized share capital of the Company:

Class A common stock—authorized 44,757,130 voting common shares at a par value of $0.01 per share. Class A common shares carry one vote per share.

Class B common stock—authorized 28,423,241 nonvoting, convertible common shares at a par value of $0.01 per share.

Class C common stock—authorized 2,614,938 nonvoting, convertible common shares at a par value of $0.01 per share. The Class C common shares are automatically convertible into Class A common shares upon either the completion of an initial public offering of at least $150 million of the Company's Class A common stock or the occurrence of certain conversion events, as defined in the articles of incorporation. The conversion rate for the Class C common shares to Class A common shares is one-for-one.

Series A preferred stock—authorized 1,000,000 nonvoting, nonconvertible, redeemable preferred shares at a par value of $0.01 per share (see note 7).

Series D preferred stock—authorized 100,000,000 nonvoting, convertible, cumulative participating preferred shares at a par value of $0.01 per share.

        In May 2002, the Company amended and restated its certificate of incorporation to eliminate its Series D preferred stock and to designate and authorize the issuance of up to 1,000,000 shares of Series A preferred stock.

Issuance of Common Stock Subject to Put Obligations

        In connection with the acquisition of Fremont, the Company issued 86,656 shares of Class A common stock to certain of the former owners of Fremont. Under the terms of the agreements, these shares can be put back to the Company at any time. The purchase price for such stock is the higher of the current fair market value or the fair market value of the Company's common stock on the date of

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the acquisition of Fremont. Such former owners of Fremont exercised their put options on 14,291 shares in December 2000 and on 12,634 shares in March 2001. The Company has recorded the common stock subject to put options as temporary equity in the accompanying consolidated balance sheets. In May 2001, the Company loaned $999,980 to such former owners of Fremont. In January 2002, these loans were paid with 14,442 shares subject to the put options. In January 2003, put options on 14,442 shares were exercised for $999,980. In July 2003, the Company loaned $999,980 to such former owners of Fremont; these loans mature on January 2, 2005. In January 2004, put options on 14,442 shares were exercised for $999,980.

(11) Stock Option Plans

Compensation expense

        In April 2000, the Company issued stock options under the 1998 Plan to employee participants in the FairPoint Communications Corp. Stock Incentive Plan (Carrier Services' Plan) in consideration of the cancellation of all options previously granted under the Carrier Services' Plan. The Company issued 307,059 and 13,871 options to purchase Class A common stock of the Company at an exercise price of $17.31 per share and $69.24 per share, respectively. The Company was recognizing a compensation charge on these Carrier Services' options for the amount the market value of the Company's common stock exceeded the exercise price on the date of grant. In order to maintain the same economic benefits as previously existed under the Carrier Services' Plan, Carrier Services also intended to provide a cash bonus to its employees for each option exercised. The Company was amortizing the compensation charge related to the Carrier Services' option grant and the cash bonus over the vesting period of five years up to the settlement of these options in 2001.

        On December 31, 2001, the Company extended the exercise period on 53,853 1995 Plan stock options. The Company recognized a compensation charge of $2.2 million related to the modification of these options during 2001. On December 31, 2002, the Company extended the exercise period on 40,399 1995 Plan Stock Options. The Company recognized a compensation charge of $1.2 million related to the modification of these options during 2002.

        Certain principal shareholders of the Company granted stock appreciation rights to certain members of management. The stock appreciation rights are fully vested. The stock appreciation rights may be settled in cash or stock, at the option of the granting shareholders. In connection with the stock appreciation rights, the Company recognized a benefit of $0.9 million and $0.3 million in 2001 and 2002, respectively, as the value associated with the stock appreciation rights declined. There were no adjustments to the stock appreciation rights in the year ended December 31, 2003, as the fair market value per share of the Company's common stock remained flat during the year.

1995 Stock Option Plan

        In February 1995, the Company adopted the 1995 Plan. The 1995 Plan covers officers, directors, and employees of the Company. The Company may issue qualified or nonqualified stock options to purchase up to 215,410 shares of the Company's Class A common stock to employees that will vest equally over 5 years from the date of employment of the recipient and are exercisable during years 5 through 10. In 1995, the Company granted options to purchase 161,596 shares at $1.32 per share. There were no options granted since 1995.

        The per share weighted average fair value of stock options granted during 1995 was $0.69 on the date of grant using the Black Scholes option-pricing model. Input variables used in the model included no expected dividend yields, a risk-free interest rate of 6.41%, and an estimated option life of five

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years. Because the Company was nonpublic on the date of the grant, no assumption as to the volatility of the stock price was made.

        Stock option activity for the years ended December 31, 2001, 2002 and 2003 and the nine-month period ended September 30, 2004 under the 1995 Plan is summarized as follows:

		2001	2002	2003	2004
					(unaudited)
Outstanding, beginning of period		112,263	112,263	112,263	112,263
	Granted	—	—	—	—
	Exercised	—	—	—	—
	Forfeited	—	—	—	—
Outstanding, end of period		112,263	112,263	112,263	112,263
Exercisable, end of period		112,263	112,263	112,263	112,263
Stock options available to grant, end of period				53,815	53,815

MJD Communications, Inc. Stock Incentive Plan

        In August 1998, the Company adopted the 1998 Plan. The 1998 Plan provides for grants of up to 1,317,425 nonqualified stock options to executives and members of management, at the discretion of the compensation committee of the board of directors. Options vest in 25% increments on the second, third, fourth, and fifth anniversaries of an individual grant. In the event of a change in control, outstanding options will vest immediately.

        Pursuant to the terms of the grant, options granted in 1998 and 1999 become exercisable only in the event that the Company is sold, an initial public offering of the Company's common stock results in the principal shareholders holding less than 10% of their original ownership, or other changes in control, as defined, occur. The number of options that may become ultimately exercisable also depends upon the extent to which the price per share obtained in the sale of the Company would exceed a minimum selling price of $22.59 per share. All options have a term of 10 years from date of grant. For those options granted in 1998 and 1999, the Company will record compensation expense for the excess of the estimated market value of its common stock over the exercise price of the options when and if a sale of the Company, at the prices necessary to result in exercisable options under the grant, becomes imminent or likely.

        Pursuant to the terms of the grant, options granted in 2000 become exercisable immediately upon vesting. The per share weighted average fair value of stock options granted under the 1998 Plan during 2000 was $58.95 on the date of grant using the Black Scholes option-pricing model. Input variables used in the model included no expected dividend yields, a risk-free interest rate of 6.52%, and an estimated option life of 10 years. Because the Company was nonpublic on the date of the grant, no assumption as to the volatility of the stock price was made.

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        Stock option activity under the 1998 Plan is summarized as follows:

		Options outstanding		Weighted average exercise price
Outstanding at January 1, 2001		1,153,664		$	11.72
	Granted	—			—
	Exercised	(17,338	)		17.31
	Forfeited	(301,386	)		16.94
Outstanding at December 31, 2001		834,940			9.71
	Granted	47,372			36.94
	Exercised	—			—
	Forfeited	(42,652	)		17.31
Outstanding at December 31, 2002		839,660			10.87
	Granted	—			—
	Exercised	—			—
	Forfeited	(3,316	)		9.02
Outstanding at December 31, 2003 and September 30, 2004 (unaudited)		836,344			10.87
Stock options available to grant at December 31, 2003 and September 30, 2004 (unaudited)		481,081

Options outstanding			Options exercisable
Exercise price	Number outstanding at December 31, 2003	Remaining contractual life (years)	Number exercisable at December 31, 2003	Weighted average exercise price
$  9.02	750,639	4.60	—	$	—
14.46	34,866	5.50	—		—
17.31	3,467	6.30	2,601		17.31
36.94	47,372	8.00	—		—
	836,344		2,601	$	17.31

        The weighted average remaining contractual life for the options outstanding at December 31, 2003 is 4.8 years.

FairPoint Communications, Inc. 2000 Employee Stock Incentive Plan

        In May 2000, the Company adopted the 2000 Plan. The 2000 Plan provided for grants to members of management of up to 1,898,521 options to purchase Class A common stock, at the discretion of the compensation committee. During 2002, the Company amended the 2000 Plan to limit the number of shares available for grant to 448,236. In December 2003, the Company amended the 2000 Plan to allow for the grant to members of management of up to 1,898,521 shares of restricted stock in addition to shares available for stock options. Options granted under the 2000 Plan may be of two types: (i) incentive stock options and (ii) nonstatutory stock options. Unless the compensation committee shall otherwise specify at the time of grant, any option granted under the 2000 Plan shall be a nonstatutory stock option.

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        Under the 2000 Plan, unless otherwise determined by the compensation committee at the time of grant, participating employees are granted options to purchase Class A common stock at exercise prices not less than the market value of the Company's Class A common stock at the date of grant. Options have a term of 10 years from date of grant. Options vest in increments of 10% on the first anniversary, 15% on the second anniversary, and 25% on the third, fourth, and fifth anniversaries of an individual grant. Subject to certain provisions, in the event of a change of control, the Company will cancel each option in exchange for a payment in cash of an amount equal to the excess, if any, of the highest price per share of Class A common stock offered in conjunction with any transaction resulting in a change of control over the exercise price for such option.

        On August 3, 2001, the Company made an offer to its employees to cancel their existing options issued under the 2000 Plan in exchange for new options to be granted on the date that is on or after six months and one day following the expiration date of the offer. As a result of this offer, 620,562 options were canceled. The remaining shares outstanding under this plan were forfeited during 2001. On March 13, 2002, 166,905 stock options were issued under this exchange offer.

        Restricted stock units vest in increments of 33% on each of the third, fourth, and fifth anniversaries of the award. In December 2003, 27,382 restricted stock units were awarded with an aggregate value of $890,000. The Company has recognized a compensation charge of $15,000 during 2003 and $133,000 (unaudited) during the nine-month period ended September 30, 2004, related to these awards and will recognize the balance of compensation expense over the remaining vesting period.

        Stock option activity under the 2000 Plan is summarized as follows:

		Options outstanding		Weighted average exercise price
Outstanding at January 1, 2001		757,411		$	69.24
	Granted	—			—
	Exercised	—			—
	Canceled or forfeited	(757,411	)		69.24
Outstanding at December 31, 2001		—			—
	Granted	253,366			36.94
	Exercised	—			—
	Canceled or forfeited	(22,050	)		36.94
Outstanding at December 31, 2002		231,316			36.94
	Granted	90,580			36.94
	Exercised	—			—
	Canceled or forfeited	(21,177	)		36.94
Outstanding at December 31, 2003		300,719			36.94
	Granted (unaudited)	—			—
	Exercised (unaudited)	—			—
	Canceled or forfeited (unaudited)	(33,207	)		36.94
Outstanding at September 30, 2004 (unaudited)		267,512
Stock options available to grant at December 31, 2003		147,517
Stock options available to grant at September 30, 2004 (unaudited)		180,724

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        The remaining contractual life for the options outstanding at December 31, 2003 was 8.75 years, and 80,100 options were exercisable.

        The per share weighted average fair value of stock options granted under the 2000 Plan during 2000, 2002, and 2003 were $9.76, $14.99, and $8.39, respectively, on the date of grant using the Black Scholes option-pricing model. Input variables used in the model included no expected dividend yields, a weighted average risk free interest rate of 6.49%, 5.28%, and 4.26% in 2000, 2002, and 2003 respectively, and an estimated option life of 10 years. Because the Company was nonpublic on the date of grant, no assumption as to the volatility of the stock price was made.

(12) Discontinued Operations and Restructure Charges

        Competitive Communications Business Operations.    In October and November of 2001, Carrier Services sold certain assets of its competitive communications operations to Advanced TelCom, Inc., a wholly owned subsidiary of Advance Telcom Group, Inc. and Choice One. Total proceeds from these sales of assets were $9.0 million in cash and 2,500,000 restricted shares of Choice One common stock (valued at $7.9 million). The Company recorded a net loss of $31.1 million from the sale of these assets. In April 2002, Carrier Services earned an additional 1,000,000 restricted shares of Choice One Common Stock based on the number of access lines converted to the Choice One operating platform within 120 days after closing. The value of these additional shares, $0.8 million, was recognized as a gain within discontinued operations in 2002.

        In November 2001, in connection with the sale of certain of its assets as previously discussed, the Company announced its plan to discontinue the competitive communications business operations of its wholly owned subsidiary, Carrier Services. As a result of the adoption of the plan to discontinue the competitive communications operations, these results are presented as discontinued operations. The Company recognized a total charge of $95.3 million on the disposal of its competitive communications operations, including the $31.1 million loss on the sale of assets, $36.1 million for the write-off of the remaining operating assets, including property, plant and equipment, and $28.1 million for expenses the Company estimated it would incur during the phase-out period, net of estimated revenue to be received from customers until they were transitioned to other carriers. Estimated expense for the phase-out period included interest expense. Interest expense was allocated to discontinued operations based on the interest incurred by the Company under Carrier Services' Credit Facility and the two interest rate swaps related to this facility.

        In May 2002, Carrier Services entered into an amended and restated credit facility with its lenders to restructure its obligations under its credit facility. In the restructuring, (i) Carrier Services paid certain of its lenders $5.0 million to satisfy $7.0 million of obligations under the credit facility, (ii) the lenders converted approximately $93.9 million of the loans under the credit facility into shares of FairPoint's Series A Preferred Stock having a liquidation preference equal to the amount of such loans and (iii) the remaining loans under the credit facility and certain swap obligations were converted into $27.9 million of new term loans.

        As a result of this restructuring, in 2002, the Company recorded a gain in discontinued operations of $17.5 million for the extinguishment of debt and settlement of its interest rate swap agreements. The gain represents the difference between the May 10, 2002 carrying value of $128.8 million of retired debt ($125.8 million) and related swap obligations ($3.0 million) and the sum of the aggregate value of the cash paid ($5.0 million) plus principal amount of new term loans ($27.9 million) plus the estimated fair value of the Company's Series A Preferred Stock issued ($78.4 million).

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        Selected information from discontinued operations of Carrier Services for the year ended December 31, 2001 (dollars in thousands):

Revenue	$	57,080
Operating loss		44,943
Loss before income taxes		93,952
Income tax benefit		985
Loss from discontinued operations	$	92,967
Capital expenditures	$	37,426

        Assets and liabilities of discontinued operations of Carrier Services as of December 31, 2002 and 2003 and September 30, 2004 follows:

		December 31,					September 30,
		2002			2003		2004
		(Dollars in thousands)					(unaudited)
Cash		$	25		—		—
Accounts receivable			781		105		105
	Current assets of discontinued operations	$	806		105		105
Accounts payable		$	(35	)	—		—
Accrued liabilities			(2,743	)	(1,516	)	(1,176	)
Restructuring accrual			(1,968	)	(2,682	)	(2,661	)
Accrued property taxes			(319	)	(263	)	(50	)
	Current liabilities of discontinued operations	$	(5,065	)	(4,461	)	(3,887	)
Restructuring accrual		$	(5,214	)	(2,571	)	(1,773	)
Other liabilities			(51	)	—		—
	Long-term liabilities of discontinued operations	$	(5,265	)	(2,571	)	(1,773	)

        In connection with Carrier Services' debt restructuring, as of May 10, 2002, the converted loans of $27.9 million are classified as long-term debt as these loans will be serviced through continuing operations. Investments in marketable securities (consisting of Choice One stock) were also reclassified from discontinued operations to other current assets as these investments upon liquidation will fund the debt service requirements of Carrier Services' debt.

        The 2000 restructure charges include provisions of $3.3 million for the termination benefits for 360 employees, losses from abandoned leased facilities, equipment, and other obligations of $10.3 million, and $0.1 million of other costs associated with the plan of restructuring. Accrued liabilities of the discontinued operations of Carrier Services included $13.3 million for amounts unpaid at December 31, 2000 for this plan of restructuring.

        In the first quarter of 2001, the Company completed additional plans for the restructuring of operations at Carrier Services, which resulted in recording a charge of $33.6 million. Of the total 2001 restructuring charge, $3.4 million related to employee termination benefits and other employee termination related costs. The Company terminated 365 positions in January 2001. Certain positions were eliminated at the central operating facility in Albany, New York, and at the corporate office in

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Charlotte, North Carolina. In addition, another 11 sales offices were closed and staff at the remaining sales offices were reduced.

        The restructure charge in the first quarter of 2001 included $12.2 million in contractual obligations for equipment, occupancy, and other lease terminations and other facility exit costs incurred as a direct result of the plan. The restructuring charge also included $17.9 million, net of salvage value, for the write-down of property, plant, and equipment. There were also $0.1 million of other incremental costs incurred as a direct result of the restructuring plan.

        Except for the remaining liabilities associated with equipment and lease terminations, all liabilities for employee termination benefits and other liabilities were settled or paid by December 31, 2001, for the 2000 and 2001 plans of restructuring. These remaining liabilities were re-evaluated and increased by $1.9 million in 2001. During 2002 and 2003, the Company entered into arrangements related to certain leases and revised its assumptions on certain other remaining leases. For these reasons, there was a reduction to the remaining restructure obligation of $1.2 million in 2002 and $0.2 million in 2003. These reductions have been recognized as a gain and classified within discontinued operations for the year ended December 31, 2002 and 2003, respectively.

        Selected information relating to the restructuring charge follows:

	Employee termination benefits			Equipment, occupancy, and other lease terminations		Write-down of property, plant, and equipment		Other		Total
	(Dollars in thousands)
Restructuring accrual as of December 31, 2000	$	3,028		10,207		—		108		13,343
Restructure charge		3,416		12,180		17,916		95		33,607
Write-down of assets to net realizable value		—		—		(16,696	)	—		(16,696	)
Adjustments from initial estimated charges		(91	)	1,916		(1,220	)	59		664
Cash payments		(6,353	)	(11,993	)	—		(262	)	(18,608	)
Restructuring accrual as of December 31, 2001		—		12,310		—		—		12,310
Adjustments from initial estimated charges		—		(1,192	)	—		—		(1,192	)
Cash payments		—		(3,936	)	—		—		(3,936	)
Restructuring accrual as of December 31, 2002		—		7,182		—		—		7,182
Adjustments from initial estimated charges		—		(246	)	—		—		(246	)
Cash payments		—		(1,683	)	—		—		(1,683	)
Restructuring accrual as of December 31, 2003		—		5,253		—		—		5,253
Adjustments from initial estimated charges (unaudited)		—		80		—		—		80
Cash payments (unaudited)		—		(899	)	—		—		(899	)
Restructuring accrual as of September 30, 2004 (unaudited)	$	—		4,434		—		—		4,434

        Rural Local Exchange Carrier Operations.    On September 30, 2003, the Company completed the sale of all of the capital stock owned by Services of Union Telephone Company of Hartford, Armour Independent Telephone Co., WMW Cable TV Co. and Kadoka Telephone Co. to Golden West Telephone Properties, Inc. ("Golden West"). The sale was completed in accordance with the terms of the Purchase Agreement, dated as of May 9, 2003 (the "Purchase Agreement"), with Golden West. The Company received $24,156,000 in sales proceeds, subject to certain escrow obligations as set forth in

F-42

the Purchase Agreement. The South Dakota properties were geographically isolated from other Company properties making it increasingly difficult to realize additional operating efficiencies. These properties were adjacent to Golden West's operations and offered Golden West numerous operational synergies. The proceeds from this divestiture were used to fund acquisitions completed in 2003. The operations of these companies are presented as discontinued operations. Therefore, the balances associated with these activities were reclassified as "held for sale." All prior period financial statements have been restated accordingly.

        Income from the South Dakota Divestiture operations consists of the following (dollars in thousands):

	Twelve months ended December 31,
				Nine months ended September 30, 2003
	2001		2002
Revenue	$	5,037	5,299	4,028
Income from discontinued operations	$	2,073	2,433	1,929

        Assets and liabilities of the South Dakota Divestiture as of December 31, 2002 follow (dollars in thousands):

Cash		$	178
Accounts receivable			430
Property, plant and equipment, net			5,027
Investments			395
Goodwill, net of accumulated amortization			10,526
Other			91
	Current assets held for sale	$	16,647
Accounts payable		$	342
Accrued liabilities			297
	Current liabilities held for sale	$	639

        The Company recorded a gain on disposal of the South Dakota companies of $7.7 million.

(13) Related Party Transactions

        The Company has entered into financial advisory agreements with certain equity investors, pursuant to which the equity investors provide certain consulting and advisory services related but not limited to equity financings and strategic planning. The Company paid $1.0 million for each of the years ended December 31, 2001, 2002, and 2003 and $0.7 million for each of the nine-month periods ended September 30, 2003 and 2004 (unaudited), in such fees to the equity investors and this expense is classified within operating expenses. The agreements also provide that the Company will reimburse the equity investors for travel relating to the Company's board of directors meetings. The Company reimbursed the equity investors $0.1 million, $43,000, and $21,000 for the years ended December 31, 2001, 2002, and 2003, respectively, and approximately $17,000 (unaudited) and $119,000 (unaudited) for the nine-month periods ended September 30, 2003 and 2004, respectively, for travel and related expenses. Per the financial advisory agreements, the advisory and consulting fees to be paid to each of the principal shareholders through December 31, 2006 is $0.5 million per annum. In January 2000, the Company entered into an agreement whereby the Company must obtain consent from its two principal shareholders in order to incur debt in excess of $5.0 million.

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        In 2001, a law firm in which a partner of such law firm is a director of the Company, was paid $0.8 million, of which $0.3 million was for general counsel services, $0.1 million was for services related to financings, and $0.4 million was for services related to the restructure and discontinuance of the competitive communications operations. In 2002, this same law firm was paid $0.8 million, of which $0.3 million was for general counsel services, $0.3 million was for services related to the discontinuance of the competitive communications operations, and $0.2 million was for services related to acquisitions. In 2003, this same law firm was paid $1.3 million, of which $0.4 million was for general counsel services and $0.9 million was for services related to financings. For the nine-month period ended September 30, 2003, this same law firm was paid $0.8 million (unaudited) for services related to financing and $0.1 million (unaudited) for general counsel services. For the nine-month period ended September 30, 2004, this same law firm was paid $2.9 million (unaudited) for services related to financing and equity offering and $0.1 million (unaudited) for general counsel services. All payments made by the Company for general counsel services and unsuccessful acquisition bids are classified within operating expenses on the statements of operations. All payments made for services related to financings have been recorded as debt or equity issue costs. All payments made for services related to successful acquisition bids have been capitalized as direct costs of the acquisitions. All services related to the restructure and discontinuance of the competitive communications operations have been classified in discontinued operations.

        On July 31, 2003, the Company loaned $990,980 to two employees that are the former owners of Fremont. These loans mature on January 2, 2005.

(14) Quarterly Financial Information (Unaudited)

		First quarter			Second quarter		Third quarter		Fourth quarter
		(Dollars in thousands)
2002:
	Revenue	$	57,156		55,570		57,778		60,315
	Income (loss) from continuing operations		4,927		(7,826	)	(1,442	)	(4,353	)
	Net income (loss)		5,501		11,083		933		(4,278	)
	Basic and diluted earnings (loss) from continuing operations per share	$	0.52		(1.09	)	(0.64	)	(0.96	)
	Basic and diluted earnings (loss) per share	$	0.58		0.90		(0.38	)	(0.96	)
2003:
	Revenue	$	55,812		57,285		58,566		59,769
	Income (loss) from continuing operations		668		(1,112	)	(4,209	)	(3,597	)
	Net income (loss)		1,294		(504	)	4,283		(3,402	)
Basic and diluted loss from continuing operations per share		$	(0.12	)	(0.56	)	(0.44	)	(0.38	)
Basic and diluted earnings (loss) per share		$	(0.05	)	(0.50	)	0.45		(0.36	)

        In the second quarter of 2002, the Company recorded a gain in discontinued operations of $17.5 million related to the extinguishment of debt and settlement of its interest rate swap agreements. In the second, third, and fourth quarters of 2002, the Company recorded a noncash charge of $5.6 million, $1.8 million and $0.8 million, respectively, related to the other than temporary decline in market value of its Choice One common stock. In the fourth quarter of 2002, the Company recorded a noncash charge of $4.4 million related to the other than temporary decline in market value of investments accounted for under the equity method. During the fourth quarter of 2002, the Company identified errors in the fair value calculations of the interest rate swaps and recorded an adjustment of $0.9 million to increase expense that related to prior periods. The effect of this entry was not material to previously reported results.

F-44

        In the first quarter of 2003, the Company recognized a $3.5 million nonoperating gain on the extinguishment of the Senior Subordinated Notes and the Carrier Services' loans, offset by a loss of $5.0 million for the write-off of debt issue costs related to this extinguishment of debt. In the third quarter of 2003, the Company recognized a gain of $7.7 million on the South Dakota Divestiture.

(15) Disclosures About the Fair Value of Financial Instruments

Cash, Accounts Receivable, Accounts Payable, and Demand Notes Payable

        The carrying amount approximates fair value because of the short maturity of these instruments.

Investments

        Investments classified as available for sale and trading are carried at their fair value which approximates $0.6 million and $0.5 million, respectively, at December 31, 2002 and $1.9 million and $0.5 million, respectively, at December 31, 2003 (see note 5 and note 8).

Long-term Debt

        The fair value of the Company's publically registered long-term debt is stated at quoted market prices. The fair value of the Company's remaining long-term debt is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities. At December 31, 2002 and 2003, the Company had long-term debt with a carrying value of $804.2 million and $825.6 million, respectively, and estimated fair values of $683.6 million and $870.7 million, respectively.

Redeemable Preferred Stock

        The fair value of the Company's redeemable preferred stock is estimated utilizing a cash flow analysis at a discount rate equal to rates available for debt with terms similar to the preferred stock. At December 31, 2002 and 2003, the Company's carrying value of its redeemable preferred stock was $90.3 million and $96.7 million, respectively, and estimated fair value was $68.1 million and $97.3, respectively.

Limitations

        Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

(16) Revenue Concentrations

        Revenues for interstate access services are based on reimbursement of costs and an allowed rate of return. Revenues of this nature are received from NECA in the form of monthly settlements. Such revenues amounted to 26.5%, 26.3%, and 26.3% of the Company's total revenues from continuing operations for the years ended December 31, 2001, 2002, and 2003, respectively and 26.0% (unaudited) of the Company's total revenue from continuing operations for each of the nine-month periods ended September 30, 2003 and 2004.

(17) Revenue Settlements

        Certain of the Company's telephone subsidiaries participate in revenue sharing arrangements with other telephone companies for interstate revenue sharing arrangements and for certain intrastate

F-45

revenue. Such sharing arrangements are funded by toll revenue and/or access charges within state jurisdiction and by access charges in the interstate market. Revenues earned through the various sharing arrangements are initially recorded based on the Company's estimates. The Company recognized $7.2 million, $3.1 million and $3.0 million of revenue for settlements and adjustments related to prior years during 2001, 2002, and 2003, respectively. The Company recognized $2.1 million (unaudited) and $1.5 million (unaudited) for settlements and adjustments related to prior periods during the nine-month periods ended September 30, 2003 and 2004, respectively.

(18) Commitments and Contingencies

Operating Leases

        Future minimum lease payments under noncancellable operating leases as are as follows:

			December 31, 2003					September 30,
			Continuing operations		Discontinued operations			Continuing operations	Discontinued operations
			(Dollars in thousands)
								(unaudited)
Fiscal year ending:
	2005		$	1,256		4,172		764	4,146
	2006			593		2,424		817	1,876
	2007			266		1,790		773	1,835
	2008			160		1,491		696	152
	2009			98		—		625	—
Thereafter				613		—		538	—
		Total minimum lease payments	$	2,986		9,877		4,213	8,009
Less estimated rentals to be received under subleases						(4,556	)		(3,637	)
		Estimated minimum lease payments included in liabilities of discontinued operations			$	5,321			4,372

        Total rent expense from continuing operations was $3.4 million, $3.1 million, and $3.1 million in 2001, 2002, and 2003, respectively. Rent expense from continuing operations was $2.4 million and $2.5 million for the nine-month periods ended September 30, 2003 and 2004, respectively (unaudited).

Legal Proceedings

        From time to time, the Company is involved in litigation and regulatory proceedings arising out of its operations. The Company is not currently a party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, that management believes would have a material adverse effect on the Company's financial position or results of operations.

(19) Subsequent Event

        In connection with the proposed public offering of the Company's common stock, the board of directors approved a 5.2773714 for 1 reverse stock split of the Company's common stock, effective on January 28, 2005. All share and per share amounts related to common stock and stock options included

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in the accompanying consolidated financial statements and footnotes have been restated to reflect the reverse stock split.

(20) Registration Statement (unaudited)

        The Company filed Amendment No. 9 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, amending the Registration Statement on Form S-1 which was originally filed on March 25, 2004, related to the proposed initial public offering of approximately $575 million of common stock. The Company intends to use the proceeds from the offering, together with borrowings under a new credit facility, to, among other things, repay in full its credit facility, consummate tender offers and consent solicitations for its 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% senior notes due 2010 ("11⁷/8% notes"), repurchase all of its outstanding series A preferred stock, repay all subsidiary debt (other than trade debt) and repay certain other obligations. In connection with the offering of common stock, the Company also expects to obtain a new senior secured credit facility (the "New Credit Facility"), including a term loan facility and a revolving credit facility. On January 5, 2005, the Company commenced tender offers and consent solicitations with respect to all of its 9¹/2% notes, floating rate notes, 12¹/2% notes and 11⁷/8% notes. As of January 27, 2005, approximately 99.8% of the 9¹/2% notes, 67.7% of the floating rate notes, 89.7% of the 12¹/2% notes and 99.1% of the 11⁷/8% notes had been irrevocably tendered and consents related thereto had been irrevocably delivered. The Company has executed supplemental indentures with respect to the indentures governing each such series of notes which eliminate substantially all of the covenants and the events of default in such indentures and permit the offering of common stock and related transactions to be consummated on the terms described herein. These supplemental indentures will become effective upon the closing of the offering of common stock and related transactions. There can be no assurance that the offering of common stock and the related transactions will be completed on the terms described in the Registration Statement or at all.

        Subsequent to September 30, 2004, the Company wrote-off debt issuance and offering costs of $6.0 million associated with an abandoned offering of Income Deposit Securities ("IDSs"). The offering of IDSs was abandoned in favor of the transactions described above. Debt issue and offering costs of $1.0 million remain capitalized after the write-off that are a direct and incremental benefit to the transactions described above.

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ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP

Financial Statements

Years Ended December 31, 2003, 2002 and 2001

F-48

Orange County—
Poughkeepsie Limited
Partnership

Independent Auditors' Report

Financial Statements
Years Ended December 31, 2003, 2002 and 2001

F-49

ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP

TABLE OF CONTENTS

		Page
INDEPENDENT AUDITORS' REPORT		F-51
	Balance Sheets	F-52
	December 31, 2003 and 2002
	Statements of Operations	F-53
	For the years ended December 31, 2003, 2002 and 2001
	Statements of Changes in Partners' Capital	F-54
	For the years ended December 31, 2003, 2002 and 2001
	Statements of Cash Flows	F-55
	For the years ended December 31, 2003, 2002 and 2001
	Notes to Financial Statements	F-56–F-62

F-50

INDEPENDENT AUDITORS' REPORT

To the Partners of Orange County—Poughkeepsie Limited Partnership:

We have audited the accompanying balance sheets of Orange County—Poughkeepsie Limited Partnership (the "Partnership") as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/  DELOITTE & TOUCHE LLP

New York, New York
February 23, 2004

F-51

ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP

BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
(Dollars in Thousands)

			2003		2002
ASSETS
CURRENT ASSETS:
	Accounts receivable, net of allowances of $20 and $1 in 2003 and 2002, respectively		$	73	$	117
	Unbilled revenue			866		1,125
	Due from general partner			19,766		33,881
	Prepaid expenses and other current assets			48		34
		Total current assets		20,753		35,157
PROPERTY, PLANT AND EQUIPMENT—Net				29,622		29,473
DEFERRED CHARGES AND OTHER ASSETS—Net				1		2
TOTAL ASSETS			$	50,376	$	64,632
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
	Accounts payable and accrued liabilities		$	348	$	1,235
	Advance billings			310		247
	Total current liabilities			658		1,482
COMMITMENTS AND CONTINGENCIES (NOTES 5 and 7)
PARTNERS' CAPITAL				49,718		63,150
TOTAL LIABILITIES AND PARTNERS' CAPITAL			$	50,376	$	64,632

See notes to financial statements.

F-52

ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Dollars in Thousands)

			2003		2002		2001
OPERATING REVENUE:
	Service revenue		$	144,643	$	114,591	$	81,952
OPERATING COSTS AND EXPENSES:
	Cost of service			17,248		11,652		9,691
	General and administrative			2,123		2,900		2,625
	Depreciation and amortization			5,179		4,225		3,583
		Total operating costs and expenses		24,550		18,777		15,899
OPERATING INCOME				120,093		95,814		66,053
INTEREST AND OTHER INCOME—Net				1,475		1,555		1,167
NET INCOME			$	121,568	$	97,369	$	67,220

See notes to financial statements.

F-53

ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Dollars in Thousands)

								Limited Partners
		General Partner
											Warwick Valley Telephone Company
		NYNEX Mobile Limited Partnership 2			Verizon Wireless of the East LP			Taconic Telephone Corporation						Total Partners' Capital
BALANCE, JANUARY 1, 2001		$	41,277		$	—		$	3,642		$	3,642		$	48,561
	Net income		57,138			—			5,041			5,041			67,220
	Distribution to partners		(59,500	)		—			(5,250	)		(5,250	)		(70,000	)
BALANCE, DECEMBER 31, 2001			38,915			—			3,433			3,433			45,781
	Net income		46,092			36,671			7,303			7,303			97,369
	Distribution to partners		(25,500	)		(42,500	)		(6,000	)		(6,000	)		(80,000	)
	Transfer of Partnership interest		(59,507	)		59,507			—			—			—
BALANCE, DECEMBER 31, 2002			—			53,678			4,736			4,736			63,150
	Net income		—			103,332			9,118			9,118			121,568
	Distribution to partners		—			(114,750	)		(10,125	)		(10,125	)		(135,000	)
BALANCE, DECEMBER 31, 2003		$	—		$	42,260		$	3,729		$	3,729		$	49,718

See notes to financial statements.

F-54

ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Dollars in Thousands)

					2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income				$	121,568		$	97,369		$	67,220
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for uncollectible accounts receivable, net of recoveries				30			0			(31	)
		Depreciation and amortization				5,179			4,225			3,583
		Changes in certain assets and liabilities:
			Accounts receivable			14			378			1,795
			Unbilled revenue			259			420			(433	)
			Prepaid expenses and other current assets			(14	)		104			(30	)
			Deferred charges and other assets			1			3			2
			Accounts payable and accrued liabilities			(887	)		901			(1,646	)
			Advance billings			63			51			24
				Net cash provided by operating activities		126,213			103,451			70,484
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures					(5,328	)		(7,706	)		(4,887	)
	Proceeds from sale of property, plant and equipment					—			64			—
				Net cash used in investing activities		(5,328	)		(7,642	)		(4,887	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Decrease (increase) in due from general partner, net					14,115			(15,809	)		4,403
	Distribution to partners					(135,000	)		(80,000	)		(70,000	)
				Net cash used in financing activities		(120,885	)		(95,809	)		(65,597	)
INCREASE IN CASH						—			—			—
CASH, BEGINNING OF YEAR						—			—			—
CASH, END OF YEAR					$	—		$	—		$	—

See notes to financial statements.

F-55

ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(Dollars in Thousands)

1.    ORGANIZATION AND MANAGEMENT

Orange County—Poughkeepsie Limited Partnership—Orange County—Poughkeepsie Limited Partnership (the "Partnership") was formed in 1987. The principal activity of the Partnership is providing wholesale cellular service to resellers who operate principally in the Orange County and Poughkeepsie, New York service areas.

        The partners and their respective ownership percentages as of December 31, 2003 are as follows:

Managing and general partner:
	Verizon Wireless of the East LP*	85.0	%
Limited partners:
	Taconic Telephone Corporation ("Taconic")	7.5	%
	Warwick Valley Telephone Company ("Warwick")	7.5	%

*

Prior to August 15, 2002 NYNEX Mobile LP 2 was the managing and general partner of the Partnership. On August 15, 2002 NYNEX Mobile LP 2 transferred its 85% partnership interest to its affiliate, Verizon Wireless of the East LP. Verizon Wireless of the East LP is a partnership between Verizon Wireless of Georgia LLC (the General Partner) and Verizon Wireless Acquisition South LLC (the LP), which hold a controlling interest, and Price Communications which has a preferred interest. Verizon Wireless of the East LP is a partnership which is consolidated by Cellco Partnership (d/b/a Verizon Wireless) ("Cellco").

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition—The Partnership earns revenue by providing access to the network (access revenue) and for usage of the network (airtime/usage revenue), which includes roaming and long distance revenue. In general, access revenue is billed one month in advance and is recognized when earned; the unearned portion is classified in advance billings. Airtime/usage revenue, roaming revenue and long distance revenue are recognized when service is rendered and included in unbilled revenue until billed. The Partnership's revenue recognition policies are in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements and Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition.

        Approximately 98%, 98%, and 96% of the Partnership's 2003, 2002 and 2001 revenue is affiliate revenue due to the fact that Cellco is the Partnership's primary reseller. The wholesale rates charged to Cellco do not necessarily reflect current market rates. The Partnership continues to re-evaluate the rates and expects these rates to be reduced in the future consistent with market trends and the terms of the limited partnership agreement (See Note 4).

        Cellular service revenues resulting from a cellsite agreement with Cellco are recognized based upon an allocation of airtime minutes (See Note 4).

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent

F-56

assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used for, but not limited to, the accounting for: allocations, allowance for uncollectible accounts receivable, unbilled revenue, depreciation and amortization, useful life and impairment of assets, accrued expenses, taxes, and contingencies. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected in the financial statements in the period that they are determined to be necessary.

Operating Expenses—Operating expenses include expenses incurred directly by the Partnership, as well as an allocation of administrative and operating costs incurred by the general partner or its affiliates on behalf of the Partnership. Services performed on behalf of the Partnership are provided by employees of Cellco. These employees are not employees of the Partnership and therefore, operating expenses include direct and allocated charges of salary and employee benefit costs for the services provided to the Partnership. The Partnership believes such allocations, based on the Partnership's percentage of customers or gross adds, as applicable, are reasonable.

Property, Plant and Equipment—Property, plant and equipment primarily represents costs incurred to construct and enhance Mobile Telephone Switching Offices ("MTSOs") and cell sites within the Partnership's network. The cost of property, plant and equipment is depreciated over its estimated useful life using the straight-line method of accounting. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the related lease. Major improvements to existing plant and equipment are capitalized. Routine maintenance and repairs that do not extend the life of the plant and equipment are charged to expense as incurred.

        Upon the sale or retirement of property, plant and equipment, the cost and related accumulated depreciation or amortization is eliminated from the accounts and any related gain or loss is reflected in the Statements of Operations.

        Network engineering costs incurred during the construction phase of the Partnership's network and real estate properties under development are capitalized as part of property, plant and equipment and recorded as construction in progress until the projects are completed and placed into service.

FCC Licenses—The Federal Communications Commission ("FCC") issues licenses that authorize cellular carriers to provide service in specific cellular geographic service areas. The FCC grants licenses for terms of up to ten years. In 1993 the FCC adopted specific standards to apply to cellular renewals, concluding it will reward a license renewal to a cellular licensee that meets certain standards of past performance. Historically, the FCC has granted license renewals routinely. The current term of both of the Partnership's FCC licenses expire in January 2008. Both of the Partnership's licenses are recorded on the books of Cellco. Cellco believes it will be able to meet all requirements necessary to secure renewal of the Partnership's cellular licenses.

Valuation of Assets—Long-lived assets, including property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the

F-57

asset. The impairment loss, if determined to be necessary, would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

        The FCC licenses recorded on the books of Cellco are evaluated for impairment, by Cellco, under the guidance set forth in Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." The FCC licenses are treated as an indefinite life intangible asset under the provisions of SFAS No. 142 and are not amortized, but rather are tested for impairment annually or between annual dates, if events or circumstances warrant. All of the licenses in Cellco's nationwide footprint are tested in the aggregate for impairment under SFAS No. 142. When testing the carrying value of the wireless licenses for impairment, Cellco determines the fair value of the aggregated wireless licenses by subtracting from enterprise discounted cash flows (net of debt) the fair value of all of the other net tangible and intangible assets of Cellco, including previously unrecognized intangible assets. If the fair value of the aggregated wireless licenses as determined above is less than the aggregated carrying amount of the licenses, an impairment will be recognized by Cellco. Any impairment loss recognized by Cellco will be allocated to its consolidated subsidiaries based upon a reasonable methodology. No impairment was recognized in 2003 and 2002. Future tests for impairment will be performed by Cellco at least annually and more often if events or circumstances warrant.

Concentrations—To the extent the Partnership's customer receivables become delinquent, collection activities commence. The general partner accounts for 88.8% and 88.2% of the accounts receivable balance at December 31, 2003, and 2002 respectively. The Partnership maintains an allowance for losses based on the expected collectibility of accounts receivable.

        Approximately 98%, 98%, and 96% of the Partnership's 2003, 2002 and 2001 revenue is affiliate revenue.

        The general partner relies on local and long-distance telephone companies, some of whom are related parties, and other companies to provide certain communication services. Although management believes alternative telecommunications facilities could be found in a timely manner, any disruption of these services could potentially have an adverse impact on the Partnership's operating results.

        Although the general partner attempts to maintain multiple vendors for equipment, which are important components of its operations, they are currently acquired from only a few sources. Certain of these products are in turn utilized by the Partnership and are important components of the Partnership's operations. If the suppliers are unable to meet the general partner's needs as it builds out its network infrastructure and sells service and equipment, delays and increased costs in the expansion of the Partnership's network infrastructure or losses of potential customers could result, which would adversely affect operating results.

Financial Instruments—The Partnership's trade receivables and payables are short-term in nature, and accordingly, their carrying value approximates fair value.

Income Taxes—The Partnership is not a taxable entity for Federal and state income tax purposes. Any taxable income or loss is apportioned to the partners based on their respective partnership interests and is reported by them individually.

F-58

Segments—The Partnership has one reportable business segment and operates domestically only. The Partnership's products and services are materially comprised of wireless telecommunications services.

Due from General Partner—Due from General Partner principally represents the Partnership's cash position. The general partner manages all cash and financing activities of the Partnership. As such, the change in Due from General Partner is reflected as a financing activity in the Statements of Cash Flows. Additionally, administrative and operating costs incurred by the general partner on behalf of the Partnership are charged to the Partnership through this account. Interest income is based on the average monthly outstanding balance in this account and is calculated by applying Cellco's average cost of borrowing from Verizon Global Funding, a wholly owned subsidiary of Verizon Communications. The cost of borrowing was approximately 5.0%, 5.5%, and 4.6% at December 31, 2003, 2002 and 2001, respectively. Included in Other Income, Net is net interest income related to the Due from General Partner balance of $1,472, $1,553 and $1,167 for the years ended December 31, 2003, 2002 and 2001, respectively.

Recently Issued Accounting Pronouncements—In June 2001, the Financial Accounting Standards Board, ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." This standard requires entities to recognize the fair value of any legal obligation associated with the retirement of long-lived assets and to capitalize that amount as a part of the book value of the long-lived asset. That cost is then depreciated over the remaining life of the underlying long-lived asset. The Partnership adopted the standard January 1, 2003. The adoption of SFAS No. 143 had no material effect on the Partnership's financial statements.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This standard re-addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It concludes that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. The Partnership adopted the standard effective January 1, 2002. The adoption of SFAS No. 144 had no material effect on the Partnership's financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This standard nullifies Emerging Issue Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This standard requires the recognition of a liability for a cost associated with an exit or disposal activity at the time the liability is incurred, rather than at the commitment date to exit a plan as required by EITF 94-3. The Partnership adopted this standard January 1, 2003. The adoption of SFAS No. 146 had no material effect on the Partnership's financial statements.

        In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." This standard establishes guidance for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial statement embodies an obligation of the issuer. Many of those instruments were previously classified as equity.

F-59

This standard was effective for financial instruments entered into or modified after May 31, 2003. For existing instruments created before the issuance date of this statement, this standard was effective July 1, 2003. The adoption of SFAS 150 had no material effect on the Partnership's financial statements.

Reclassifications—Certain reclassifications have been made to the 2002 and 2001 year financial statements to conform to the current year presentation.

Distributions—The Partnership is required to make distributions to its partners on a quarterly basis based upon the Partnership's operating results, cash availability and financing needs as determined by the general partner at the date of the distribution. In January 2004, the Partnership made a distribution of $22 million to its partners.

3.    PROPERTY, PLANT AND EQUIPMENT, NET

        Property, plant and equipment, net, consists of the following:

		December 31,
(Dollars in Thousands)
	Useful Lives	2003			2002
Buildings and improvements	10-40 years	$	11,245		$	10,521
Wireless plant equipment	3-15 years		44,525			40,502
Furniture, fixtures and equipment	2-7 years		318			318
			56,088			51,341
Less accumulated depreciation			(26,466	)		(21,868	)
Property, plant and equipment, net		$	29,622		$	29,473

        Property, plant, and equipment, net, includes the following:

        Allocated capitalized network engineering costs of $415 and $466 were recorded during the years ended December 31, 2003 and 2002 respectively.

        Construction-in-progress included in certain of the classifications shown above, principally wireless plant equipment, amounted to $852 and $2,373 at December 31, 2003 and 2002 respectively.

        Depreciation expense for the years ended December 31, 2003, 2002 and 2001 was $5,179, $4,225 and $3,582 respectively.

F-60

4.    TRANSACTIONS WITH AFFILIATES

        Significant transactions with affiliates are summarized as follows:

	Years Ended December 31,
(Dollars in Thousands)
	2003		2002		2001
Revenue:
Operating revenues (b)	$	138,796	$	109,232	$	76,609
Cellsite allocated revenues (c)		2,963		3,037		1,981
Cost of Service:
Direct telecommunication charges (a)		274		302		335
Allocation of cost of service (a)		3,315		1,105		1,737
Allocation of switch usage cost (a)		7,256		5,077		3,760
Selling, General and Administrative:
Allocation of certain general and
administrative expenses (a)		1,797		1,399		1,497

(a)

Expenses were allocated based on the Partnership's percentage of customers, gross adds or minutes of use where applicable. The Partnership believes the allocations are reasonable.

(b)

Affiliate operating revenues primarily represent revenues generated from transactions with Cellco, the Partnership's primary reseller. The wholesale rates charged to Cellco do not necessarily reflect current market rates. The Partnership continues to re-evaluate the rates and expects these rates to be reduced in the future consistent with market trends and the terms of the limited partnership agreement.

(c)

Cellsite allocated revenues, based on the Partnership's percentage of minutes of use, result from the Partnership sharing a cell site with the Catskills RSA Limited Partnership, an affiliate entity.

5.    COMMITMENTS

        The general partner, on behalf of the Partnership, and the Partnership have entered into operating leases for facilities and equipment used in its operations. Some lease contracts include renewal options that include rent expense adjustments based on the Consumer Price Index. For the years ended December 31, 2003, 2002 and 2001, the Partnership recognized a total of $1,234, $1,100 and $934, respectively, as rent expense related to payments under these operating leases, which is included in cost of service and general and administrative expenses in the accompanying Statements of Operations.

        Future minimum rental commitments under noncancelable operating leases, excluding renewal options which the Partnership intends to exercise, for the years shown are as follows:

(Dollars in Thousands)
Years	Amount
2004	$	1,248
2005		1,161
2006		1,062
2007		878
2008		764
2009 and thereafter		851
Total minimum payments	$	5,964

F-61

        From time to time the general partner enters into purchase commitments, primarily for network equipment, on behalf of the Partnership.

6.    VALUATION AND QUALIFYING ACCOUNTS

(Dollars in Thousands)		Balance at Beginning of the Year		Additions Charged to Operations		Write-offs Net of Recoveries			Balance at End of the Year
Accounts Receivable Allowances:
	2002	$	—	$	1	$	—		$	1
	2003		1		49		(30	)		20

7.    CONTINGENCIES

        Cellco is subject to lawsuits and other claims including class actions, product liability, patent infringement, intellectual property, antitrust, partnership disputes, and claims involving relations with resellers and agents. Cellco is also defending lawsuits against Cellco and other participants in the wireless industry alleging various adverse effects as a result of wireless phone usage. Various consumer class action lawsuits allege that the Cellco breached contracts with consumers, violated certain state consumer protection laws and other statutes and defrauded customers through concealed or misleading billing practices. Certain of these lawsuits and other claims may impact the Partnership. These litigation matters may involve indemnification obligations by third parties and/or affiliated parties covering all or part of any potential damage awards against Cellco and the Partnership and/or insurance coverage. Attorneys general in a number of states are investigating certain sales, marketing and advertising practices. All of the above matters are subject to many uncertainties, and outcomes are not predictable with assurance.

        The Partnership may be allocated a portion of the damages that may result upon adjudication of these matters if the claimants prevail in their actions. Consequently, the ultimate liability with respect to these matters at December 31, 2003 cannot be ascertained. The potential effect, if any, on the financial condition and results of operations of the Partnership, in the period in which these matters are resolved, may be material.

        In addition to the aforementioned matters, Cellco is subject to various other legal actions and claims in the normal course of business. While Cellco's legal counsel cannot give assurance as to the outcome of each of these matters, in management's opinion, based on the advice of such legal counsel, the ultimate liability with respect to any of these actions, or all of them combined, will not materially affect the financial position or operating results of the Partnership.

******

F-62

RSA 2-I PARTNERSHIP

Financial Statements

F-63

INDEPENDENT AUDITORS' REPORT

To the Partners of
Illinois Valley Cellular RSA 2-I Partnership

        We have audited the accompanying balance sheets of Illinois Valley Cellular RSA 2-I Partnership (an Illinois partnership) as of December 31, 2002 and 2001, and the related statements of income, partners' capital, and cash flows for each of three years in the period ended December 31, 2002. These financial statements are the responsibility of the Operating Partner's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Illinois Valley Cellular RSA 2-I Partnership as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ KIESLING ASSOCIATES LLP
Madison, Wisconsin
March 1, 2003

F-64

ILLINOIS VALLEY CELLULAR RSA 2-1 PARTNERSHIP

BALANCE SHEETS
December 31, 2002 and 2001

				2002			2001
ASSETS
CURRENT ASSETS
	Cash and cash equivalents			$	117,870		$	102,338
	Accounts receivable
		Due from customers
			Less allowance of $116,500 and $110,000, respectively		1,079,795			1,176,246
		Affiliates			233,674			115,664
		Other			58,018			65,137
	Prepaids				97,384			3,446
					1,586,741			1,462,831
PROPERTY AND EQUIPMENT
	Plant in service				13,342,101			11,149,052
	Less accumulated depreciation				(6,833,198	)		(6,022,436	)
					6,508,903			5,126,616
	Plant under construction				5,704			5,845
					6,514,607			5,132,461
OTHER NONCURRENT ASSETS
	Investments				159,144			235,647
TOTAL ASSETS				$	8,260,492		$	6,830,939

F-65

ILLINOIS VALLEY CELLULAR RSA 2-1 PARTNERSHIP

BALANCE SHEETS
December 31, 2002 and 2001

			2002		2001
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
	Current portion of long-term debt		$	—	$	659,340
	Capital lease obligation			21,287		—
	Notes Payable			1,000,000		—
	Accounts Payable:
		Trade		204,101		24,314
		Affiliates		608,248		316,154
		Other		290,254		244,508
	Accrued liabilities—affiliate			136,559		98,078
	Accrued commissions			71,288		76,912
	Advance billings			279,853		246,652
	Other			168,064		122,044
				2,779,654		1,788,002
LONG-TERM OBLIGATIONS
	Capital lease obligation			96,620
PARTNERS' CAPITAL				5,384,218		5,042,937
TOTAL LIABILITIES AND PARTNERS' CAPITAL			$	8,260,492	$	6,830,939

The accompanying notes are an integral part of these financial statements

F-66

ILLINOIS VALLEY CELLULAR RSA 2-I PARTNERSHIP

STATEMENTS OF INCOME
Years Ended December 31, 2002, 2001 and 2000

		2002			2001			2000
OPERATING REVENUES
	Retail service	$	6,513,308		$	6,123,233		$	6,095,261
	Roamer service		3,131,185			4,020,995			3,184,181
	Equipment sales		181,442			180,670			149,909
	Miscellaneous services		1,069,743			906,974			693,533
			10,895,678			11,231,872			10,122,884
OPERATING EXPENSES
	Cost of services		4,572,661			4,358,681			3,439,668
	Cost of equipment sales		1,017,085			937,143			890,065
	Selling, general and administrative		3,986,972			3,723,723			3,229,256
	Depreciation		956,539			748,968			772,698
			10,533,257			9,768,515			8,331,687
OPERATING INCOME			362,421			1,463,357			1,791,197
OTHER INCOME (EXPENSES)
	Interest expense		(43,862	)		(78,081	)		(154,861	)
	Interest during construction		9,534			—			—
	Other, net		13,188			28,039			33,284
			(21,140	)		(50,042	)		(121,577	)
NET INCOME		$	341,281		$	1,413,315		$	1,669,620

The accompanying notes are an integral part of these financial statements.

F-67

ILLINOIS VALLEY CELLULAR RSA 2-I PARTNERSHIP

STATEMENTS OF PARTNERS' CAPITAL
December 31, 2002, 2001, and 2000

	Total
Balance at December 31, 1999	$	2,859,792
Net income		1,669,620
Distribution		(549,994	)
Balance at December 31, 2000		3,979,418
Net income		1,413,315
Distribution		(349,796	)
Balance at December 31, 2001		5,042,937
Net income		341,281
Balance at December 31, 2002	$	5,384,218

The accompanying notes are an integral part of these financial statements.

F-68

ILLINOIS VALLEY CELLULAR RSA 2-I PARTNERSHIP

STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002, 2001, and 2000

					2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income				$	341,281		$	1,413,315		$	1,669,620
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation				956,539			748,968			772,698
		Provision for losses on accounts receivable				(6,500	)		(24,000	)		(8,000	)
	Changes in assets and liabilities:
		(Increase) Decrease in:
			Accounts receivable			(7,940	)		(225,823	)		(9,609	)
			Prepaids			(93,938	)		—			—
		Increase (Decrease) in:
			Accounts payable			517,627			102,857			(135,409	)
			Other			112,078			95,298			(47,291	)
				Net cash provided by operating activities		1,819,147			2,110,615			2,242,009
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures					(2,214,901	)		(995,505	)		(889,583	)
	Proceeds from the sale of investments, net					76,503			87,431			88,012
				Net cash used in investing activities		(2,138,398	)		(908,074	)		(801,571	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from short-term borrowings					1,000,000			—			—
	Repayment of long-term borrowings					(659,340	)		(801,751	)		(933,040	)
	Payments of capital lease obligations					(5,877	)		—			—
	Partnership distribution					—			(349,796	)		(549,994	)
				Net cash provided by/(used in) financing activities		334,783			(1,151,547	)		(1,483,034	)
Net Increase (Decrease) in Cash and Cash Equivalents						15,532			50,994			(42,596	)
Cash and Cash Equivalents at Beginning of Year						102,338			51,344			93,940
Cash and Cash Equivalents at End of Year					$	117,870		$	102,338		$	51,344

The accompanying notes are an integral part of these financial statements.

F-69

ILLINOIS VALLEY CELLULAR RSA 2-I PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION

        The Illinois Valley Cellular RSA 2-I Partnership (Partnership) is organized pursuant to the provisions of the Illinois Uniform Partnership Act. The Partnership was formed on November 8, 1989, to fund, establish, and provide cellular service within a portion of the Illinois RSA 2 Cellular Geographic Service Area. At December 31, 2002, 2001, and 2000, the general partners and their respective ownership percentages in the Partnership were as follows:

Partner	Percentage
Verizon Wireless	40.00	%
CENCOMM, Inc.	6-2/3
C-R Cellular, Inc.	6-2/3
DePue Communications, Inc.	6-2/3
Gemcell, Inc.	6-2/3
Gridley Cellular, Inc.	6-2/3
Leonore Cellular, Inc.	6-2/3
Marseilles Cellular, Inc.	6-2/3
McNabb Cellular, Inc.	6-2/3
Tonica Cellular, Inc.	6-2/3
	100.00	%

        Marseilles Cellular, Inc. (MC) was elected by the Partnership to serve as the operating and network partner of the Partnership.

        The partners make capital contributions, share in the operating results, and receive distributions from the Partnership in accordance with their respective ownership percentages.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

        The accounting policies of the Partnership conform to accounting principles generally accepted in the United States of America. Management uses estimates and assumptions in preparing its financial statements. Those estimates and assumptions affect the reported amounts of assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from those estimates.

Property and Equipment

        The Partnership's property and equipment is stated at cost, including labor and overheads associated with construction and capitalized interest.

        Depreciation is computed by applying the straight-line method. The estimated service lives for depreciable plant and equipment are: 10 to 20 years for cell site towers and shelter; 7 to 10 years for radio frequency equipment, electronic mobile exchange and base site controller equipment; 7 to 10 years for furniture and fixtures; and 3 to 5 years for computer equipment.

        When depreciable properties are sold, or otherwise disposed of, any resulting gains or losses are included in the determination of income.

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Long-Lived Assets

        The Partnership recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount.

Revenue Recognition

        The Partnership earns revenue by providing access to the cellular network (access revenue) and for usage of the cellular network (airtime and toll revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime (including roaming) and toll revenues are recognized when the services are rendered. Other revenues are recognized when services are performed and include, primarily, connection revenues. Equipment sales are recognized upon delivery of the equipment to the customer.

        The Partnership generates revenue from charges to its customers when they use their cellular phones in other wireless providers' markets. Until 2002, the Partnership included this revenue on a net basis in cost of services in its statement of operations. Expense associated with this revenue, charged by third-party wireless providers, is also included in cost of services. The Partnership used this method because it has passed through to its customers most of the costs related to these revenues. However, the wireless industry and the Partnership have increasingly been using pricing plans that include flat rate pricing and larger home service areas. Under these types of plans, amounts charged to the Partnership by other wireless providers may not necessarily be passed through to its customers.

        In 2002, the Partnership adopted a policy to include these revenues as retail revenue rather than cost of services on a net basis. Roamer revenue includes only the revenue from other wireless providers' customers who use the Partnership's network. Retail revenue and cost of services of $881,197 and $985,702 for 2001 and 2000, respectively, were reclassified to conform to this presentation. This change in presentation has no impact on operating income, net income or partners' equity.

Expense Recognition

        Pursuant to the Partnership Agreement, expenses included in the Statements of Income represent expenses incurred by the Partnership, including an allocation of administrative and operations costs from the operating partner.

Income Taxes

        The Internal Revenue Code and applicable state statutes provide that income and expenses of a partnership are not separately taxable to the Partnership, but rather accrue directly to the partners. Accordingly, no provision for federal or state income taxes has been made in the financial statements.

Advertising Costs

        Advertising costs are expensed as incurred. Advertising expenses were $346,620, $294,841, and $337,750 in 2002, 2001, and 2000, respectively.

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Cash Equivalents

        All highly liquid investments with a maturity of three months or less at the time of purchase are considered cash equivalents. The carrying value of cash and cash equivalents approximates its fair value due to the short maturity of the instruments.

Reclassifications

        Certain reclassifications have been made to the 2001 and 2000 financial statements to conform with the 2002 presentation.

NOTE 3. PROPERTY AND EQUIPMENT

        The components of property and equipment were as follows:

		2002			2001
Land and land improvements		$	545,333		$	541,618
Buildings			1,324,949			1,277,987
Electronic mobile exchange and base site controller equipment			3,955,971			3,462,373
Cell site towers and equipment			3,784,222			3,422,232
Radio frequency equipment			3,054,024			1,966,997
Other			677,602			477,845
	Total property and equipment		13,342,101			11,149,052
Less accumulated depreciation			(6,833,198	)		(6,022,436	)
	Net property and equipment		6,508,903			5,126,616
Plant under construction			5,704			5,845
	Total net property and equipment	$	6,514,607		$	5,132,461

        Property and equipment and accumulated depreciation include $123,784 and $2,947, respectively, at December 31, 2002, for capital leases. Property and equipment acquired with capital leases in 2002 was $123,784.

NOTE 4. INVESTMENTS

        Investments include $65,934 and $146,109 at December 31, 2002 and 2001, respectively, of Rural Telephone Finance Cooperative (RTFC) subordinated capital certificates (SCC). Such SCC's were purchased from RTFC as a condition of obtaining long-term financing for the Partnership and are carried at cost. The SCC's are non-interest bearing and are returned as the related RTFC loan is repaid. The stock purchases were fully financed through the issuance of long-term debt obligations to RTFC. It is not practical to estimate the fair value for these investments due to a lack of quoted market prices.

NOTE 5. NOTES PAYABLE

        In 2002, the Partnership entered into a $1,000,000 revolving line of credit loan agreement with RTFC. While the agreement is scheduled to mature on the one year anniversary of the advance, the

F-72

Partnership may borrow, repay, and reborrow from time to time until the agreement expires on January 3, 2005. Interest is due quarterly and is based on the prevailing bank prime rate plus one and one-half percent or such lessor amount as determined by RTFC. The rate at December 31, 2002, was 5.8%. The agreement is subject to the provisions of the mortgage and security agreement described below. In addition, the aggregate amount of outstanding principal balance of all Partnership unsecured indebtedness is limited to $1,000,000 at any one time.

        The maximum amount of short-term borrowings at any month-end during 2002 was $1,000,000.

NOTE 6. LONG-TERM DEBT

        Long-term debt consists of:

		2001
RTFC notes—variable rate		$	513,032
RTFC notes—variable rate			146,308
	Total long-term debt		659,340
Less current portion			(659,340	)
		$	—

        The mortgage notes outstanding at December 31, 2001, are to be repaid in equal quarterly installments covering principal and interest beginning two to five years after date of issue and expiring by 2002. The interest rate on the debt is a variable rate established periodically by the RTFC. The rate at December 31, 2001, was 5.3%.

        Substantially all assets of the Partnership are pledged as security under the mortgage and security agreement with the RTFC.

        The mortgage and security and loan agreements underlying the RTFC notes contain certain restrictions on Partnership distributions, return of partner capital contributions, and investment in, or loans to others. In 2000, the Partnership received a waiver from the lender to make partnership distributions. Also included in the loan agreement is a provision which requires the partners to infuse, on an ongoing basis, the greater of sufficient amounts of equity to accommodate any cash shortfalls or certain specified amounts. Further, the Partnership is required, under the loan agreement, to achieve a debt service coverage ratio of not less than 1.25.

        Of the funds available under the RTFC approved loans, including amendments, all amounts were advanced as of December 31, 2002.

        Cash paid for interest net of amounts capitalized for 2002, 2001, and 2000, totaled $25,021, $92,928, and $158,095, respectively.

        The fair value of the partnership debt is estimated based on the discounted value of future cash flows expected to be paid using current rates of borrowing for similar types of debt. The fair value of debt approximates carrying value at December 31, 2002 and 2001.

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NOTE 7. RELATED PARTY TRANSACTIONS

        MC, as operating and network partner, performed certain technical, professional, and administrative services on behalf of the Partnership. In accordance with the Partnership Agreement, MC is reimbursed by the Partnership for the Partnership's share of these costs. MC allocates these costs to the various cellular systems to which they provide service based on each entity's customer access lines. Reimbursed expenses in 2002, 2001, and 2000 were $2,224,397, $1,944,325, and $1,725,222, respectively. These reimbursed expenses are classified and presented under the Operating Expenses category to which each relates.

        In addition, $276,062, $252,406, and $223,877 were paid to an affiliate of MC for contract labor, interest, and other services in 2002, 2001, and 2000, respectively.

        Certain cellular equipment sold to subscribers by the Partnership is provided to the Partnership by a related entity at cost. Cost of goods sold is recorded by the Partnership at the time of sale.

        The Partnership has an arrangement with Illinois Valley Cellular RSA 2, Inc. (Switching Company) to provide switching services to the Partnership. The stockholders of the Switching Company own 53% of the Partnership. In 2002, switching and toll roaming services of $546,600 and $1,716,618, respectively, were provided to the Partnership. These services in 2001 were $455,250 and $1,592,348, respectively, and in 2000 were $423,525 and $1,004,834, respectively. The Switching Company received $511,669, $334,881, and $293,108 of access and billing and collecting services from the Partnership in 2002, 2001, and 2000, respectively.

NOTE 8. CONCENTRATIONS OF CREDIT RISK

        Financial instruments that potentially subject the Partnership to concentrations of credit risk consist principally of cash equivalents and accounts receivable. The Partnership grants credit to cellular customers located primarily within its portion of the Illinois RSA 2 cellular geographic service area, to other cellular carriers, and to other telecommunications carriers.

        The Partnership maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership believes it is not exposed to any significant credit risk on cash and cash equivalents.

        Retail service revenues are derived from customers located primarily within the Partnership's portion of the Illinois RSA 2 cellular geographic service area. The Partnership grants credit to these customers, substantially all of whom are local residents of this geographic area.

        Roamer cellular revenues are derived under arrangements with other wireless carriers (roaming partners) whose customers use the Partnership's network to place or complete calls. Roaming revenues from Verizon Wireless accounted for 21%, 31%, and 22% of total operating revenues in 2002, 2001, and 2000, respectively.

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NOTE 9. LEASE COMMITMENTS

        Future minimum rental payments under leases for facilities have initial non-cancelable lease terms at December 31, 2002 as follows:

	Capitalized Leases		Operating Leases
2003	$	32,612	$	154,200
2004		30,103		145,200
2005		30,104		130,400
2006		30,104		113,180
2007		20,069		65,750
Thereafter		—		—
Total minimum lease payments	$	142,992	$	608,730
Less amount representing interest		25,085
Present value of minimum lease payments including current maturities of $21,287	$	117,907

        The cell site leases are renewable for four additional five-year periods under similar terms at the end of the initial term. Lease terms provide for certain adjustments of the payments in the renewal periods.

        The Partnership has an office building lease with an affiliate of MC for an initial term of five years. The Partnership's portion of the annual base rental, included in the future minimum rental payments above, is $68,400. A contingent rental provision allows for increases in base rent for real estate taxes and operating costs in excess of base operating costs. The agreement includes an option to extend the lease for an additional five years.

        Rental expense for all cancelable and non-cancelable operating leases totaled $199,503, $139,150, and $114,856 in 2002, 2001, and 2000, respectively.

NOTE 10. ALLOWANCE FOR UNCOLLECTIBLES

        The Company uses the reserve method to recognize uncollectible customer accounts. The following activity has been recognized under this method.

	2002		2001		2000
Balance, December 31	$	110,000	$	134,000	$	142,000
Provision for uncollectibles		67,489		33,902		107,037
Accounts written off, net of recoveries		60,989		57,902		115,037
Balance, December 31	$	116,500	$	110,000	$	134,000

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NOTE 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

        The following table presents summarized quarterly results.

	Quarter
	1st		2nd		3rd		4th
2002
Operating revenues	$	2,665,525	$	2,732,486	$	2,784,279	$	2,713,388
Operating income	$	300,775	$	181,779	$	69,549	$	(189,682	)
Net income	$	310,158	$	175,016	$	64,205	$	(208,098	)
2001
Operating revenues	$	2,457,057	$	2,897,386	$	2,994,715	$	2,882,714
Operating income	$	238,467	$	378,592	$	402,836	$	443,462
Net income	$	222,770	$	357,551	$	387,483	$	445,511

        Quarterly operating results are not necessarily representative of operations for a full year for various reasons, including seasonal variations in customer calling patterns and timing of promotional activities.

NOTE 12. RECENT ACCOUNTING DEVELOPMENTS

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires entities to record the fair value of the liability for legal obligations associated with an asset retirement in the period in which the obligation is incurred. When the liability is initially recorded, the entity capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset.

        In April 2002, the FASB issued No. 145, "Rescission of FASB Statements No.4, 44, and 64, Amendment of FASB Statement No.13, and Technical Corrections." SFAS No. 145 rescinds FASB Statement No.4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, FASB Statement No.64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No. 145 also rescinds FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers," and amends FASB Statement No. 13, "Accounting for Leases."

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan.

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This interpretation elaborates on the disclosures required in financial statements concerning obligations under certain guarantees. It also clarifies the requirements related to the recognition of liabilities by a guarantor at the inception of certain guarantees. The disclosure requirements of this interpretation were effective on December 31, 2002. No disclosures were required at December 31, 2002.

        The Partnership has not yet determined the impact the adoption of these Standards will have on its financial position, results of operations, and cash flows.

F-76

RSA 2-I PARTNERSHIP
Unaudited Financial Statements
For the six months ended June 30, 2003

F-77

RSA 2-I
Balance Sheet (Unaudited)
June 30, 2003

ASSETS
Current Assets
	Cash & Cash Equivalents			$	80,038
	Accounts Receivable
		Due from Customers
			Less Allowance for Uncollectible of $164,402		1,653,482
		Affiliates			431,163
	Prepayments				107,379
		Total Current Assets			2,272,062
Plant & Equipment
	Plant In Service				13,605,649
	Less Accumulated Depreciation				(7,432,892	)
					6,172,757
	Plant Under Construction				57,033
					6,229,790
Other Noncurrent Assets
	Investments				94,246
		TOTAL ASSETS		$	8,596,098
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
	Note Payable			$	1,000,000
	Accounts Payable
		Trade			227,579
		Affiliates			567,877
	Accrued Liabilities				415,807
	Advanced Billings				279,853
	Accrued Taxes				112,762
	Capital Lease Obligation				21,287
	Other				161,572
		Total Current Liabilities			2,786,737
Long Term Liabilities
	Capital Lease Obligation				86,123
	Asset Retirement Obligation				129,136
		Total Long Term Liabilities			215,259
Partner's Capital					5,594,102
		TOTAL LIABILITIES & PARTNERS' CAPITAL		$	8,596,098

F-78

RSA 2-I
Statement of Income (Unaudited)
for the Six Months Ending June 30, 2003

Operating Revenues
	Retail service	$	3,636,082
	Roamer service		2,344,412
	Equipment sales		122,749
	Miscellaneous services		505,930
			6,609,173
Operating Expenses
	Cost of services		3,053,145
	Cost of equipment sales		554,923
	Selling, general and administrative		2,120,550
	Depreciation		582,000
			6,310,618
Operating Income			298,555
Other Expenses
	Interest expense		40,010
Net Income before cumulative effect of change in accounting principle			258,545
Cumulative effect of change in accounting principle			(48,663	)
Net Income		$	209,882

F-79

RSA 2-III PARTNERSHIP

Financial Statements

F-80

INDEPENDENT AUDITORS' REPORT

To the Partners of
Illinois Valley Cellular RSA 2-III Partnership

        We have audited the accompanying balance sheets of Illinois Valley Cellular RSA 2-III Partnership (an Illinois partnership) as of December 31, 2002 and 2001, and the related statements of income, partners' capital, and cash flows for each of three years in the period ended December 31, 2002. These financial statements are the responsibility of the Operating Partner's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Illinois Valley Cellular RSA 2-III Partnership as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ KIESLING ASSOCIATES LLP
Madison, Wisconsin
March 1, 2003

F-81

ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP

BALANCE SHEETS
December 31, 2002 and 2001

				2002			2001
ASSETS
CURRENT ASSETS
	Cash and cash equivalents			$	81,145		$	48,377
	Accounts receivable:
		Due from customers
			Less allowance of $85,000 and $80,000, respectively		565,754			697,422
		Affiliates			69,741			72,718
		Other			20,554			23,620
	Prepaids				104,236			3,855
					841,430			845,992
PROPERTY AND EQUIPMENT
	Plant in service				7,124,486			5,816,790
	Less accumulated depreciation				(3,356,524	)		(2,834,086	)
					3,767,962			2,982,704
OTHER NONCURRENT ASSETS
	Investments				73,140			100,147
	Other				1,215			1,215
					74,355			101,362
TOTAL ASSETS				$	4,683,747		$	3,930,058

F-82

ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP

BALANCE SHEETS
December 31, 2002 and 2001

			2002		2001
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
	Current portion of long-term debt		$	—	$	236,690
	Capital lease obligation			11,495		—
	Notes payable			1,500,000		400,000
	Accounts payable:
		Trade		107,184		38,031
		Affiliates		401,580		429,224
		Other		130,070		151,128
	Accrued commissions			39,849		51,572
	Advance billings			2,383		3,683
	Other			154,660		123,789
				2,347,221		1,434,117
LONG-TERM OBLIGATIONS
	Capital lease obligation			52,175		—
PARTNERS' CAPITAL				2,284,351		2,495,941
TOTAL LIABILITIES AND PARTNERS' CAPITAL			$	4,683,747	$	3,930,058

The accompanying notes are an integral part of these financial statements.

F-83

ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP

STATEMENTS OF INCOME
Years Ended December 31, 2002, 2001, and 2000

		2002			2001			2000
OPERATING REVENUES
	Retail service	$	3,469,059		$	3,227,973		$	3,047,399
	Roamer service		2,521,150			3,344,344			2,573,368
	Equipment sales		101,694			111,163			85,863
	Miscellaneous services		788,808			637,263			442,516
			6,880,711			7,320,743			6,149,146
OPERATING EXPENSES
	Cost of sales		3,628,394			3,563,141			2,817,688
	Cost of equipment sales		578,473			570,489			555,587
	Selling, general, and administrative		2,280,964			2,080,607			1,758,277
	Depreciation		580,137			493,940			489,717
			7,067,968			6,708,177			5,621,269
OPERATING INCOME			(187,257	)		612,566			527,877
OTHER INCOME (EXPENSES)
	Interest expense		(52,682	)		(56,560	)		(103,842	)
	Interest during construction		20,308			—			—
	Other, net		8,041			14,352			13,129
			(24,333	)		(42,208	)		(90,713	)
NET INCOME		$	(211,590	)	$	570,358		$	437,164

The accompanying notes are an integral part of these financial statements.

F-84

ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP

STATEMENTS OF PARTNERS' CAPITAL
December 31, 2002, 2001, and 2000

	Total
Balance at December 31, 1999	$	1,988,174
Net Income		437,164
Distribution		(99,994	)
Balance at December 31, 2000		2,325,344
Net Income		570,358
Distribution		(399,761	)
Balance at December 31, 2001		2,495,941
Net Income (Loss)		(211,590	)
Balance at December 31, 2002	$	2,284,351

The accompanying notes are an integral part of these financial statements.

F-85

ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP

STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002, 2001, and 2000

					2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income				$	(211,590	)	$	570,358		$	437,164
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation				580,137			493,940			489,717
		Provision for losses on accounts receivable				5,000			10,000			(25,000	)
	Changes in assets and liabilities:
		(Increase) Decrease in:
			Accounts receivable			132,711			(239,549	)		88,558
			Prepaids			(100,381	)		—			—
		Increase (Decrease) in:
			Accounts payable			20,451			311,892			(390,032	)
			Other			17,852			(11,548	)		26,737
				Net cash provided by operating activities		444,180			1,135,093			627,144
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures					(1,298,556	)		(484,229	)		(129,498	)
	Proceeds from the sale of investments, net					27,007			46,302			128,861
				Net cash used in investing activities		(1,271,549	)		(437,927	)		(637	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from short-term borrowings					1,100,000			—			—
	Repayment of long-term borrowings					(236,690	)		(293,659	)		(493,234	)
	Payments of capital lease obligations					(3,173	)		—			—
	Partnership distribution					—			(399,761	)		(99,994	)
				Net cash provided by/(used in) financial activities		860,137			(693,420	)		(593,228	)
Net Increase in Cash and Cash Equivalents						32,768			3,746			33,279
Cash and Cash Equivalents at Beginning of Year						48,377			44,631			11,352
Cash and Cash Equivalents at End of Year					$	81,145		$	48,377		$	44,631

The accompanying notes are an integral part of these financial statements.

F-86

ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION

        The Illinois Valley Cellular RSA 2-III Partnership (Partnership) is organized pursuant to the provisions of the Illinois Uniform Partnership Act. The Partnership was formed on November 6, 1989, to fund, establish, and provide cellular service within a portion of the Illinois RSA 2 Cellular Geographic Service Area. At December 31, 2002, 2001, and 2000, the general partners and their respective ownership percentages in the Partnership were as follows:

Partner	Percentage
Illinois SMSA Limited Partnership	20.00	%
Chicago SMSA Limited Partnership	20.00	%
CENCOMM, Inc.	6-2/3
C-R Cellular, Inc.	6-2/3
DePue Communications, Inc.	6-2/3
Gemcell, Inc.	6-2/3
Gridley Cellular, Inc.	6-2/3
Leonore Cellular, Inc.	6-2/3
Marscilles Cellular, Inc.	6-2/3
McNabb Cellular, Inc.	6-2/3
Tonica Cellular, Inc.	6-2/3
	100.00	%

        Marscilles Cellular, Inc. (MC) was elected by the Partnership to serve as the operating and network partner of the Partnership.

        The partners make capital contributions, share in the operating results, and receive distributions from the Partnership in accordance with their respective ownership percentages.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

        The accounting policies of the Partnership conform to accounting principles generally accepted in the United States of America. Management uses estimates and assumptions in preparing its financial statements. Those estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from those estimates.

Property and Equipment

        The Partnership's property and equipment is stated at cost, including labor and overheads associated with construction and capitalized interest.

        Depreciation is computed by applying the straight-line method. The estimated service lives for depreciable plant and equipment are: 15 years for buildings; 7 to 15 years for cell site towers; 7 to 10 years for electronic mobile exchange and base site controller equipment; 7 years for furniture and fixtures; and 5 years for computer equipment.

        When depreciable properties are sold, or otherwise disposed of, any resulting gains or losses are included in the determination of income.

F-87

Long-Lived Assets

        The Partnership recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount.

Revenue Recognition

        The Partnership earns revenue by providing access to the cellular network (access revenue) and for usage of the cellular network (airtime and toll revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime (including roaming) and toll revenues are recognized when the services are rendered. Other revenues are recognized when services are performed and include, primarily, connection revenues. Equipment sales are recognized upon delivery of the equipment to the customer.

        The Partnership generates revenue from charges to its customers when they use their cellular phones in other wireless providers' markets. Until 2002, the Partnership included this revenue on a net basis in cost of services in its statement of operations. Expense associated with this revenue, charged by third-party wireless providers, is also included in cost of services. The Partnership used this method because it has passed through to its customers most of the costs related to these revenues. However, the wireless industry and the Partnership have increasingly been using pricing plans that include flat rate pricing and larger home service areas. Under these types of plans, amounts charged to the Partnership by other wireless providers may not necessarily be passed through to its customers.

        In 2002, the Partnership adopted a policy to include the revenue as retail revenue rather than cost of services on a net basis. Roamer revenue includes only the revenue from other wireless providers' customers who use the Partnership's network. Retail revenue and cost of services of $523,315 and $589,604 for 2001 and 2000, respectively, were reclassified to conform to this presentation. This change in presentation has no impact on operating income, net income, or partners' equity.

Expense Recognition

        Pursuant to the Partnership Agreement, expenses included in the Statements of Income represent expenses incurred by the Partnership, including an allocation of administrative and operations costs from the operating partner.

Income Taxes

        The Internal Revenue Code and applicable state statutes provide that income and expenses of a partnership are not separately taxable to the Partnership, but rather accrue directly to the partners. Accordingly, no provision for federal or state income taxes has been made in the financial statements

Advertising Costs

        Advertising costs are expensed as incurred. Advertising expenses were $203,997, $162,430, and $170,659 in 2002, 2001 and 2000, respectively.

F-88

Cash Equivalents

        All highly liquid investments with a maturity of three months or less at the time of purchase are considered cash equivalents. The carrying value of cash and cash equivalents approximates its fair value due to the short maturity of the investments.

Reclassifications

        Certain reclassifications have been made to the 2001 and 2000 financial statements to conform with the 2002 presentation.

NOTE 3. PROPERTY AND EQUIPMENT

        The components of property and equipment were as follows:

		2002			2001
Land and Land improvements		$	233,179		$	232,978
Buildings			642,311			594,346
Electronic mobile exchange and base site controller equipment			2,479,042			2,097,221
Cell site towers and equipment			1,855,225			1,436,055
Other			1,914,729			1,456,190
	Total property and equipment		7,124,486			5,816,790
Less accumulated depreciation			(3,356,524	)		(2,834,086	)
	Total net property and equipment	$	3,767,962		$	2,982,704

        Property and equipment and accumulated depreciation include $66,843 and $796, respectively, at December 31, 2002, for capital leases. Property and equipment acquired with capital leases in 2002 was $66,843.

NOTE 4. INVESTMENTS

        Investments include $23,669 and $53,035 at December 31, 2002 and 2001, respectively, of Rural Telephone Finance Cooperative (RTFC) subordinated capital certificates (SCC). Such SCCs were purchased from RTFC as a condition of obtaining long-term financing for the Partnership and are carried at cost. The SCCs are non-interest bearing and are returned as the related RTFC loan is repaid. The stock purchases were fully financed through the issuance of long-term debt obligations to RTFC. It is not practical to estimate the fair value for these investments due to a lack of quoted market prices.

F-89

NOTE 5. NOTES PAYABLE

        Notes payable consist of:

	2002		2001
RTFC lines of credit	$	500,000	$	400,000
RTFC revolving line of credit		1,000,000		—
	$	1,500,000	$	400,000

        Interest on the lines of credit is at a variable rate (5.8% and 5.3% at December 31, 2002 and 2001, respectively).

        In 2002, the Partnership entered into a $1,000,000 revolving line of credit loan agreement with RTFC. While the agreement is scheduled to mature on the one year anniversary of the advance, the Partnership may borrow, repay, and reborrow from time to time until the agreement expires on January 3, 2005. Interest is due quarterly and is based on the prevailing bank prime rate plus one and one-half percent or such lessor amount as determined by RTFC. The rate at December 31, 2002 was 5.8%. The agreement is subject to the provisions of the mortgage and security agreement described below. In addition, the aggregate amount of outstanding principal balance of all Partnership unsecured indebtedness is limited to $1,000,000 at any one time.

        The maximum amount of short-term borrowings at any month-end during 2002 and 2001 were $1,500,000 and $500,000, respectively.

NOTE 6. LONG-TERM DEBT

        Long-term debt consists of:

		2001
RTFC notes—variable rate		$	160,160
RTFC notes—variable rate		$	76,530
	Total long-term debt		236,690
Less current portion			(236,690	)
		$	—

        These mortgage notes outstanding at December 31, 2001, are to be repaid in equal quarterly installments covering principal and interest beginning two to three years after date of issue and expiring by 2002. The interest rate on the debt is a variable rate established periodically by the RTFC. The rate at December 3, 2001, was 5.3%.

        Substantially all assets of the Partnership are pledged as security under the mortgage and security agreement with the RTFC.

        The mortgage and security and loan agreements underlying the RTFC notes contain certain restrictions on Partnership distributions, return of partner capital contributions, and investment in, or loans to others. In 2000, the Partnership received a waiver from the lender to make partnership distributions. Also included in the loan agreement is a provision, which requires the partners to infuse, on an ongoing basis, the greater of sufficient amounts of equity to accommodate any cash shortfalls or

F-90

certain specified amounts. Further, the Partnership is required, under the loan agreement, to achieve a debt service coverage ratio of not less than 1.25.

        Of the funds available under the RTFC approved loans, including amendments, all amounts were advanced as of December 31, 2002.

        Cash paid for interest net amounts capitalized for 2002, 2001, and 2000 totaled $24,922, $62,028, and $97,253, respectively.

        The fair value of the partnership debt is estimated based on the discounted value of future cash flows expected to be paid using current rates of borrowing for similar types of debt. The fair value of debt approximates carrying value at December 31, 2002 and 2001.

NOTE 7. RELATED PARTY TRANSACTIONS

        MC, as operating and network partner, performed certain technical, professional, and administrative services on behalf of the Partnership. In accordance with the Partnership Agreement, MC is reimbursed by the Partnership's share of these costs. MC allocates these costs to the various cellular systems to which they provide service based on each entity's customer access lines. Reimbursed expenses in 2002, 2001, and 2000 were $1,194,151; $1,040,212; and $885,246; respectively. These reimbursed expenses are classified and presented under the Operating Expenses category to which each relates.

        In addition, $107,974, $105,260, and $96,678 were paid to an affiliate of MC for contract labor, interest, and other services in 2002, 2001, and 2000, respectively.

        Certain cellular equipment sold to subscribers by the Partnership is provided to the Partnership by a related entity at cost. Cost of goods sold is recorded by the Partnership at the time of sale.

        The Partnership has an arrangement with Illinois Valley Cellular RSA 2, Inc. (Switching Company) to provide switching services to the Partnership. The stockholders of the Switching Company own 53% of the Partnership. In 2002, switching and toll roaming services of $794,832 and $1,431,105, respectively, were provided to the Partnership. These services in 2001 were $767,976 and $1,311,962, respectively and in 2000 were $719,858 and $816,461, respectively. The Switching Company received $414,548, $353,983, and $231,694 of access and billing and collecting services from the Partnership in 2002, 2001, and 2000, respectively.

NOTE 8. CONCENTRATIONS OF CREDIT RISK

        Financial instruments that potentially subject the Partnership to concentrations of credit risk consist principally cash equivalents and accounts receivable. The Partnership grants credit to cellular customers located primarily within its portion of the Illinois RSA 2 cellular geographic service area, to other cellular carriers, and to other telecommunications carriers.

        The Partnership maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership believes it is not exposed to any significant credit risk on cash and cash equivalents.

F-91

        Retail cellular revenues are derived from customers located primarily within the Partnership's portion of the Illinois RSA 2 cellular geographic service area. The Partnership grants credit to these customers, substantially all of whom are local residents of this geographic area.

        Roamer cellular revenues are derived under arrangements with other wireless carriers (roaming partners) whose customers use the Partnership's network to place of complete calls. Roaming revenues from Verizon Wireless accounted for 34%, 43%, and 30% of total operating revenues in 2002, 2001, and 2000, respectively.

NOTE 9. LEASE COMMITMENTS

        Future minimum rental payments under leases for facilities have initial non-cancelable lease terms at December 31, 2002 as follows:

	Capitalized Leases		Operating Leases
2003	$	17,611	$	93,586
2004		15,956		71,086
2005		16,256		62,036
2006		16,256		55,436
2007		10,837		34,952
Thereafter		—		—
Total minimum lease payments	$	76,916	$	317,096
Less amount representing interest		13,246		—
Present value of minimum lease payments including current maturities of $11,495	$	63,670	$	317,096

        Cell site leases are renewable for four additional five-year periods under similar terms at the end of the initial term. Lease terms provide for certain adjustment of the payments in the renewal periods.

        The Partnership has an office building lease with an affiliate of MC for an initial term of five years. The Partnership's portion of the annual base rental, included in the future minimum rental payments above, is $36,936. A contingent rental provision allows for increases in base rent for real estate taxes and operating costs in excess of base operating costs. The agreement includes an option to extend the lease for an additional five years.

        Rental expense for all cancelable and non-cancelable operating leases totaled $122,319, $95,515, and $90,900 in 2002, 2001, and 2000, respectively.

F-92

NOTE 10. ALLOWANCE FOR UNCOLLECTIBLES

        The Company uses the reserve method to recognize uncollectible customer accounts. The following activity has been recognized under this method.

	2002		2001		2000
Balance, December 31	$	80,000	$	70,000	$	95,000
Provision for uncollectibles		51,226		36,991		47,460
Accounts written off, net of recoveries		46,226		26,991		72,460
Balance, December 31	$	85,000	$	80,000	$	70,000

NOTE 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

        The following table presents summarized quarterly results.

	Quarter
	1st		2nd			3rd			4th
2002
Operating revenues	$	1,707,412	$	1,698,737		$	1,745,740		$	1,728,822
Operating income	$	48,352	$	(19,292	)	$	(45,733	)	$	(170,584	)
Net income	$	51,725	$	(26,825	)	$	(52,226	)	$	(184,262	)
2001
Operating revenues	$	1,614,897	$	1,872,348		$	1,911,963		$	1,921,535
Operating income	$	114,963	$	153,201		$	169,279		$	175,123
Net income	$	107,694	$	136,992		$	156,622		$	169,050

        Quarterly operating results are not necessarily representative of operations for a full year for various reasons, including seasonal variations in customer calling patterns and timing of promotional activities.

NOTE 12. RECENT ACCOUNTING DEVELOPMENTS

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires entities to record the fair value of the liability for legal obligations associated with an asset retirement in the period in which the obligation is incurred. When the liability is initially recorded, the entity capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No. 145 also rescinds FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers," and amends FASB Statement No. 13, "Accounting for Leases."

F-93

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan.

        In November 2002, the FASB issued Interpretation No.45, "Guarantor's Accounting and Disclosure Requirements for Gaurantees, Including Indirect Guarantees of Indebtedness of Others." This interpretation elaborates on the disclosures required in financial statements concerning obligations under certain guarantees. It also clarifies the requirements related to the recognition of liabilities by a guarantor at the inception of certain guarantees. The disclosure requirements of this interpretation were effective on December 31, 2002. No disclosures were required at December 31, 2002.

        The Partnership has not yet determined the impact the adoption of these Standards will have on its financial position, results of operations, and cash flows.

F-94

RSA 2-III PARTNERSHIP
Unaudited Financial Statements
For the six months ended June 30, 2003

F-95

RSA 2-III
Balance Sheet (Unaudited)
June 30, 2003

ASSETS
Current Assets
	Cash & Cash Equivalents			$	33,376
	Accounts Receivable
		Due from Customers
			Less Allowance for Uncollectible of $118,647		936,584
		Affiliates			242,373
	Prepayments				136,797
		Total Current Assets			1,349,130
Plant & Equipment
	Plant In Service				7,325,699
	Less Accumulated Depreciation				(3,741,072	)
					3,584,627
	Plant Under Construction				7,442
					3,592,069
Other Noncurrent Assets
	Investments				50,439
	Deferred Charges				1,215
		Total Other NonCurrent Assets			51,654
		TOTAL ASSETS		$	4,992,853
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
	Capital Lease Obligation			$	11,495
	Note Payable				1,500,000
	Accounts Payable
		Trade			135,549
		Affiliates			542,888
	Accrued Liabilities				241,255
	Advanced Billings				2,383
	Accrued Taxes				128,880
	Other				93,748
		Total Current Liabilities			2,656,198
Long Term Liabilities
	Capital Lease Obligation				46,506
	Asset Retirement Obligation				165,789
		Total Long Term Liabilities			212,295
Partner's Capital					2,124,360
		TOTAL LIABILITIES & PARTNERS' CAPITAL		$	4,992,853

F-96

RSA 2-III
Statement of Income (Unaudited)
for the Six Months Ending June 30, 2003

Operating Revenues
	Retail service	$	1,963,145
	Roamer service		1,816,313
	Equipment sales		55,035
	Miscellaneous services		374,008
			4,208,501
Operating Expenses
	Cost of services		2,443,176
	Cost of equipment sales		270,594
	Selling, general and administrative		1,155,437
	Depreciation		354,000
			4,223,207
Operating Income			(14,706	)
Other Expenses
	Interest expense		47,121
Net Loss before cumulative effect of change in accounting principle			(61,827	)
Cumulative effect of change in accounting principle			(98,165	)
Net Loss		$	(159,992	)

F-97

INDEX TO PRO FORMA FINANCIAL STATEMENTS

		Page
FAIRPOINT COMMUNICATIONS, INC AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
	Basis of Presentation	P-2
	Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2004	P-3
	Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2003	P-5
	Pro Forma Condensed Consolidated Statement of Operations for the nine-month period ended September 30, 2004	P-6
	Notes to Pro Forma Condensed Consolidated Financial Statements	P-7

P-1

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION

        The following unaudited pro forma consolidated financial statements give effect to the issuance by FairPoint Communications, Inc. ("FairPoint" or the "Company") of common stock in this offering, the related transactions described under "The Transactions" and the acquisition of all of the capital stock of Community Service Telephone Co. ("CST") and Commtel Communications, Inc. ("Commtel"). The following unaudited pro forma consolidated financial statements do not include the pending acquisition of Berkshire Telephone Corporation. This acquisition is not included as it is not considered significant and management believes this acquisition would not significantly impact the results of operations or the financial trends of the Company.

        The acquisition of CST and Commtel on December 1, 2003 was accounted for using the purchase method of accounting. The purchase price for the acquisition was $32.6 million in cash. Borrowings under the Company's existing credit facility were used to consummate the acquisition of CST and Commtel.

        The pro forma adjustments and the assumptions on which they are based are described in the accompanying notes to the pro forma condensed consolidated financial statements. The following unaudited pro forma consolidated statement of operations for the year ended December 31, 2003 gives effect to the proceeds from the issuance of the common stock in this offering, the related transactions described under "The Transactions" and the acquisition of CST and Commtel as if these transactions had occurred as of January 1, 2003. The following unaudited pro forma consolidated statement of operations for the nine-month period ended September 30, 2004 gives effect to the proceeds from the issuance of the common stock in this offering and the related transactions described under "The Transactions" as if these transactions had occurred as of January 1, 2003. The pro forma statements for the nine-month period ended September 30, 2004 do not require adjustments to give effect to the acquisition of CST and Commtel since these acquisitions are included in the Company's historical consolidated financial statements since the date of such acquisition.

        The unaudited pro forma consolidated financial statements are based upon the historical consolidated financial statements of the Company and its subsidiaries and should be read in conjunction with those consolidated financial statements and notes thereto appearing elsewhere in this prospectus. The unaudited consolidated proforma financial statements do not necessarily indicate the results that would have actually occurred if the transactions described above had been in effect on the date indicated or that may occur in the future.

P-2

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 2004
(Unaudited-Amounts in thousands)

		FairPoint historical		Offering Pro forma adjustments		Note ref.		Pro forma
Assets
Current assets:
	Cash	$	6,413	445,277 579,598 (895,934 (121,930 (8,581	) ) )	(1 (2 (3 (4 (5	) ) ) ) )	4,843
	Accounts receivable		30,675	—				30,675
	Inventory		4,485	—				4,485
	Prepaid and other		1,971	—				1,971
	Notes receivable—related party		1,000	(1,000	)	(5	)	—
	Income tax recoverable		182	—				182
	Assets of discontinued operations		105	—				105
Total current assets			44,831	(2,570	)			42,261
Property, plant, and equipment, net			253,704	—				253,704
Other assets:
	Goodwill		468,814	—				468,814
	Investments		37,942	—				37,942
	Debt issue costs, net of accumulated amortization		24,578	10,402 (23,622	)	(2 (3	) )	11,358
	Covenants not to compete, net of amortization		54	—				54
	Other		994	—				994
Total other assets			532,382	(13,220	)			519,162
Total assets		$	830,917	(15,790	)			815,127

P-3

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 2004
(Unaudited-Amounts in thousands)

			FairPoint historical			Per Offering Pro forma adjustments		Note ref.	Pro forma
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
	Accounts payable		$	12,834		—			12,834
	Other accrued liabilities			13,826		—			13,826
	Accrued interest payable			18,981		(18,981	)	(3)	—
	Current portion of long-term debt			28,337		(28,337	)	(3)	—
	Accrued property taxes			2,701		—			2,701
	Current portion of covenants not to compete			99		—			99
	Demand notes payable			387		(387	)	(3)	—
	Liabilities of discontinued operations			3,887		—			3,887
Total current liabilities				81,052		(47,705	)		33,347
Long-term liabilities:
	Long-term debt, net of current portion:
		Existing long-term debt		785,139		(785,139	)	(3)	—
		New credit facility				590,000		(2)	590,000
	Preferred shares			111,519		(111,519	)	(4)	—
	Other liabilities			12,342		(8,445	)	(5)	3,897
	Liabilities of discontinued operations			1,773		—			1,773
	Unamortized investment tax credits			56		—			56
Total long-term liabilities				910,829		(315,103	)		595,726
Minority interest				12		—			12
Common stock subject to put options				1,136		(1,136	)	(5)	—
Stockholders' equity (deficit):
	Common stock			95		250 5		(1) (6)	350
	Additional paid-in capital			198,602		474,750 (29,723 (357 8,995	) )	(1) (1) (6) (6)	652,267
	Unearned compensation			—		(9,000	)	(6)	(9,000	)
	Accumulated deficit			(360,809	)	(63,090 (23,622 (10,411 357	) ) )	(3) (3) (4) (6)	(457,575	)
Total stockholders' equity (deficit)				(162,112	)	348,154			186,042
Total liabilities and stockholders' equity (deficit)			$	830,917		(15,790	)		815,127

P-4

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
December 31, 2003
(Unaudited-Amounts in thousands)

					Acquisitions
		FairPoint historical							Note ref.		Pro forma With Acquisitions		Per Offering Pro forma adjustments		Note ref.
					CST		Adjustments									Pro forma
Revenues		$	231,432		7,231		—				238,663		—				238,663
Operating expenses:
	Operating expenses, excluding depreciation and amortization and stock-based compensation		111,188		4,981						116,169		—				116,169
	Depreciation and amortization		48,089		1,236						49,325		—				49,325
	Stock-based and deferred compensation		15		—						15		2,550		(6)		2,565
Total operating expenses			159,292		6,217		—				165,509		2,550				168,059
Income from operations			72,140		1,014		—				73,154		(2,550	)			70,604
Other income (expense):
	Net gain on sale of investments and other assets		608		—						608		—				608
	Interest and dividend income		1,792		51						1,843		—				1,843
	Interest expense		(90,224	)	(164	)	(863	)	(8	)	(91,251	)	55,699		(7)		(35,552	)
	Equity in net earnings of investees		10,092		—						10,092		—				10,092
	Realized and unrealized losses on interest rate swaps		(1,387	)							(1,387	)	—				(1,387	)
	Other nonoperating, net		(1,505	)	164						(1,341	)	—				(1,341	)
Total other expense			(80,624	)	51		(863	)			(81,436	)	55,699				(25,737	)
Income from continuing operations before income taxes			(8,484	)	1,065		(863	)			(8,282	)	53,149				44,867
Income tax expense			236		(478	)	335		(8	)	93		—				93
Minority interest in income of subsidiaries			(2	)	—		—				(2	)	—				(2	)
Income from continuing operations			(8,250	)	587		(528	)			(8,191	)	53,149				44,958
	Redeemable preferred stock dividends and accretion		(8,892	)	—		—				(8,892	)	8,892		(4)		—
	Gain on repurchase of redeemable preferred stock		2,905		—		—				2,905		(2,905	)	(4)		—
Net income (loss) attributed to common shareholders		$	(14,237	)	587		(528	)			(14,178	)	59,136				44,958
Earnings (loss) from continuing operations per share:
	Basic	$	(1.50	)												$	1.30
	Diluted	$	(1.50	)												$	1.30
Weighted average shares outstanding:
	Basic		9,483												(10)		34,452
	Diluted		9,483												(10)		34,691

P-5

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
September 30, 2004
(Unaudited-Amounts in thousands)

		FairPoint historical			Offering Pro forma adjustments		Note ref.	Pro forma
Revenues		$	188,838		—				188,838
Operating expenses:
	Operating expenses, excluding depreciation and amortization and stock-based compensation		96,355		—				96,355
	Depreciation and amortization		36,876		—				36,876
	Stock-based compensation		133		1,913		(6)		2,046
Total operating expenses			133,364		1,913				135,277
Income from operations			55,474		(1,913	)			53,561
Other income (expense):
	Net gain on sale of investments and other assets		(240	)	—				(240	)
	Interest and dividend income		1,330		—				1,330
	Interest expense		(77,698	)	51,034		(7)		(26,664	)
	Equity in net earnings of investees		7,929		—				7,929
	Realized and unrealized losses on interest rate swaps		(112	)	—				(112	)
Total other expense			(68,791	)	51,034				(17,757	)
Income from continuing operations before income taxes			(13,317	)	49,121				35,804
Income tax expense			(279	)	—				(279	)
Minority interest in income of subsidiaries			(1	)	—				(1	)
Net income (loss) attributed to common stockholders from continuing operations		$	(13,597	)	49,121				35,524
Earnings (loss) from continuing operations per share
	Basic	$	(1.44	)				$	1.03
	Diluted	$	(1.44	)				$	1.02
Weighted average shares outstanding
	Basic		9,468				(10)		34,452
	Diluted		9,468				(10)		34,795

P-6

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)    Issuance of Common Stock

        In conjunction with the offering, the Company will effect a 5.2773714 to 1 stock split and the conversion of class A and class C common stock into a single class of common stock. After the stock split, but prior to the issuance of any new shares in this offering, 9,451,719 shares will be outstanding. All common stock issued and outstanding will have a $0.01 par value.

        The Company expects to issue approximately $475.0 million of common stock or 25,000,000 shares in this offering.

        This adjustment reflects the issuance of common stock for cash as follows (in thousands):

Issuance of common stock	250
Additional paid in capital	474,750
Less issuance costs allocated to paid in capital	(29,723	)
Net cash proceeds	445,277

(2)    New Senior Secured Credit Facility

        Concurrently with the offering, the Company will enter into a new senior secured $690.0 million credit facility, which will be referred to as the new credit facility, consisting of a revolving facility in an aggregate principal amount of up to $100.0 million and a term facility in an aggregate principal amount of $590.0 million.

        Entries have been made to the accompanying unaudited pro forma consolidated balance sheet to record the following (in thousands):

Senior term debt proceeds	590,000
Revolver proceeds	—
Less debt issue costs	(10,402	)
Net cash proceeds	579,598

(3)    Repayment of Existing Indebtedness

        This adjustment reflects the payment of existing indebtedness and certain fees and expenses with the proceeds from the issuance of common equity and borrowings under the new credit facility.

Retire senior debt, including current maturity of $28,337	(813,476	)
Retire demand notes payable	(387	)
Tender and prepayment penalties	(63,090	)
Payment of accrued interest	(18,981	)
Net cash used	(895,934	)

        An adjustment has been made to retained earnings to write-off existing debt issuance and offering costs of $23.6 million. No adjustments have been made in the accompanying unaudited proforma condensed consolidated statements of operations for this non-recurring transaction as well as the tender and prepayment penalties. The Company's write off of debt issuance and offering costs includes pre-existing deal cost of $6.0 million associated with an abandoned offering of Income Deposit Securities ("IDSs"). The offering of IDSs was abandoned in favor of the transactions described herein. Debt issue and offering costs of $1.0 million remain after the write off that are a direct and incremental benefit to the transactions described herein.

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(4)    Redemption of Series A Preferred Stock Subject to Mandatory Redemption

        This adjustment reflects the payment of cash of $111.5 million for the redemption of series A preferred stock subject to mandatory redemption (redemption value of $121.7, less the unaccretted discount of $10.2 million). In addition, the Company expects to pay a premium for the redemption of the series A preferred stock totaling $0.2 million, resulting in a total loss on redemption of $10.4 million.

        Entries have been made in the accompanying unaudited pro forma consolidated statement of operations to eliminate redeemable preferred stock dividends and accretion and the gain on the repurchase of redeemable preferred stock that is anticipated to be repaid from the proceeds of the sale of the common stock.

(5)    Other Uses of Offering Proceeds

        The Company expects to use borrowings under the new credit facility and the proceeds from the issuance of the common stock to fund the following additional transactions (in thousands):

Repurchase of common stock subject to put option, net of the receipt of $1,000 payment of notes receivable—related party		136
Payment for long-term deferred transaction fee(a)		8,445
	$	8,581

        (a)   In January 2000, the Company agreed to pay Kelso & Company a transaction fee of $8,445,000 for services provided to the Company in connection with the recapitalization effected at such time. Subsequent to the Company's agreement to pay the transaction fee, Kelso & Company agreed to defer the payment of such fee until the earlier of (i) an initial public offering of the Company's common stock, (ii) the sale of the Company to a third party or (iii) Kelso & Company ceasing to own at least 10% of the number of shares of the Company's class A common stock that they held on January 20, 2000. This fee was recorded as a long term liability in January 2000 in connection with the recapitalization and will be paid if this offering is consummated.

(6)    Compensation Expense

        Certain principal shareholders of the Company granted stock appreciation rights to certain members of management. The stock appreciation rights are fully vested and are expected to be settled by the granting shareholders in connection with this offering. The accompanying pro forma balance sheet includes a compensation credit of $0.4 million to paid-in capital and retained deficit related to the anticipated settlement of these rights.

        The Company intends to grant 473,716 shares of restricted stock on the closing of this offering, which will begin to vest on April 1, 2006. The issuance of new restricted stock awards would have resulted in a recurring compensation charge of approximately $2.6 million for the year ended December 31, 2003 and $1.9 million for the nine months ended September 30, 2004.

(7)    Interest Expense

        Entries have been made to the accompanying unaudited proforma consolidated statement of operations to eliminate interest expense incurred on long-term debt and preferred shares subject to mandatory redemption that is anticipated to be repaid from the proceeds of the sale of common stock and the issuance of debt under the new senior secured credit facility and to record interest expense on

P-8

the new credit facility. The assumed interest rate of 4.82% on our new credit facility is estimated based upon current LIBOR rates and our commitment from lenders to receive a variable interest rate equal to LIBOR plus 2.25% on our new credit facility. We also will enter into interest rate swap agreements to effectively convert a notional amount of $383,500 of variable-rate debt under our credit facility into fixed rate debt with an interest rate of 6.145%, resulting in an estimated blended interest rate of 5.68%. The interest rate swaps are expected to qualify as cash flow hedges for accounting purposes and the Company expects to enter into or receive commitments from third party banks prior to completion of this offering. An entry has also been made to record the amortization of debt issuance costs over the term of the notes.

		Pro forma Amount Outstanding		Estimated Interest Rate		Twelve Months Ended December 31, 2003			Nine Months Ended September 30, 2004
Pro forma interest expense
	Term facility	$	590,000	4.82	%	$	28,438		$	21,329
New credit facility unused revolver fee		$	100,000	.5	%		500			375
Estimated additional interest expense to be incurred using an interest rate swap				5.68	%		5,074			3,805
Pro forma amortization of loan origination costs							1,540			1,155
Pro forma interest expense, new debt							35,552			26,664
Less—interest expense pro forma with acquisitions							(91,251	)		(77,698	)
Net pro forma adjustment						$	(55,699	)	$	(51,034	)

        The effect of an increase of 1/8 percent in interest rates on interest expense on the amounts depicted in the accompanying pro forma statements of operations is expected to result in additional interest expense of $0.3 million annually.

(8)    Acquisition of Community Service Telephone Co. and Commtel Communications, Inc.

        On December 1, 2003, the Company purchased 100% of the common stock of CST and Commtel. The acquisition of CST and Commtel was accounted for using the purchase method of accounting. Borrowings under the existing credit facility were used to consummate the acquisition of CST and Commtel. The pro forma adjustments that give effect to the acquisition of CST and Commtel are as follows:

Interest Expense

        Entries have been made to the accompanying unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2003, to eliminate interest expense on CST and Commtel long-term debt ($164,000) and to record interest expense ($1.0 million) on the debt issued ($16.0 million at 7%) by the Company in connection with the acquisition, as if it was issued on January 1, 2003. The net adjustment was $863,000.

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Income Taxes

        Entries have been made to the accompanying unaudited pro forma condensed consolidated statements of operations to give effect to the income tax benefit of $335,000 for the year ended December 31, 2003 for the deductible interest expense incurred in connection with the acquisition of CST and Commtel at an assumed statutory rate of 38.8%.

(9)    Income Taxes

        Historically, a valuation allowance has been recorded for the value of the deferred tax assets represented by net operating losses. To the extent the Company generates taxable income, the Company has assumed that any tax expense associated with this income will be offset by reductions in the valuation allowance of these net operating losses.

(10)    Earnings per Share

        The calculation of basic earnings per share is based on 34,451,719 shares of common stock outstanding. Diluted shares outstanding includes the impact of the unexercised options, restricted stock units and restricted stock awards using the treasury stock method. Anti-dilutive shares totaling 348,091 shares were excluded from the computations of diluted earnings per share for the year ended December 31, 2003 and the nine months ended September 30, 2004, because the exercise prices of the corresponding stock options were greater than the estimated market price of the Company's common shares. In addition, 785,505 contingently issuable shares were excluded from the computations of diluted earnings per share for the year ended December 31, 2003 and the nine months ended September 30, 2004, as conditions necessary to satisfy the contingency have not been met.

        The following is a reconciliation between basic and diluted income available to common shareholders and weighted average share outstanding:

	Twelve Months Ended December 31, 2003		Nine Months Ended September 30, 2004
Net income available to common shareholders—basic and diluted	$	44,958	$	35,524
Weighted average shares outstanding—basic (000)		34,452		34,452
Shares issuable upon exercise of stock options (000)		239		343
Weighted average shares outstanding—diluted (000)		34,691		34,795

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25,000,000 shares of

Common Stock

PROSPECTUS

Morgan Stanley
Goldman, Sachs & Co.
Banc of America Securities LLC
Deutsche Bank Securities
Credit Suisse First Boston
Wachovia Securities

, 2005

UNTIL                    , 2005, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

PART II

Item 13. Other Expenses of Issuance and Distribution

        The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by FairPoint Communications, Inc. in connection with the offer and sale of the securities being registered. All amounts are estimates except the registration fee.

SEC Registration fee	$	67,678
NASD filing fee		30,500
NYSE listing fee		190,000
Printing and engraving expenses		315,000
Legal fees and expenses		525,000
Accounting fees and expenses		175,000
Miscellaneous		200,000
Total	$	1,503,178

Item 14. Indemnification of Directors and Officers

        Section 102(b)(7) of the Delaware General Corporation Law, the DGCL enables a corporation incorporated in the State of Delaware to eliminate or limit, through provisions in its original or amended articles of incorporation, the personal liability of a director for violations of the director's fiduciary duties, except (i) for any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) any liability imposed pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit.

        Section 145 of the DGCL provides that a corporation incorporated in the State of Delaware may indemnify any person or persons, including officers and directors, who are, or are threatened to be made, parties to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee, or agent acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation's best interests and, for criminal proceedings, had no reasonable cause to believe that the challenged conduct was unlawful. A corporation incorporated in the State of Delaware may indemnify officers and directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must provide indemnification against the expenses that such officer or director actually and reasonably incurred.

        FairPoint's Bylaws expressly provide for indemnification of its directors and officers to the fullest extent permitted by the DGCL.

        Section 145(g) of the DGCL authorizes a corporation incorporated in the State of Delaware to provide liability insurance for directors and officers for certain losses arising from claims or charges made against them while acting in their capacities as directors or officers of the corporation. FairPoint's

II-1

certificate of incorporation and bylaws expressly provide that FairPoint shall indemnify officers and directors and, to the extent permitted by the board of directors, employees and agents of FairPoint, to the full extent permitted by and in the manner permissible under the laws of the State of Delaware. In addition, the bylaws expressly permit the board of directors to authorize FairPoint to purchase and maintain insurance against any liability asserted against any director, officer, employee or agent of FairPoint arising out of his capacity as such.

        Thomas H. Lee Equity Fund and Kelso & Company provide their respective director appointees with additional director and officer liability insurance.

Item 15. Recent Sales of Unregistered Securities

        In the three years prior to the filing of this registration statement, FairPoint issued and sold the following unregistered securities:

        On March 6, 2003, FairPoint issued and sold $225 million aggregate principal amount of its 11⁷/8% senior notes due 2010 to repay a portion of its existing debt, repurchase a portion of its series A preferred stock, repay a portion of Carrier Services' debt and pay related fees and expenses. The senior notes were sold to certain underwriters pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. The underwriters resold the senior notes to qualified institutional buyers pursuant to Rule 144A or Regulation S of the Securities Act. In connection with that sale, FairPoint agreed to complete an exchange offer for the senior notes. FairPoint offered to exchange $225 million aggregate principal amount of its new 11⁷/8% senior notes due 2010, the issuance of which were registered under the Securities Act, for $225 million aggregate principal amount of its 11⁷/8% senior notes due 2010, which were not registered under the Securities Act. The exchange offer was completed on August 28, 2003.

        In the past three years, FairPoint issued 391,318 options to purchase its class A common stock and 27,382 restricted stock units pursuant to the 1998 plan and the 2000 plan. FairPoint believes that these issuances were either exempt from the registration requirements of the Securities Act under Rule 701, Rule 506 under Regulation D or Section 4(2) of the Securities Act, or did not involve offers or sales of securities within the meaning of the Securities Act.

Item 16. Exhibits

Exhibit No.	Description
1.1	Form of Underwriting Agreement, by and among FairPoint and Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Banc of America Securities LLC, Deutsche Bank Securities Inc., Credit Suisse First Boston LLC and Wachovia Capital Markets, LLC, as representatives of the underwriters named therein.*
2.1	Stock Purchase Agreement, dated as of January 4, 2000, by and among FairPoint, Thomas H. Lee Equity IV, L.P., Kelso Investment Associates V, L.P., Kelso Equity Partners V, L.P., Carousel Capital Partners, L.P. and certain other signatories thereto.(1)
2.2	Stock Purchase Agreement, dated as of April 18, 2003 and as amended June 20, 2003, by and among FairPoint, Community Service Communications, Inc., Community Service Telephone Co. and Commtel Communications, Inc.(11)
2.3	Stock Purchase Agreement, dated as of May 9, 2003, by and among Golden West Telephone Properties, Inc., MJD Services Corp., Union Telephone Company of Hartford, Armour Independent Telephone Co., WMW Cable TV Co. and Kadoka Telephone Co.(10)
2.4	Agreement and Plan of Merger, dated as of June 18, 2003, by and among FairPoint, MJD Ventures, Inc., FairPoint Berkshire Corporation and Berkshire Telephone Corporation.(11)

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3.1	Seventh Amended and Restated Certificate of Incorporation of FairPoint.(8)
3.2	Certificate of Amendment to Seventh Amended and Restated Certificate of Incorporation of FairPoint.*
3.3	Form of Eighth Amended and Restated Certificate of Incorporation of FairPoint.*
3.4	By-Laws of FairPoint.(3)
3.5	Form of Amended and Restated By-Laws of FairPoint.*
3.6	Certificate of Designation of Series A Preferred Stock of FairPoint.(8)
4.1	Indenture, dated as of May 5, 1998, between FairPoint and United States Trust Company of New York, relating to FairPoint's $125,000,000 91/2% Senior Subordinated Notes due 2008 and $75,000,000 Floating Rate Callable Securities due 2008.(2)
4.2	Indenture, dated as of May 24, 2000, between FairPoint and United States Trust Company of New York, relating to FairPoint's $200,000,000 121/2% Senior Subordinated Notes due 2010.(3)
4.3	Indenture, dated as of March 6, 2003, between FairPoint and The Bank of New York, relating to Fairpoint's $225,000,000 117/8% Senior Notes due 2010.(9)
4.4	Form of stock certificate for common stock.*
4.5	Form of Initial Fixed Rate Security.(2)
4.6	Form of Initial Floating Rate Security.(2)
4.7	Form of Exchange Fixed Rate Security.(2)
4.8	Form of Exchange Floating Rate Security.(2)
4.9	Form of 144A Senior Subordinated Note due 2010.(3)
4.10	Form of Regulation S Senior Subordinated Note due 2010.(3)
4.11	Form of Initial Senior Note due 2010.(9)
4.12	Form of Exchange Senior Note due 2010.(9)
4.13	Form of Series A Preferred Stock Certificate of FairPoint.(8)
5.1	Opinion of Paul, Hastings, Janofsky & Walker LLP regarding legality.*
8.1	Opinion of Paul Hastings, Janofsky & Walker LLP regarding tax matters.*
10.1	Form of Credit Agreement, among FairPoint, various lending institutions and Deutsche Bank Trust Company Americas.*
10.2	Amended and Restated Credit Agreement, dated as of March 30, 1998 and amended and restated as of March 6, 2003, among FairPoint, various lending institutions, Bank of America, N.A., Wachovia Bank, N.A. and Deutsche Bank Trust Company Americas.(9)
10.3	First Amendment to Credit Agreement, dated as of December 17, 2003, among FairPoint, various lending institutions, Bank of America, N.A., Wachovia Bank, N.A. and Deutsche Bank Trust Company Americas.(12)
10.4	Amended and Restated Subsidiary Guaranty, dated as of March 6, 2003, by FairPoint Broadband, Inc., MJD Ventures, Inc., MJD Services Corp. and ST Enterprises Ltd.(9)

II-3

10.5	Amended and Restated Pledge Agreement, dated as of March 6, 2003, by Carrier Services, ST Enterprises, Ltd., FairPoint Broadband, Inc., MJD Services Corp., MJD Ventures, Inc., C-R Communications, Inc., Ravenswood Communications, Inc. and Utilities Inc.(9)
10.6	Amended and Restated Preferred Stock Issuance and Capital Contribution Agreement, dated as of May 10, 2002, among FairPoint, Wachovia Bank, National Association and various lending institutions.(8)
10.7	Amended and Restated Tax Sharing Agreement, dated November 9, 2000, by and among FairPoint and its Subsidiaries.(4)
10.8	Form of A Term Note.(9)
10.9	Form of C Term Note Floating Rate.(9)
10.10	Form of C Term Note Fixed Rate.(9)
10.11	Form of RF Note.(9)
10.12	Form of Nominating Agreement.*
10.13	Stockholders' Agreement, dated as of January 20, 2000.(1)
10.14	Registration Rights Agreement, dated as of January 20, 2000.(1)
10.15	Form of Affiliate Registration Rights Agreement.*
10.16	Form of Amendment No. 1 to Registration Rights Agreement.*
10.17	Management Services Agreement, dated as of January 20, 2000, by and between FairPoint and THL Equity Advisors IV, LLC.(1)
10.18	Form of Termination Agreement, by and between FairPoint and THL Equity Advisors IV, LLC.*
10.19	Amended and Restated Financial Advisory Agreement, dated as of January 20, 2000, by and between FairPoint and Kelso & Company, L.P.(1)
10.20	Form of Termination Agreement, by and between FairPoint and Kelso & Company, L.P.*
10.21	Non-Competition, Non-Solicitation and Non-Disclosure Agreement, dated as of January 20, 2000, by and between FairPoint and JED Communications Associates, Inc.(1)
10.22	Non-Competition, Non-Solicitation and Non-Disclosure Agreement, dated as of January 20, 2000, by and between FairPoint and Daniel G. Bergstein.(1)
10.23	Non-Competition, Non-Solicitation and Non-Disclosure Agreement, dated as of January 20, 2000, by and between FairPoint and Meyer Haberman.(1)
10.24	Agreement, dated as of October 1, 2004, by and between FairPoint and John P. Duda.***
10.25	Employment Agreement, dated as of January 20, 2000, by and between FairPoint and Walter E. Leach, Jr.(1)
10.26	Letter Agreement, dated as of December 15, 2003, by and between FairPoint and Walter E. Leach, Jr.(12)
10.27	Letter Agreement, dated as of November 11, 2002, by and between FairPoint and Peter G. Nixon.(9)
10.28	Letter Agreement, dated as of October 25, 2004, by and between FairPoint and Valeri A. Marks.***

II-4

10.29	Letter Agreement, dated as of November 13, 2002, by and between FairPoint and Shirley J. Linn.(9)
10.30	Institutional Stockholders Agreement, dated as of January 20, 2000, by and among FairPoint and the other parties thereto.(1)
10.31	FairPoint 1995 Stock Option Plan.(3)
10.32	FairPoint Amended and Restated 1998 Stock Incentive Plan.(3)
10.33	FairPoint Amended and Restated 2000 Employee Stock Incentive Plan.(12)
10.34	Form of FairPoint 2005 Stock Incentive Plan.*
10.35	Form of FairPoint Annual Incentive Plan.*
10.36	Form of Restricted Stock Agreement.*
10.37	Employment Agreement, dated as of December 31, 2002, by and between FairPoint and Eugene B. Johnson.(9)
10.38	Letter Agreement, dated as of October 1, 2004, by and between FairPoint and Eugene B. Johnson.***
10.39	Succession Agreement, dated as of December 31, 2001, by and between FairPoint and Jack H. Thomas.(7)
10.40	Letter Agreement, dated as of December 15, 2003, by and between FairPoint and Jack H. Thomas.(12)
10.41	Letter Agreement, dated as of October 1, 2004, by and between FairPoint and Jack H. Thomas.***
21.1	Subsidiaries of FairPoint.*
23.1	Consent of KPMG LLP.*
23.2	Consent of Deloitte & Touche LLP.*
23.3	Consent of Kiesling Associates LLP.*
23.4	Consent of Paul, Hastings, Janofsky & Walker LLP (included in exhibit 5.1).*
23.5	Consent of Patricia Garrison-Corbin to be named as a director nominee.*
23.6	Consent of David L. Hauser to be named as a director nominee.*
23.7	Consent of Claude C. Lilly to be named as a director nominee.*

*

Filed herewith.

**

To be filed by amendment.

***

Previously filed.

(1)

Incorporated by reference to the annual report of FairPoint for the year ended 1999, filed on Form 10-K.

(2)

Incorporated by reference to the registration statement on Form S-4 of FairPoint, declared effective as of October 1, 1998.

(3)

Incorporated by reference to the registration statement on Form S-4 of FairPoint, declared effective as of August 9, 2000.

(4)

Incorporated by reference to the quarterly report of FairPoint for the period ended September 30, 2000, filed on Form 10-Q.

(5)

Incorporated by reference to the quarterly report of FairPoint for the period ended June 30, 2001, filed on Form 10-Q.

(6)

Incorporated by reference to the current report on Form 8-K, filed on November 18, 2001.

(7)

Incorporated by reference to the annual report of FairPoint for the year ended 2001, filed on Form 10-K.

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(8)

Incorporated by reference to the quarterly report of FairPoint for the period ended March 31, 2002, filed on Form 10-Q.

(9)

Incorporated by reference to the annual report of FairPoint for the year ended 2002, filed on Form 10-K.

(10)

Incorporated by reference to the quarterly report of FairPoint for the period ended March 31, 2003, filed on Form 10-Q.

(11)

Incorporated by reference to the registration statement on Form S-4 of FairPoint, declared effective as of July 22, 2003.

(12)

Incorporated by reference to the annual report of FairPoint for the year ended 2003, filed on Form 10-K.

(13)

Incorporated by reference to the quarterly report of FairPoint for the period ended June 30, 2004.

Item 17. Undertakings

        1.    The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        2.    Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

        3.    The undersigned registrant hereby undertakes that:

        (1)    For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.

        (2)    For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-6

FAIRPOINT COMMUNICATIONS, INC.

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 9 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Charlotte, North Carolina, on the 31^st day of January, 2005.

FAIRPOINT COMMUNICATIONS, INC.
By:	/s/  EUGENE B. JOHNSON Eugene B. Johnson Chairman of the Board of Directors and Chief     Executive Officer (Principal Executive Officer)

        Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 9 to Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/  WALTER E. LEACH, JR. Walter E. Leach, Jr.	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	January 31, 2005
/s/  LISA R. HOOD Lisa R. Hood	Senior Vice President and Controller (Principal Accounting Officer)	January 31, 2005
/s/  DANIEL G. BERGSTEIN Daniel G. Bergstein	Director	January 31, 2005
/s/  FRANK K. BYNUM, JR. Frank K. Bynum, Jr.	Director	January 31, 2005
/s/  ANTHONY J. DINOVI Anthony J. DiNovi	Director	January 31, 2005
/s/  GEORGE E. MATELICH George E. Matelich	Director	January 31, 2005
/s/  KENT R. WELDON Kent R. Weldon	Director	January 31, 2005

S-1

Exhibits Index

Exhibit No.	Description
1.1	Form of Underwriting Agreement, by and among FairPoint and Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Banc of America Securities LLC, Deutsche Bank Securities Inc., Credit Suisse First Boston LLC and Wachovia Capital Markets, LLC, as representatives of the underwriters named therein.*
2.1	Stock Purchase Agreement, dated as of January 4, 2000, by and among FairPoint, Thomas H. Lee Equity IV, L.P., Kelso Investment Associates V, L.P., Kelso Equity Partners V, L.P., Carousel Capital Partners, L.P. and certain other signatories thereto.(1)
2.2	Stock Purchase Agreement, dated as of April 18, 2003 and as amended June 20, 2003, by and among FairPoint, Community Service Communications, Inc., Community Service Telephone Co. and Commtel Communications, Inc.(11)
2.3	Stock Purchase Agreement, dated as of May 9, 2003, by and among Golden West Telephone Properties, Inc., MJD Services Corp., Union Telephone Company of Hartford, Armour Independent Telephone Co., WMW Cable TV Co. and Kadoka Telephone Co.(10)
2.4	Agreement and Plan of Merger, dated as of June 18, 2003, by and among FairPoint, MJD Ventures, Inc., FairPoint Berkshire Corporation and Berkshire Telephone Corporation.(11)
3.1	Seventh Amended and Restated Certificate of Incorporation of FairPoint.(8)
3.2	Certificate of Amendment to Seventh Amended and Restated Certificate of Incorporation of FairPoint.*
3.3	Form of Eighth Amended and Restated Certificate of Incorporation of FairPoint.*
3.4	By-Laws of FairPoint.(3)
3.5	Form of Amended and Restated By-Laws of FairPoint.*
3.6	Certificate of Designation of Series A Preferred Stock of FairPoint.(8)
4.1	Indenture, dated as of May 5, 1998, between FairPoint and United States Trust Company of New York, relating to FairPoint's $125,000,000 91/2% Senior Subordinated Notes due 2008 and $75,000,000 Floating Rate Callable Securities due 2008.(2)
4.2	Indenture, dated as of May 24, 2000, between FairPoint and United States Trust Company of New York, relating to FairPoint's $200,000,000 121/2% Senior Subordinated Notes due 2010.(3)
4.3	Indenture, dated as of March 6, 2003, between FairPoint and The Bank of New York, relating to Fairpoint's $225,000,000 117/8% Senior Notes due 2010.(9)
4.4	Form of stock certificate for common stock.*
4.5	Form of Initial Fixed Rate Security.(2)
4.6	Form of Initial Floating Rate Security.(2)
4.7	Form of Exchange Fixed Rate Security.(2)
4.8	Form of Exchange Floating Rate Security.(2)
4.9	Form of 144A Senior Subordinated Note due 2010.(3)
4.10	Form of Regulation S Senior Subordinated Note due 2010.(3)
4.11	Form of Initial Senior Note due 2010.(9)
4.12	Form of Exchange Senior Note due 2010.(9)
4.13	Form of Series A Preferred Stock Certificate of FairPoint.(8)
5.1	Opinion of Paul, Hastings, Janofsky & Walker LLP regarding legality.*

8.1	Opinion of Paul Hastings, Janofsky & Walker LLP regarding tax matters.*
10.1	Form of Credit Agreement, among FairPoint, various lending institutions and Deutsche Bank Trust Company Americas.*
10.2	Amended and Restated Credit Agreement, dated as of March 30, 1998 and amended and restated as of March 6, 2003, among FairPoint, various lending institutions, Bank of America, N.A., Wachovia Bank, N.A. and Deutsche Bank Trust Company Americas.(9)
10.3	First Amendment to Credit Agreement, dated as of December 17, 2003, among FairPoint, various lending institutions, Bank of America, N.A., Wachovia Bank, N.A. and Deutsche Bank Trust Company Americas.(12)
10.4	Amended and Restated Subsidiary Guaranty, dated as of March 6, 2003, by FairPoint Broadband, Inc., MJD Ventures, Inc., MJD Services Corp. and ST Enterprises Ltd.(9)
10.5	Amended and Restated Pledge Agreement, dated as of March 6, 2003, by Carrier Services, ST Enterprises, Ltd., FairPoint Broadband, Inc., MJD Services Corp., MJD Ventures, Inc., C-R Communications, Inc., Ravenswood Communications, Inc. and Utilities Inc.(9)
10.6	Amended and Restated Preferred Stock Issuance and Capital Contribution Agreement, dated as of May 10, 2002, among FairPoint, Wachovia Bank, National Association and various lending institutions.(8)
10.7	Amended and Restated Tax Sharing Agreement, dated November 9, 2000, by and among FairPoint and its Subsidiaries.(4)
10.8	Form of A Term Note.(9)
10.9	Form of C Term Note Floating Rate.(9)
10.10	Form of C Term Note Fixed Rate.(9)
10.11	Form of RF Note.(9)
10.12	Form of Nominating Agreement.*
10.13	Stockholders' Agreement, dated as of January 20, 2000.(1)
10.14	Registration Rights Agreement, dated as of January 20, 2000.(1)
10.15	Form of Affiliate Registration Rights Agreement.*
10.16	Form of Amendment No. 1 to Registration Rights Agreement.*
10.17	Management Services Agreement, dated as of January 20, 2000, by and between FairPoint and THL Equity Advisors IV, LLC.(1)
10.18	Form of Termination Agreement, by and between FairPoint and THL Equity Advisors IV, LLC.*
10.19	Amended and Restated Financial Advisory Agreement, dated as of January 20, 2000, by and between FairPoint and Kelso & Company, L.P.(1)
10.20	Form of Termination Agreement, by and between FairPoint and Kelso & Company, L.P.*
10.21	Non-Competition, Non-Solicitation and Non-Disclosure Agreement, dated as of January 20, 2000, by and between FairPoint and JED Communications Associates, Inc.(1)
10.22	Non-Competition, Non-Solicitation and Non-Disclosure Agreement, dated as of January 20, 2000, by and between FairPoint and Daniel G. Bergstein.(1)
10.23	Non-Competition, Non-Solicitation and Non-Disclosure Agreement, dated as of January 20, 2000, by and between FairPoint and Meyer Haberman.(1)
10.24	Agreement, dated as of October 1, 2004 by and between FairPoint and John P. Duda.***

10.25	Employment Agreement, dated as of January 20, 2000, by and between FairPoint and Walter E. Leach, Jr.(1)
10.26	Letter Agreement, dated as of December 15, 2003, by and between FairPoint and Walter E. Leach, Jr.(12)
10.27	Letter Agreement, dated as of November 11, 2002, by and between FairPoint and Peter G. Nixon.(9)
10.28	Letter Agreement, dated as of October 25, 2004, by and between FairPoint and Valeri A. Marks.***
10.29	Letter Agreement, dated as of November 13, 2002, by and between FairPoint and Shirley J. Linn.(9)
10.30	Institutional Stockholders Agreement, dated as of January 20, 2000, by and among FairPoint and the other parties thereto.(1)
10.31	FairPoint 1995 Stock Option Plan.(3)
10.32	FairPoint Amended and Restated 1998 Stock Incentive Plan.(3)
10.33	FairPoint Amended and Restated 2000 Employee Stock Incentive Plan.(12)
10.34	Form of FairPoint 2005 Stock Incentive Plan.*
10.35	Form of FairPoint Annual Incentive Plan.*
10.36	Form of Restricted Stock Agreement.*
10.37	Employment Agreement, dated as of December 31, 2002, by and between FairPoint and Eugene B. Johnson.(9)
10.38	Letter Agreement, dated as of October 1, 2004, by and between FairPoint and Eugene B. Johnson.***
10.39	Succession Agreement, dated as of December 31, 2001, by and between FairPoint and Jack H. Thomas.(7)
10.40	Letter Agreement, dated as of December 15, 2003, by and between FairPoint and Jack H. Thomas.(12)
10.41	Letter Agreement, dated as of October 1, 2004, by and between FairPoint and Jack H. Thomas.***
21.1	Subsidiaries of FairPoint.*
23.1	Consent of KPMG LLP.*
23.2	Consent of Deloitte & Touche LLP.*
23.3	Consent of Kiesling Associates LLP.*
23.4	Consent of Paul, Hastings, Janofsky & Walker LLP (included in exhibit 5.1).*
23.5	Consent of Patricia Garrison-Corbin to be named as a director nominee.*
23.6	Consent of David L. Hauser to be named as a director nominee.*
23.7	Consent of Claude C. Lilly to be named as a director nominee.*

*

Filed herewith.

**

To be filed by amendment.

***

Previously filed.

(1)

Incorporated by reference to the annual report of FairPoint for the year ended 1999, filed on Form 10-K.

(2)

Incorporated by reference to the registration statement on Form S-4 of FairPoint, declared effective as of October 1, 1998.

(3)

Incorporated by reference to the registration statement on Form S-4 of FairPoint, declared effective as of August 9, 2000.

(4)

Incorporated by reference to the quarterly report of FairPoint for the period ended September 30, 2000, filed on Form 10-Q.

(5)

Incorporated by reference to the quarterly report of FairPoint for the period ended June 30, 2001, filed on Form 10-Q.

(6)

Incorporated by reference to the current report on Form 8-K, filed on November 18, 2001.

(7)

Incorporated by reference to the annual report of FairPoint for the year ended 2001, filed on Form 10-K.

(8)

Incorporated by reference to the quarterly report of FairPoint for the period ended March 31, 2002, filed on Form 10-Q.

(9)

Incorporated by reference to the annual report of FairPoint for the year ended 2002, filed on Form 10-K.

(10)

Incorporated by reference to the quarterly report of FairPoint for the period ended March 31, 2003, filed on Form 10-Q.

(11)

Incorporated by reference to the registration statement on Form S-4 of FairPoint, declared effective as of July 22, 2003.

(12)

Incorporated by reference to the annual report of FairPoint for the year ended 2003, filed on Form 10-K.

(13)

Incorporated by reference to the quarterly report of FairPoint for the period ended June 30, 2004.

QuickLinks

Table of Contents
Prospectus Summary
Our Company
The Offering
Risk Factors
Summary Historical and Pro Forma Financial Data
Risk Factors
Forward-Looking Statements
Dividend Policy and Restrictions
The Transactions
Use of Proceeds
Capitalization
Dilution
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Business
Regulation
Management
Summary Compensation Table
Certain Relationships and Related Party Transactions
Principal and Selling Stockholders
Shares Eligible For Future Sales
Description of Certain Indebtedness
Description of Capital Stock
Certain United States Federal Tax Considerations
Underwriters
Legal Matters
Experts
Where You Can Find More Information
Index To Financial Statements
FAIRPOINT COMMUNICATIONS, INC. Financial Statements As of December 31, 2002 and 2003 and September 30, 2004 (unaudited) For the Years Ended December 31, 2001, 2002 and 2003 and the nine-month periods ended September 30, 2003 and 2004 (unaudited)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2002 and 2003 and September 30, 2004 (Amounts in thousands, except per share data)
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31, 2001, 2002, and 2003 and Nine-month periods ended September 30, 2003 and 2004 (Dollars in thousands)
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) Years ended December 31, 2001 2002, and 2003 and Nine-month Periods ended September 30, 2003 and 2004 (Dollars in thousands)
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2001, 2002, and 2003 and Nine-months ended September 30, 2003 and 2004 (Dollars in thousands)
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements
ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP Financial Statements Years Ended December 31, 2003, 2002 and 2001
ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT
ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, 2003 AND 2002 (Dollars in Thousands)
ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Dollars in Thousands)
ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Dollars in Thousands)
ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Dollars in Thousands)
ORANGE COUNTY—POUGHKEEPSIE LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001 (Dollars in Thousands)
RSA 2-I PARTNERSHIP Financial Statements
INDEPENDENT AUDITORS' REPORT
ILLINOIS VALLEY CELLULAR RSA 2-1 PARTNERSHIP BALANCE SHEETS December 31, 2002 and 2001
ILLINOIS VALLEY CELLULAR RSA 2-1 PARTNERSHIP BALANCE SHEETS December 31, 2002 and 2001
ILLINOIS VALLEY CELLULAR RSA 2-I PARTNERSHIP STATEMENTS OF INCOME Years Ended December 31, 2002, 2001 and 2000
ILLINOIS VALLEY CELLULAR RSA 2-I PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL December 31, 2002, 2001, and 2000
ILLINOIS VALLEY CELLULAR RSA 2-I PARTNERSHIP STATEMENTS OF CASH FLOWS Years Ended December 31, 2002, 2001, and 2000
ILLINOIS VALLEY CELLULAR RSA 2-I PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
RSA 2-III PARTNERSHIP Financial Statements
INDEPENDENT AUDITORS' REPORT
ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP BALANCE SHEETS December 31, 2002 and 2001
ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP BALANCE SHEETS December 31, 2002 and 2001
ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP STATEMENTS OF INCOME Years Ended December 31, 2002, 2001, and 2000
ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL December 31, 2002, 2001, and 2000
ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP STATEMENTS OF CASH FLOWS Years Ended December 31, 2002, 2001, and 2000
ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
INDEX TO PRO FORMA FINANCIAL STATEMENTS
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET September 30, 2004 (Unaudited-Amounts in thousands)
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET September 30, 2004 (Unaudited-Amounts in thousands)
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS December 31, 2003 (Unaudited-Amounts in thousands)
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS September 30, 2004 (Unaudited-Amounts in thousands)
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PART II

Item 13. Other Expenses of Issuance and Distribution
Item 14. Indemnification of Directors and Officers
Item 15. Recent Sales of Unregistered Securities
Item 16. Exhibits
Item 17. Undertakings

FAIRPOINT COMMUNICATIONS, INC. SIGNATURES
Exhibits Index

EX-1.1

Exhibit 1.1

• Shares

FAIRPOINT COMMUNICATIONS, INC.

COMMON STOCK, PAR VALUE $0.01 PER SHARE

FORM OF UNDERWRITING AGREEMENT

February •, 2005

February •, 2005

Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Banc of America Securities LLC
Deutsche Bank Securities Inc.
Credit Suisse First Boston LLC
Wachovia Capital Markets, LLC
c/o	Morgan Stanley & Co. Incorporated
	1585 Broadway
	New York, New York 10036

Dear Sirs and Mesdames:

FairPoint Communications, Inc., a Delaware corporation (the “Company”), proposes to issue and sell to the several Underwriters named in Schedule II hereto (the “Underwriters”) an aggregate of • shares of the common stock, par value $0.01 per share, of the Company (the “Firm Shares”).  The shareholders of the Company (the “Selling Shareholders”) named in Schedule I hereto severally propose to sell to the several Underwriters not more than an additional •shares of the common stock, par value $0.01 per share, of the Company (the “Additional Shares”) if and to the extent that you, as managers of the offering, shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of common stock granted to the Underwriters in Section 3 hereof, each Selling Shareholder selling not more than the amount of Additional Shares set forth opposite such Selling Shareholder’s name in Schedule I hereto.  The Firm Shares and the Additional Shares are hereinafter collectively referred to as the “Shares.”  The shares of common stock, par value $0.01 per share, of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the “Common Stock.” The Company and the Selling Shareholders are hereinafter sometimes collectively referred to as the “Sellers.”

The Company has filed with the Securities and Exchange Commission (the “Commission”) a registration statement, including a prospectus, relating to the Shares.  The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the

“Securities Act”), is hereinafter referred to as the “Registration Statement”; the preliminary prospectus filed as part of Amendment No. 8 to the Registration Statement or any preliminary prospectus filed as part of any subsequent amendment thereto, or filed pursuant to Rule 424 under the Securities Act, is hereinafter referred to as a “Preliminary Prospectus”; and the prospectus, dated the date hereof, in the form first used to confirm sales of Shares is hereinafter referred to as the “Prospectus.”  If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the “Rule 462 Registration Statement”), then any reference herein to the term “Registration Statement” shall be deemed to include such Rule 462 Registration Statement.

In connection with the execution and delivery of this Agreement and the sale of the Shares hereunder, prior to or as of the Closing Date (as hereinafter defined), (i) a 5.2773714 for 1 reverse stock split of the Company’s shares of class A and class C common stock has been effected; (ii) the Company’s certificate of incorporation and by-laws will be amended and restated (collectively, the “Amended and Restated Charter Documents”) and the Company will file the amended and restated certificate of incorporation with the Secretary of State of the State of Delaware; (iii) the Company’s shares of class C common stock will be converted on a one-for-one basis into shares of the Company’s class A common stock and the shares of class A common stock will be reclassified into shares of the Common Stock; (iv) 473,716 shares of restricted stock to be awarded under the Company’s 2005 stock incentive plan will be issued; (v) the Company will enter into a new senior secured $690 million credit facility (the “New Credit Facility”) consisting of a revolving facility in an aggregate principal amount of up to $100.0 million and a term facility in an aggregate principal amount of $590 million; (vi) the Company will repay in full all outstanding loans under the Company’s existing credit facility, all of the outstanding long-term debt of the Company’s Subsidiaries (as defined below), and a $7.0 million unsecured promissory note issued by the Company in connection with a past acquisition; (vii) the Company will consummate tender offers and consent solicitations (the “Tender Offers and Consent Solicitations”) for the Company’s 9½% senior subordinated notes due 2008, the Company’s floating rate callable securities due 2008, the Company’s 12½% senior subordinated notes due 2010, and the Company’s 11⁷/₈% senior notes due 2010; (viii) the Company will repurchase all of its series A preferred stock (together with accrued and unpaid dividends thereon) from the holders thereof; and (ix) the Company will pay fees and expenses, including a transaction fee of approximately $8.4 million to Kelso & Company (the foregoing transactions, collectively, the “Transactions”).  The terms “Subsidiary” or “Subsidiaries” as used in this Agreement shall mean the entities listed on Schedule IV hereto.

1.Representations and Warranties of the Company.  The Company represents and warrants to and agrees with each of the Underwriters that:

2

(a)  The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the Company’s knowledge, threatened by the Commission.

(b)  (i)  The Registration Statement, on the date it became effective, did not contain and, as amended or supplemented, if applicable, as of the date of such amendment or supplement, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement, on the date the Registration Statement became effective, and the Prospectus comply and, as amended or supplemented, if applicable, as of the date of such amendment or supplement, will comply in all material respects with the applicable requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder and (iii) the Prospectus does not contain and, as amended or supplemented, if applicable, as of the date of such amendment or supplement, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement or the Prospectus, or any amendment thereof or supplement thereto, based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.

(c)  The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing could not reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole (a “Material Adverse Effect”).

(d)  Each Subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except for such jurisdictions where the failure to be so qualified or

3

be in good standing could not reasonably be expected to have a Material Adverse Effect; all of the issued shares of capital stock of each Subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company (other than two (2) shares of common stock of Sunflower Telephone Company, Inc.), free and clear of all liens, encumbrances, equities or claims, except as described in the Prospectus and except for the shares of capital stock of certain Subsidiaries that are pledged as security under the Company’s Amended and Restated Credit Agreement, dated as of March 6, 2003, as amended.

(e)  This Agreement has been duly authorized, executed and delivered by the Company.

(f)  Upon the filing or adoption, as applicable, of the Amended and Restated Charter Documents, the authorized capital stock of the Company will conform as to legal matters in all material respects to the description thereof contained in the Prospectus.

(g)  The shares of Common Stock (including the Additional Shares to be sold by the Selling Shareholders) outstanding prior to the issuance of the Firm Shares to be sold by the Company have been duly authorized and are validly issued, fully paid and non-assessable.

(h)  The Firm Shares to be sold by the Company to the Underwriters have been duly authorized and, when duly executed, issued, delivered and paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the sale of such Firm Shares to the Underwriters will not be subject to any preemptive or similar rights.

(i)  The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement and the consummation of the Transactions will not contravene any provision of (i) applicable law; (ii) the Amended and Restated Charter Documents; (iii) any agreement or other instrument binding upon the Company or any of its Subsidiaries; or (iv) any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any Subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement or the consummation of the Transactions (except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares) except with respect to clause (iii) or (iv) as could not reasonably be expected to have a Material Adverse Effect.

4

(j)  There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its Subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement).

(k)  There are no legal or governmental proceedings pending or, to the Company’s knowledge, threatened to which the Company or any of its Subsidiaries is a party or to which any of the properties of the Company or any of its Subsidiaries is subject that are required by the Securities Act and the rules thereunder to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required.

(l)  Each Preliminary Prospectus when filed as part of the Registration Statement, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the applicable requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder.

(m)  The Company is not, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus will not be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

(n)  The Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except with respect to clauses (i), (ii) and (iii) above where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals could not reasonably be expected to have a Material Adverse Effect.

(o)  There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any

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permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(p)  Except as described in the Prospectus there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement.

(q)  Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) the Company and its Subsidiaries have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction not in the ordinary course of business; (ii) the Company has not purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock other than ordinary and customary dividends; and (iii) there has not been any material change in the capital stock, short-term debt or long-term debt of the Company and its Subsidiaries, except in each case as described in the Prospectus.

(r)  The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries; and any real property and buildings held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries, in each case except as described in the Prospectus.

(s)  The Company and its Subsidiaries own or possess, or can acquire on reasonable terms, all material patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names currently employed by them in connection with the business now operated by them, and neither the Company nor any of its Subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing which, singly or in

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the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a Material Adverse Effect.

(t)  No material labor dispute with the employees of the Company or any of its Subsidiaries exists, except as described in the Prospectus, or, to the knowledge of the Company, is imminent; and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that could reasonably be expected to have a Material Adverse Effect.

(u)  The Company and its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; neither the Company nor any of its Subsidiaries has been refused any insurance coverage sought or applied for; and neither the Company nor any of its Subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that could not reasonably be expected to have a Material Adverse Effect, except as described in the Prospectus.

(v)  The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a Material Adverse Effect, except as described in the Prospectus.

(w)  The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(x)  The historical financial statements of the Company and its consolidated Subsidiaries (including all notes and schedules thereto) included in

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the Registration Statement and Prospectus present fairly in all material respects the financial position of the Company and its consolidated Subsidiaries at the respective dates indicated; and such financial statements and related schedules and notes thereto, and the unaudited financial information filed with the Commission as part of the Registration Statement, have been prepared in conformity with generally accepted accounting principles in the United States (“US GAAP”), consistently applied throughout the periods involved (except as otherwise noted therein or, in the case of the interim statements, normal year-end adjustments).  The summary and selected financial data included in the Prospectus present fairly in all material respects, on the basis stated therein, the information shown therein as at the respective dates and for the respective periods specified and have been presented on a basis consistent with the consolidated financial statements set forth in the Prospectus.  The pro forma financial statements and the related notes thereto included in the Registration Statement and the Prospectus present fairly in all material respects the information shown therein, have been prepared in accordance with the Commission’s rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions referred to therein.

(y)  KPMG LLP, whose report is filed with the Commission as a part of the Registration Statement, is and, during the periods covered by their reports, was an independent public accountant as required by the Securities Act and the published rules and regulations thereunder adopted by the Commission.

(z)  The statistical and market and industry-related data included in the Registration Statement and the Prospectus are based on or derived from sources that the Company reasonably believes to be reliable and accurate.

(aa)  Except as could not reasonably be expected to have a Material Adverse Effect, the Company and each of its Subsidiaries has filed all Federal, state, local and foreign tax returns which are required to be filed through the date hereof, which returns are true and correct in all material respects or has received timely extensions thereof, and has paid all taxes shown on such returns and all assessments received by it to the extent that the same are material and have become due.  There are no tax audits or investigations pending, which if adversely determined could reasonably be expected to have a Material Adverse Effect; nor are there any proposed additional tax assessments against the Company or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect.

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(bb)  Neither the Company nor, to the knowledge of the Company, any other person associated with or acting on behalf of the Company including, without limitation, any director, officer, agent or employee of the Company or its Subsidiaries, has, directly or indirectly, while acting on behalf of the Company or its Subsidiaries (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; or (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(cc)  The Company is in compliance in all material respects with all provisions of the Sarbanes-Oxley Act of 2002 that are effective and applicable to the Company as of the date hereof.

(dd)  The forward-looking statements contained under the caption “Dividend Policy and Restrictions” in the Prospectus represent the Company’s good faith estimates of its future performance, results and liquidity and are based upon the Company’s assessment and analysis of all material factors it deems relevant and the application of assumptions which it deems reasonable after due and proper consideration of relevant facts.

(ee)  A registration statement with respect to the Common Stock has been filed on Form 8-A pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which registration statement complies in all material respects with the applicable requirements of the Exchange Act.

2.Representations and Warranties of the Selling Shareholders.  Each Selling Shareholder severally as to itself represents and warrants to and agrees with each of the Underwriters that:

(a)  This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder.

(b)  The execution and delivery by such Selling Shareholder of, and the performance by such Selling Shareholder of its obligations under, this Agreement, the Custody Agreement and Power of Attorney signed by such Selling Shareholder and The Bank of New York, as Custodian, relating to the deposit of the Shares to be sold by such Selling Shareholder and appointing certain individuals as such Selling Shareholder’s attorneys-in-fact to the extent set forth therein, relating to the transactions contemplated hereby and by the Registration Statement (the “Custody Agreement and Power of Attorney”) will not contravene any provision of applicable law, or the certificate of incorporation or by-laws of

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such Selling Shareholder (if such Selling Shareholder is a corporation), or any agreement or other instrument binding upon such Selling Shareholder or any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Shareholder, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by such Selling Shareholder of its obligations under this Agreement or the Custody Agreement and Power of Attorney of such Selling Shareholder, except such as may be required by the federal securities laws of the United States or the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares.

(c)  Such Selling Shareholder has, and on the Closing Date will have, valid title to, or a valid “security entitlement” within the meaning of Section 8-102(a)(17) of the New York Uniform Commercial Code in respect of, the Shares to be sold by such Selling Shareholder free and clear of all security interests, adverse claims and liens and the legal right and power, and all authorization and approval required by law, to enter into this Agreement and the Custody Agreement and Power of Attorney and to sell, transfer and deliver the Shares to be sold by such Selling Shareholder or a security entitlement in respect of such Shares.

(d)  The Custody Agreement and Power of Attorney has been duly authorized, executed and delivered by such Selling Shareholder and is the valid and binding agreement of such Selling Shareholder.

(e)  Upon payment for the Shares to be sold by such Selling Shareholder pursuant to this Agreement, delivery of such Shares, as directed by the Underwriters, to Cede & Co. (“Cede”) or such other nominee as may be designated by the Depository Trust Company (“DTC”), registration of such Shares in the name of Cede or such other nominee and the crediting of such Shares on the books of DTC to securities accounts of the Underwriters (assuming that neither DTC nor any such Underwriter has notice of any adverse claim (within the meaning of Section 8-105 of the New York Uniform Commercial Code (the “UCC”)) to such Shares), (A) DTC shall be a “protected purchaser” of such Shares within the meaning of Section 8-303 of the UCC, (B) under Section 8-501 of the UCC, the Underwriters will acquire a valid security entitlement in respect of such Shares and (C) no action based on any “adverse claim”, within the meaning of Section 8-102(a)(1) of the UCC, to such Shares may be asserted against the Underwriters with respect to such security entitlement; for purposes of this representation, such Selling Shareholder may assume that when such payment, delivery and crediting occur, (x) such Shares will have been registered in the name of Cede or another nominee designated by DTC, in each case on the Company’s share registry in accordance with its certificate of incorporation,

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bylaws and applicable law, (y) DTC will be registered as a “clearing corporation” within the meaning of Section 8-102(a)(5) of the UCC and (z) appropriate entries to the accounts of the several Underwriters on the records of DTC will have been made pursuant to the UCC.

(f)  Such Selling Shareholder is not prompted by any information concerning the Company or its Subsidiaries which is not set forth in the Prospectus to sell its Shares pursuant to this Agreement.

(g)  (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (ii) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the representations and warranties set forth in this paragraph 2(g) are limited to statements or omissions made in reliance upon information relating to such Selling Shareholder furnished to the Company in writing by such Selling Shareholder expressly for use in the Registration Statement, the Prospectus or any amendments or supplements thereto.  For the avoidance of doubt, the Underwriters acknowledge and agree that for all purposes of this Agreement, the only information furnished to the Company by or on behalf of the Selling Shareholders expressly for use in the Registration Statement or the Prospectus or any amendment or supplement thereto are the statements pertaining to the number of shares owned and the number of shares proposed to be sold by such Selling Shareholders under the caption “Principal and Selling Shareholders.”

3.Agreements to Sell and Purchase.  The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company at $• a share (the “Purchase Price”) the number of Firm Shares (subject to such adjustments to eliminate fractional shares as you may determine) set forth in Schedule II hereto opposite the name of such Underwriter.

On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Selling Shareholders agree to sell to the Underwriters the Additional Shares, and the Underwriters shall have the right to purchase, severally and not jointly, up to • Additional Shares at the Purchase Price.  You may exercise this right on behalf of the Underwriters in whole or from time to time in part by giving written notice to the Company of each election to exercise the option not

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later than 30 days after the date of this Agreement.  Any exercise notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased.  Each purchase date must be at least one business day after the written notice is given and may not be earlier than the closing date for the Firm Shares nor later than ten business days after the date of such notice.  Additional Shares may be purchased as provided in Section 5 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares.  On each day, if any, that Additional Shares are to be purchased (an “Option Closing Date”), each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased on such Option Closing Date as the number of Firm Shares set forth in Schedule II hereto opposite the name of such Underwriter bears to the total number of Firm Shares.  If you on behalf of the Underwriters elect to exercise less than the full amount of the over-allotment option at any time, the number of Additional Shares that you on behalf of the Underwriters shall purchase from each of the Selling Shareholders shall be determined as follows: (A) the first • Additional Shares to be purchased hereunder (in connection with such election and all prior elections, if any, hereunder, in the aggregate) shall be purchased on a pro rata basis from Kelso Investment Associates V, L.P., Kelso Equity Partners V, L.P., Magnetite Asset Investors LLC and CoInvestment I, LLC in accordance with the percentage of Additional Shares of such Selling Shareholder set forth on Schedule I hereto relative to the aggregate number of Additional Shares proposed to be sold hereunder by such Selling Shareholders (subject to such adjustments to eliminate fractional shares as you may determine), and (B) any remaining • Additional Shares to be purchased hereunder shall be purchased on a pro rata basis from JED Communications Associates, Inc., the Haberman Sellers (as defined below) and Jack H. Thomas in accordance with the percentage of Additional Shares of such Selling Shareholder or the Haberman Sellers (considered in the aggregate), as the case may be, set forth on Schedule I hereto relative to the aggregate number of Additional Shares proposed to be sold hereunder by JED Communications Associates, Inc., the Haberman Sellers and Jack H. Thomas (subject to such adjustments to eliminate fractional shares as you may determine), as hereinafter further provided in the case of the Haberman Sellers.  In the case of any purchase of Additional Shares from the Haberman Sellers in accordance with the foregoing clause (B), the number of Additional Shares that you on behalf of the Underwriters shall purchase from the Haberman Sellers shall be determined as follows: (i) the first • Additional Shares shall be purchased from Haberman Family Investments LLC, and (ii) any remaining • Additional Shares shall be purchased on a pro rata basis from Meyer Haberman and Susan Haberman in accordance with the percentage of Additional Shares of such Selling Shareholder set forth on Schedule I hereto relative to the aggregate number of Additional Shares proposed to be sold hereunder by Meyer Haberman and Susan Haberman (subject to such adjustments to eliminate fractional

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shares as you may determine).  The term “Haberman Sellers” means Haberman Family Investments LLC, Meyer Haberman and Susan Haberman, collectively.

Each Seller hereby agrees that, without the prior written consent of each of you on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, or file any registration statement with the Commission relating to the offering of, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise.  Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs; or (2) prior to the expiration of the 180-day restricted period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions imposed by this paragraph shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

The restrictions contained in the preceding paragraph shall not apply to (A) the Shares to be sold hereunder, (B) the issuance by the Company of shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and described in the Prospectus, (C) transactions by any person other than the Company relating to shares of Common Stock or other securities acquired in open market transactions after the completion of the offering of the Shares, provided that no filing by any party under the Exchange Act shall be required or shall be voluntarily made in connection with subsequent sales of Common Stock or other securities acquired in such open market transactions, (D) grants by the Company of options to purchase shares of Common Stock pursuant to employee or management stock option, incentive or other plans or arrangements described in the Prospectus, (E) the issuance, offer or sale by the Company of shares of Common Stock pursuant to employee or management stock option, incentive or other plans or arrangements described in the Prospectus and the filing by the Company of any registration statement on Form S-8 in connection therewith, (F) transfers of shares of Common Stock or any security convertible into Common Stock as a bona fide gift or gifts, or (G) distributions of shares of Common Stock or any security convertible into Common Stock to members, limited partners or stockholders of the Selling Shareholders, provided that in the case of any transfer or distribution pursuant to clause (F) or (G), each donee or distributee agrees in writing to be bound by the transfer restrictions described above and no filing by any party

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under the Exchange Act shall be required or shall be voluntarily made reporting a reduction in beneficial ownership of shares of Common Stock during the restricted period referred to in the previous paragraph.  In addition, each Selling Shareholder, agrees that, without the prior written consent of each of you on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus, make any demand for, or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock.

4.Terms of Public Offering.  The Sellers are advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable.  The Sellers are further advised by you that the Shares are to be offered to the public initially at $• a share (the “Public Offering Price”) and to certain dealers selected by you at a price that represents a concession not in excess of $• a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of $• a share, to any Underwriter or to certain other dealers.  Each Underwriter severally represents and warrants that in the public offering it will not sell to any person Shares representing greater than 10% of the total number of Shares being offered in the public offering.

5.Payment and Delivery.  Payment for the Firm Shares to be sold by the Company shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on February •, 2005,or at such other time on the same or such other date, not later than February •, 2005, as shall be designated in writing by you.  The time and date of such payment are hereinafter referred to as the “Closing Date.”

Payment for any Additional Shares shall be made to the Selling Shareholders in Federal or other funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the corresponding notice described in Section 3 or at such other time on the same or on such other date, in any event not later than March •, 2005, as shall be designated in writing by you.

The Firm Shares and Additional Shares shall be registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the applicable Option Closing Date, as the case may be.  The Firm Shares and Additional Shares shall be delivered to you on the Closing Date or an Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor.

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6.Conditions to the Underwriters’ Obligations.  The obligations of the Sellers to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than 5:30 p.m. (New York City time) on the date hereof.

The several obligations of the Underwriters are subject to the following further conditions:

(a)  Subsequent to the execution and delivery of this Agreement and prior to the Closing Date:

(i)  there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company’s securities by any “nationally recognized statistical rating organization,” as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; and

(ii)  there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its Subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus.

(b)  The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company, to the effect set forth in Section 6(a)(i) above and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date.

The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened.

(c)  The Underwriters shall have received on the Closing Date an opinion of Paul, Hastings, Janofsky & Walker LLP (“PHJW”), in substantially the form attached hereto as Exhibit B.

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(d)  The Underwriters shall have received on the Closing Date an opinion of Shirley Linn, Esq., the Company’s General Counsel, in substantially the form attached hereto as Exhibit C.

(e)  The Underwriters shall have received on the Closing Date an opinion from each of: (i) James J. Connors II, Esq., counsel for Kelso Investment Associates V, L.P. and Kelso Equity Partners V, L.P., (ii) PHJW, counsel for JED Communications Associates, Inc., Haberman Family Investments LLC, Meyer Haberman, Susan Haberman and Jack H. Thomas, and (iii) Vincent Tritto, Esq., counsel for Magnetite Asset Investors LLC and CoInvestment I, LLC, in substantially the form attached hereto as Exhibit D.

(f)  The Underwriters shall have received on the Closing Date an opinion from each of: (i) Rutledge, Ecenia, Purnell & Hoffman, P.A., special Florida counsel to the Company; (ii) Preti, Flaherty, Beliveau, Pachios & Haley, LLC, Maine regulatory counsel for the Company; (iii) LeBoeuf, Lamb, Greene & MacRae, L.L.P., special New York regulatory counsel for the Company and (iv) Law Office of Richard A. Finnigan, special Washington counsel to the Company, substantially in the forms attached hereto as Exhibit E.

(g)  The Underwriters shall have received on the Closing Date an opinion of Blooston, Mordkofsky, Dickens, Duffy & Prendergast, Federal Communications Commission regulatory counsel for the Company, in substantially the form attached hereto as Exhibit F.

(h)  The Underwriters shall have received on the Closing Date an opinion of Debevoise & Plimpton LLP, counsel for the Underwriters, dated the Closing Date, covering such matters as you may reasonably request.

The opinions described in Sections 6(c), 6(d), 6(e), 6(f) and 6(g) above shall be rendered to the Underwriters at the request of the Company or one or more of the Selling Shareholders, as the case may be, and shall so state therein.

(i)  The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from KPMG LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus; provided that the letter delivered on the Closing Date shall use a “cut-off date” not earlier than the date hereof.

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(j)  The “lock-up” agreements, each substantially in the form of Exhibit A hereto, between you and each of the persons listed on Schedule III hereto relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date.

(k)  Each of Thomas H. Lee Equity Fund and Kelso Investment Associates V, L.P. shall have granted its consent to the issuance by the Company of the Shares and the consummation of the Transactions to the extent required.

(l)  Prior to or as of the Closing Date, the closing of the New Credit Facility shall have occurred.

(m)  At least a majority in aggregate principal amount of the Company’s outstanding: $115.2 million aggregate principal amount of 9½% senior subordinated notes due 2008; $75.0 million aggregate principal amount of floating rate callable securities due 2008; $193.0 million aggregate principal amount of 12½% senior subordinated notes due 2010; and $225 million aggregate principal amount of 11⁷/₈% senior notes due 2010, are validly tendered and not withdrawn in accordance with the Tender Offers and Consent Solicitations.

(n)  The Shares shall have been approved for listing on the NYSE, subject only to official notice of issuance.

The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of such documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares to be sold on such Option Closing Date and other matters related to the issuance of such Additional Shares.

7.Covenants of the Company.  In further consideration of the agreements of the Underwriters herein contained, the Company covenants with each Underwriter as follows:

(a)  To furnish to you, without charge, five signed copies of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and to furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 7(c) below, as many copies of the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request.

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(b)  Before amending or supplementing the Registration Statement or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus relating to the Shares required to be filed pursuant to such Rule.

(c)  If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters the Prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law.

(d)  To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request, provided that in no event shall the Company be obligated to (i) qualify to do business in any jurisdiction where it is not now so qualified, (ii) take any action that would subject it to service of process in suits (other than those suits arising out of the offering or sale of the Shares) in any jurisdiction where it is not now so subject or (iii) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not now so subject.

(e)  To make generally available to the Company’s security holders and to you as soon as practicable an earning statement covering the twelve-month period ending March 31, 2006 that satisfies the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder.

8.Expenses.  Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company agrees to pay or cause to be paid all expenses incident to the performance of the Sellers’ obligations under this Agreement, including:  (i) the fees, disbursements and expenses of the Company’s counsel, the Company’s accountants and counsel for the Selling

18

Shareholders in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Prospectus and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or Legal Investment memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 7(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or Legal Investment memorandum, (iv) all filing fees and the reasonable fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by the National Association of Securities Dealers, Inc., including any counsel fees incurred on behalf of or disbursements by Morgan Stanley & Co. Incorporated (“Morgan Stanley”) in its capacity as “qualified independent underwriter,” (v) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Stock and all costs and expenses incident to listing the Shares on the NYSE, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show, (ix) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section, and (x) all expenses in connection with any offer and sale of the Shares outside of the United States, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with offers and sales outside of the United States.  It is understood, however, that except as provided in this Section, Section 9 entitled “Indemnity and Contribution”, and the last paragraph of Section 11 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make.

The provisions of this Section shall not supersede or otherwise affect any agreement that the Sellers may otherwise have for the allocation of such expenses among themselves.

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9.Indemnity and Contribution.  (a)  The Company agrees to indemnify and hold harmless each Underwriter, each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Underwriter within the meaning of Rule 405 under the Securities Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any Preliminary Prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.

(b)  Each Selling Shareholder agrees, severally and not jointly, to indemnify and hold harmless each Underwriter, each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Underwriter within the meaning of Rule 405 under the Securities Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any Preliminary Prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to such Selling Shareholder furnished in writing by or on behalf of such Selling Shareholder expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto.  For the avoidance of doubt, the Underwriters acknowledge and agree that for all purposes of this Agreement, the only information furnished to the Company by or on behalf of the Selling Shareholders expressly for use in the Registration Statement or the Prospectus or any amendment or supplement thereto are the statements pertaining to the number of shares owned and the number of shares proposed to be sold by such Selling Shareholders under the caption “Principal and Selling Shareholders.”  The liability of each Selling Shareholder under the indemnity agreement contained in this paragraph shall be limited to an amount equal to the aggregate Public Offering Price of the Shares sold by such Selling Shareholder under this Agreement.

20

(c)  Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, the Selling Shareholders, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company or any Selling Shareholder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any Preliminary Prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through you expressly for use in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendments or supplements thereto.

(d)  The Company also agrees to indemnify and hold harmless Morgan Stanley and each person, if any, who controls Morgan Stanley within the meaning of either Section 15 of the Securities Act, or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and judgments incurred as a result of Morgan Stanley’s participation as a “qualified independent underwriter” within the meaning of Rule 2720 of the National Association of Securities Dealers’ Conduct Rules in connection with the offering of the Common Stock, except for any losses, claims, damages, liabilities, and judgments resulting from Morgan Stanley’s, or such controlling person’s, gross negligence or willful misconduct.

(e)  In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 9(a), 9(b), 9(c) or 9(d), such person (the “indemnified party”) shall promptly notify the person against whom such indemnity may be sought (the “indemnifying party”) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding.  In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them.  It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified

21

party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (i) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Underwriters and all persons, if any, who control any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act or who are affiliates of any Underwriter within the meaning of Rule 405 under the Securities Act, (ii) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either such Section and (iii) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Selling Shareholders and all persons, if any, who control any Selling Shareholder within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred.  In the case of any such separate firm for the Underwriters and such control persons and affiliates of any Underwriters, such firm shall be designated in writing by Morgan Stanley.  In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company.  In the case of any such separate firm for the Selling Shareholders and such control persons of any Selling Shareholders, such firm shall be designated in writing by the persons named as attorneys-in-fact for the Selling Shareholders under the Custody Agreements and Powers of Attorney.  Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to Section 9(d) hereof in respect of such action or proceeding, then in addition to such separate firm for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of not more than one separate firm (in addition to any local counsel) for Morgan Stanley in its capacity as a “qualified independent underwriter” and all persons, if any, who control Morgan Stanley within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act.  The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment.  No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding and does not include a statement as to an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

(f)  To the extent the indemnification provided for in Section 9(a), 9(b), 9(c) or 9(d) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims,

22

damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 9(f)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 9(f)(i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations.  The relative benefits received by the Sellers on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by each Seller and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares.  The relative fault of the Sellers on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Sellers or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The Underwriters’ respective obligations to contribute pursuant to this Section 9 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint.  The liability of each Selling Shareholder under the contribution agreement contained in this paragraph shall be limited to an amount equal to the aggregate Public Offering Price of the Shares sold by such Selling Shareholder under this Agreement.

(g)  The Sellers and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 9 were determined by prorata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 9(f).  The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.  Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  The remedies

23

provided for in this Section 9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.

(h)  The indemnity and contribution provisions contained in this Section 9 and the representations, warranties and other statements of the Company and the Selling Shareholders contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter, any person controlling any Underwriter or any affiliate of any Underwriter, any Selling Shareholder or any person controlling any Selling Shareholder, or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares.

10.Termination.  The Underwriters may terminate this Agreement by notice given by you to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on, or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade or other relevant exchanges, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a material disruption in securities settlement, payment or clearance services in the United States or other relevant jurisdiction shall have occurred, (iv) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities or (v) there shall have occurred any outbreak or escalation of hostilities, or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and which, singly or together with any other event specified in this clause (v), makes it, in your judgment, impracticable or inadvisable to proceed with the offer, sale or delivery of the Shares on the terms and in the manner contemplated in the Prospectus.

11.Effectiveness; Defaulting Underwriters.  This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.

If, on the Closing Date or an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule II bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares

24

that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 11 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter.  If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased, and arrangements satisfactory to you, the Company and the Selling Shareholders for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Shareholders.  In any such case either you or the relevant Sellers shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected.  If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such Option Closing Date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase the Additional Shares to be sold on such Option Closing Date or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default.  Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.

If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of any Seller to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason any Seller shall be unable to perform its obligations under this Agreement, the Sellers will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder.

12.Counterparts.  This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

13.Applicable Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York.

14.Notices.  All communications hereunder will be in writing and effective only on receipt, and (i) if sent to you, will be delivered or sent by mail, telex or facsimile transmission to Morgan Stanley & Co. Incorporated at 1585 Broadway, New York,

25

New York 10036, Attention: Equity Capital Markets Syndicate Desk, facsimile number (212) 761-0316, and to Goldman, Sachs & Co. at 85 Broad Street, New York, New York 10004, Attention: Registration Department, facsimile number (212) 902-3000, with a copy delivered or sent by mail, telex or facsimile transmission to Debevoise & Plimpton LLP at 919 Third Avenue, New York, New York 10022, Attention:  Peter J. Loughran, facsimile number (212) 909-6836, (ii) if sent to the Company, will be delivered or sent by mail, telex or facsimile transmission to FairPoint Communications, Inc. at 521 East Morehead Street, Suite 250, Charlotte, North Carolina 28202, Attention:  Shirley J. Linn, General Counsel, facsimile number (704) 344-8121, with a copy delivered or sent by mail, telex or facsimile transmission to Paul, Hastings, Janofsky & Walker LLP at 75 East 55th Street, New York, New York 10022, Attention:  Jeffrey J. Pellegrino, facsimile number (212) 230-7697, and (iii) if sent to the Selling Shareholders, will be delivered or sent by mail, telex or facsimile transmission to Kelso & Company at 320 Park Avenue, 24^th Floor, New York, New York 10022, Attention:  James J. Connors II, Esq., facsimile number (212) 233-2379, with a copy delivered or sent by mail, telex or facsimile transmission to FairPoint Communications, Inc. at 521 East Morehead Street, Suite 250, Charlotte, North Carolina 28202, Attention:  Shirley J. Linn, General Counsel, facsimile number (704) 344-8121.

15.Headings.  The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement.

Very truly yours,
FAIRPOINT COMMUNICATIONS, INC.
By:
	Name:
	Title:

26

		The Selling Shareholders named in
			Schedule I hereto, acting severally
		By:
			Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Banc of America Securities LLC
Deutsche Bank Securities Inc.
Credit Suisse First Boston LLC
Wachovia Capital Markets, LLC
Acting severally on behalf of themselves and
	the several Underwriters named in
	Schedule II hereto.
By:	Morgan Stanley & Co. Incorporated
By:
	Name:
	Title:

27

SCHEDULE I

Selling Shareholder	Number of Additional Shares To Be Sold
Kelso Investment Associates V, L.P.
Kelso Equity Partners V, L.P.
Magnetite Asset Investors LLC
CoInvestment I, LLC
JED Communications Associates, Inc.
Jack H. Thomas
Haberman Family Investments LLC
Meyer Haberman
Susan Haberman
Total

I-1

SCHEDULE II

Underwriter	Number of Firm Shares To Be Purchased
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Banc of America Securities LLC
Deutsche Bank Securities Inc.
Credit Suisse First Boston LLC
Wachovia Capital Markets, LLC
Total

II-1

SCHEDULE III

Lock-Up Signatories

Kelso Investment Associates V, L.P.

Kelso Equity Partners V, L.P.

JED Communications Associates, Inc.

Meyer Haberman

Susan Haberman

Haberman Family Investments LLC

Laura Haberman

Deborah Haberman

Jack H. Thomas

Eugene B. Johnson

Peter G. Nixon

Valeri A. Marks

Walter E. Leach, Jr.

Shirley J. Linn

Frank K. Bynum, Jr.

George E. Matelich

Timothy W. Henry

Lisa R. Hood

Putnam Investment Holdings, LLC

Thomas H. Lee Foreign Fund IV, L.P.

Thomas H. Lee Foreign Fund IV-B, L.P.

Thomas H. Lee Charitable Investment Limited Partnership

THL-CCI Investors Limited Partnership

1997 Thomas H. Lee Nominee Trust

Thomas H. Lee Equity Fund IV, L.P.

David V. Harkins

The 1995 Harkins Gift Trust

Scott A. Schoen

C. Hunter Boll

Scott M. Sperling

Anthony J. DiNovi

Thomas M. Hagerty

Warren C. Smith, Jr.

Seth W. Lawry

Kent R. Weldon

Terrence M. Mullen

Todd M. Abbrecht

Charles A. Brizius

Scott L. Jaeckel

Soren L. Oberg

Thomas R. Shepherd

Wendy L. Masler

Andrew D. Flaster

RSL Trust

Stephen Zachary Lee

Charles W. Robins as Custodian for Nathan Lee

Charles W. Robins as Custodian for Jesse Lee

Charles W. Robins

James Westra

Magnetite Asset Investors LLC

CoInvestment I, LLC

DLJ Capital Partners I, LLC

DLJ Fund Investment Partners II, L.P.

DLJ Private Equity Employees Fund, L.P.

DLJ Private Equity Partners Fund, L.P.

Greenwich Street Capital Partners II, L.P.

GSCP Offshore Fund, L.P.

Greenwich Fund, L.P.

Greenwich Street Employees Fund, L.P.

TRV Executives Fund, L.P.

First Union Capital Partners, LLC

MidOcean Capital Investors, L.P.

BancAmerica Capital Investors, L.P.

Patricia Garrison-Corbin

David L. Hauser

Claude C. Lilly

III-1

SCHEDULE IV

FairPoint Communications, Inc.

Subsidiaries

ST Enterprises, Ltd.

STE/NE Acquisition Corp.

Sunflower Telephone Company, Inc.

Northland Telephone Company of Maine, Inc.

ST Computer Resources, Inc.

ST Long Distance, Inc.

MJD Ventures, Inc.

Marianna and Scenery Hill Telephone Company

Marianna Tel, Inc.

The Columbus Grove Telephone Company

Quality One Technologies, Inc.

C-R Communications, Inc.

C-R Telephone Company

C-R Long Distance, Inc.

Taconic Telephone Corp.

Taconic Cellular Corp.

Taconic Technology Corp.

Taconic TelCom Corp.

Taconet Wireless Corp.

Taconet Corp.

Ellensburg Telephone Company

Elltel Long Distance Corp.

Sidney Telephone Company

Utilities, Inc.

Standish Telephone Company

China Telephone Company

Maine Telephone Company

UI Long Distance, Inc.

UI Communications, Inc.

UI Telecom, Inc.

Telephone Service Company

Chouteau Telephone Company

Chouteau Telecommunications & Electronics, Inc.

Chautauqua and Erie Telephone Corporation

Chautauqua & Erie Communications, Inc.

Chautauqua & Erie Network, Inc.

C & E Communications, Ltd.

Western New York Cellular, Inc.

Chautauqua Cable, Inc.

The Orwell Telephone Company

Orwell Communications, Inc.

GTC Communications, Inc.

St. Joe Communications, Inc.

GTC, Inc.

GTC Finance Corporation

Peoples Mutual Telephone Company

Peoples Mutual Services Company

Peoples Mutual Long Distance Company

Fremont Telcom Co.

Fremont Broadband, LLC

Fretel Communications, LLC

Comerco, Inc.

YCOM Networks, Inc.

FairPoint Berkshire Corporation

Community Service Telephone Co.

Commtel Communications Inc.

MJD Services Corp.

Bluestem Telephone Company

Big Sandy Telecom, Inc.

Odin Telephone Exchange, Inc.

Columbine Telecom Company

Ravenswood Communications, Inc.

The El Paso Telephone Company

El Paso Long Distance Company

Yates City Telephone Company

FairPoint Carrier Services, Inc.

FairPoint Communications Solutions Corp.—
New York

FairPoint Communications Solutions Corp.—
Virginia

FairPoint Broadband, Inc.

MJD Capital Corp.

IV-1

EXHIBIT A

[FORM OF LOCK-UP LETTER]

               , 2005

Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Banc of America Securities LLC
Deutsche Bank Securities Inc.
Credit Suisse First Boston LLC
Wachovia Capital Markets, LLC
c/o	Morgan Stanley & Co. Incorporated
	1585 Broadway
	New York, NY 10036

Dear Sirs and Mesdames:

The undersigned understands that Morgan Stanley & Co. Incorporated (“Morgan Stanley”) proposes to enter into an Underwriting Agreement (the “Underwriting Agreement”) with FairPoint Communications, Inc., a Delaware corporation (the “Company”), providing for the public offering (the “Public Offering”) by the several Underwriters, including Morgan Stanley (the “Underwriters”), of - shares (the “Shares”) of Common Stock, par value $0.01 per share, of the Company (the “Common Stock”).

To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of you as managers of the Public Offering, it will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus relating to the Public Offering (the “Prospectus”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, or file any registration statement with the Securities and Exchange Commission relating to the offering of, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any

A-1

of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise.  The foregoing sentence shall not apply to (a) the sale of any Shares by the undersigned to the Underwriters pursuant to the Underwriting Agreement, (b) transactions relating to shares of Common Stock or other securities acquired in open market transactions after the completion of the Public Offering, provided that no filing by any party under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), shall be required or shall be voluntarily made in connection with subsequent sales of Common Stock or other securities acquired in such open market transactions, (c) transfers of shares of Common Stock or any security convertible into Common Stock as a bona fide gift or gifts, or (d) distributions of shares of Common Stock or any security convertible into Common Stock to limited partners or stockholders of the undersigned; provided, that in the case of any transfer or distribution pursuant to clause (c) or (d), (i) each donee or distributee shall sign and deliver an agreement substantially in the form of this agreement and (ii) the undersigned shall not be required to, and shall not voluntarily, file a report under Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of shares of Common Stock during the restricted period referred to in the foregoing sentence.  In addition, the undersigned agrees that, without the prior written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 180 days after the date of the Prospectus, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock.  The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s share of Common Stock except in compliance with the foregoing restrictions.

If (1) during the last 17 days of the 180-day restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs; or (2) prior to the expiration of the 180-day restricted period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions imposed by this agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

The undersigned hereby acknowledges and agrees that written notice of any extension of the 180-day restricted period pursuant to the previous paragraph will be delivered by Morgan Stanley to the Company (in accordance with Section 14 of the Underwriting Agreement) and that any such notice properly delivered will be deemed to have been given to, and received by, the undersigned.  The undersigned further agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this agreement during the period from the date of this agreement to and including the 34th day following the expiration of the initial 180-day restricted period, it

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will give notice thereof to the Company and will not consummate such transaction or take any such action unless it has received written confirmation from the Company that the 180-day restricted period (as may have been extended pursuant to the previous paragraph) has expired.

The undersigned understands that the Company and the Underwriters are relying upon this agreement in proceeding toward consummation of the Public Offering.  The undersigned further understands that this agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.

Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions.  Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriters.

Very truly yours,

(Name)

(Address)

A-3

EX-3.2

Exhibit 3.2

CERTIFICATE OF AMENDMENT

OF

SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

FAIRPOINT COMMUNICATIONS, INC.

Adopted in accordance with the provisions

of Section 242 of the General Corporation

Law of the State of Delaware

FairPoint Communications, Inc., a corporation organized under the laws of the State of Delaware (the “Corporation”), pursuant to Section 242 of the General Corporation Law of the State of Delaware (the “DGCL”), hereby certifies as follows:

FIRST: that the Seventh Amended and Restated Certificate of Incorporation of the Corporation was filed in the office of the Secretary of State of the State of Delaware on May 10, 2002 (the “Amended and Restated Certificate of Incorporation”);

SECOND:  that Article Fourth of the Amended and Restated Certificate of Incorporation of the Corporation has been amended by inserting the succeeding paragraphs immediately following the first paragraph of Article Fourth:

“Upon this Certificate of Amendment to the Certificate of Incorporation becoming effective pursuant to the DGCL (the “Effective Time”), each share of the Corporation’s Class A Common Stock issued and outstanding immediately prior to the Effective Time will be automatically reclassified as and converted into 0.18948827 shares of Class A Common Stock.  Any stock certificate that, immediately prior to the Effective Time, represented shares of Class A Common Stock will, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent the number of shares of Class A Common Stock as equals (A) the product obtained by multiplying the number of shares of Class A Common Stock represented by such certificate immediately prior to the Effective Time by 0.18948827 minus (B) any fractional shares of Class A Common Stock issuable in connection with such reclassification and conversion.  The Corporation shall, in lieu of issuing fractional shares of Class A Common Stock in connection with such reclassification and conversion, pay to each stockholder who would otherwise be entitled to receive a fractional share of Class

A Common Stock an amount in cash equal to such fraction multiplied by the fair market value of a share of Class A Common Stock computed to the nearest whole cent promptly following the Effective Time.

Upon the Effective Time, each share of the Corporation’s Class C Common Stock issued and outstanding immediately prior to the Effective Time will be automatically reclassified as and converted into 0.18948827 shares of Class C Common Stock.  Any stock certificate that, immediately prior to the Effective Time, represented shares of Class C Common Stock will, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent the number of shares of Class C Common Stock as equals (A) the product obtained by multiplying the number of shares of Class C Common Stock represented by such certificate immediately prior to the Effective Time by 0.18948827 minus (B) any fractional shares of Class C Common Stock issuable in connection with such reclassification and conversion.  The Corporation shall, in lieu of issuing fractional shares of Class C Common Stock in connection with such reclassification and conversion, pay to each stockholder who would otherwise be entitled to receive a fractional share of Class C Common Stock an amount in cash equal to such fraction multiplied by the fair market value of a share of Class C Common Stock computed to the nearest whole cent promptly following the Effective Time.”

THIRD:  that such amendment has been duly adopted in accordance with the provisions of Section 242 and 228 of the DGCL; and

FOURTH:  that the effective date of this Certificate of Amendment to the Amended and Restated Certificate of Incorporation shall be January 28, 2005.

[Signature page follows]

IN WITNESS WHEREOF, I have signed this certificate this 28^th day of January, 2005.

FairPoint Communications, Inc.
By:	/s/ Timothy W. Henry
	Name: Timothy W. Henry
	Title: Vice President of Finance and
	Treasurer

EX-3.3

Exhibit 3.3

FORM OF EIGHTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
FAIRPOINT COMMUNICATIONS, INC.

FairPoint Communications, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies as follows:

A.The name of the Corporation is FairPoint Communications, Inc.  The Corporation was originally incorporated under the name “MJD Communications, Inc.” and filed its original certificate of incorporation with the Secretary of State of the State of Delaware on June 30, 1993.  The Corporation filed certificates of amendment with the Secretary of State of the State of Delaware on June 6, 1996, November 24, 1998 and January 28, 2005.  The Corporation filed restatements of its certificate of incorporation with the Secretary of State of the State of Delaware on July 1, 1994, July 31, 1997, March 26, 1998, October 20, 1999, January 19, 2000, April 28, 2000 and May 10, 2002.

B.This amended and restated certificate of incorporation, which restates and integrates and further amends the certificate of incorporation of the Corporation as heretofore amended and restated, has been duly adopted by the Board of Directors of the Corporation in accordance with sections 242 and 245 of the DGCL and by the written consent of its stockholders in accordance with section 228 of the DGCL.

C.The certificate of incorporation of the Corporation, as heretofore amended and restated, is hereby further amended and restated to read in its entirety as follows:

1.Corporate name.  The name of the Corporation is FairPoint Communications, Inc.

2.Registered office and agent.

(a).The address of the registered office in the State of Delaware is The Corporation Trust Corporation, 1209 Orange Street, in the City of Wilmington, New Castle County, Delaware 19801.

(b).The name of the registered agent of the Corporation at such address is The Corporation Trust Corporation.

3.Purpose of the Corporation.  The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

4.Definitions.  The following terms have the indicated meanings when used herein.

(a).“Board of Directors” means the board of directors of the Corporation.

(b).“Common Stock” means the shares of common stock, par value $0.01 per share, of the Corporation referred to in section 5(a)(i) hereof.

(c).“Communications Laws” means any law or regulation of the United States or any state of the United States, now or hereafter in effect, including without limitation, the Communications Act of 1934, as amended, the Telecommunications Act of 1996, as amended, and the regulations promulgated under such acts, pertaining to any authorization, license, permit, order, filing or consent held or required to be obtained by the Corporation from the Federal Communications Commission (or any successor thereto) or any state regulatory commission having jurisdiction over the Corporation or any of its subsidiaries, including laws or regulations pertaining to approval of the acquisition or ownership of shares of capital stock of the Corporation.

(d).“Corporation” means FairPoint Communications, Inc., a Delaware corporation.

(e).“Covered Person” means any holder of capital stock of the Corporation or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries.

(f).“DGCL” means the General Corporation Law of the State of Delaware.

(g).“Effective Time” means the date and time at which this eighth amended and restated certificate of incorporation of the Corporation shall become effective in accordance with section 103(d) of the Delaware General Corporation Law.

(h).“Excluded Opportunity” means any opportunity, matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of:

(i).any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or

(ii).any Covered Person,

unless such opportunity, matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the knowledge or possession of, such director or Covered Person expressly in such director’s or Covered Person’s capacity as a director of the Corporation or as a Covered Person.

(i).“IPO Closing Date” means the date on and the time at which the Corporation’s first public offering of Common Stock shall have closed.

(j).“Old Class A Common Stock” means the class A common stock authorized by the seventh amended and restated certificate of incorporation of the Corporation.

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(k).“Old Class B Common Stock” means the class B common stock authorized by the seventh amended and restated certificate of incorporation of the Corporation.

(l).“Old Class C Common Stock” means the class C common stock authorized by the seventh amended and restated certificate of incorporation of the Corporation.

(m).“Old Common Stock” means the Old Class A Common Stock, the Old Class B Common Stock and the Old Class C Common Stock.

(n).“Old Preferred Stock” means the preferred stock authorized by the seventh amended and restated certificate of incorporation of the Corporation.

(o).“Preferred Stock” means the shares of preferred stock, par value $0.01 per share, of the Corporation referred to in section 5(a)(ii) hereof.

(p).“Transferee” has the meaning given such term in section 6(a) hereof.

5.Capitalization.

(a).Authorized shares.  The total number of shares of all classes of capital stock which the Corporation shall have the authority to issue is 800,000,000 shares, consisting of:

(i).200,000,000 shares of Common Stock,

(ii).100,000,000 shares of Preferred Stock,

(iii).236,200,000 shares of Old Class A Common Stock, subject to being automatically retired and cancelled and ceasing to be authorized shares of the Corporation when and as provided in section 5(b)(ii)(B) hereof,

(iv).150,000,000 shares of Old Class B Common Stock, subject to being automatically retired and cancelled and ceasing to be authorized shares of the Corporation when and as provided in section 5(b)(ii)(C) hereof,

(v).13,800,000 shares of Old Class C Common Stock, subject to being automatically retired and cancelled and ceasing to be authorized shares of the Corporation when and as provided in section 5(b)(ii)(A) hereof, and

(vi).100,000,000 shares of Old Preferred Stock, subject to being automatically retired and cancelled and ceasing to be authorized

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shares of the Corporation when and as provided in section 5(b)(ii)(D) hereof.

(b).Reclassification and conversion of authorized but unissued shares and outstanding shares of capital stock of the Corporation.

(i).Immediately prior to the Effective Time, the authorized capital stock of the Corporation consisted of 500,000,000 shares of capital stock, of which:

(A).100,000,000 were designated as shares of Old Preferred Stock.  Of these 100,000,000 authorized shares, 1,000,000 were designated as Series A Preferred Stock.            shares of Series A Preferred Stock were outstanding immediately prior to the Effective Time, all of which were repurchased by the Corporation as of the IPO Closing Date.

(B).400,000,000 were designated as shares of Old Common Stock.  Of these shares of Old Common Stock:

(1).236,200,000 were designated as shares of Old Class A Common Stock, of which            shares were outstanding immediately prior to the Effective Time.

(2).150,000,000 were designated as shares of Old Class B Common Stock, of which no shares were outstanding immediately prior to the Effective Time.

(3).13,800,000 were designated as shares of Old Class C Common Stock, of which            shares were outstanding immediately prior to the Effective Time.

(ii).At the IPO Closing Date:

(A).each outstanding share of Old Class C Common Stock shall be converted, automatically, immediately and irrevocably, without any further action on the part of any holder of Old Class C Common Stock, the Corporation or any other person or entity, into one share of Old Class A Common Stock, and all authorized shares of Old Class C Common Stock shall at that time be retired and cancelled, shall be prohibited from being reissued and shall be eliminated from the authorized shares of capital stock of the Corporation which the Corporation has the authority to issue.

(B).each outstanding share of Old Class A Common Stock shall be converted, automatically, immediately and irrevocably, without any further action on the part of any holder of Old

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Class A Common Stock, the Corporation or any other person or entity, into one share of Common Stock, and all authorized shares of Old Class A Common Stock shall at that time be retired and cancelled, shall be prohibited from being reissued and shall be eliminated from the authorized shares of capital stock of the Corporation which the Corporation has the authority to issue.

(C).all authorized shares of Old Class B Common shall at that time be retired and cancelled, shall be prohibited from being reissued and shall be eliminated from the authorized shares of capital stock of the Corporation which the Corporation has the authority to issue.

(D).all authorized shares of Old Preferred Stock shall at that time be retired and cancelled, shall be prohibited from being reissued and shall be eliminated from the authorized shares of capital stock of the Corporation which the Corporation has the authority to issue.

(iii).Each stock certificate which immediately prior to the IPO Closing Date represented shares of Old Class A Common Stock or Old Class C Common Stock shall, without any action on the part of the holder, thereupon and thereafter until surrendered as hereinafter provided, represent the appropriate number of shares of Common Stock.  The registered holder of each such certificate may after the IPO Closing Date surrender such certificate to the Corporation for cancellation and, upon such surrender, shall receive in exchange therefor, without charge, a new certificate registered in the name of such holder representing the appropriate number of shares of Common Stock.

(iv).No fractional shares of Common Stock shall be issued upon the conversion hereunder of any shares of Old Class A Common Stock into shares of Common Stock.  If any fraction of a share of Common Stock would otherwise be issuable upon any such a reclassification or conversion, the Corporation shall, in lieu of issuing any fractional shares of Common Stock, pay to each stockholder who would otherwise be entitled to receive a fractional share an amount in cash equal to such fraction multiplied by the fair market value, as determined by the Board of Directors of the Corporation, of a share of Common Stock, computed to the nearest whole cent.

(c).Preferred Stock.  Shares of Preferred Stock may be issued at any time and from time to time in one or more classes or series, with each such class or series to consist of such number of shares and to have such

5

voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issuance of such class or series adopted by the Board of Directors, and the Board of Directors is hereby expressly vested with authority, to the full extent now or hereafter provided by law, to adopt any such resolution or resolutions and to file with the Secretary of State of the State of Delaware a certificate setting forth a copy of such resolution or resolutions and the number of shares of Preferred Stock of the class or series as to which such resolution or resolutions apply.  The authority of the Board of Directors with respect to each class or series of Preferred Stock shall include, but not be limited to, determination of the following:

(i).the number of authorized shares constituting that class or series and the distinctive designation of that class or series;

(ii).the dividend rate on the outstanding shares of that class or series, whether dividends shall be paid in cash or in kind and whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on the outstanding shares of that class or series;

(iii).whether that class or series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights;

(iv).whether that class or series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;

(v).whether the shares of that class or series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;

(vi).whether that class or series shall have a sinking fund for the redemption or purchase of shares of that class or series, and, if so, the terms and amount of such sinking fund;

(vii).the rights of the shares of that class or series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that class or series; and

6

(viii).any other relative rights, preferences and limitations of that class or series.

(d).Common Stock.

(i).Generally.  All outstanding shares of Common Stock shall have the same terms except as otherwise set forth herein.

(ii).Dividends.  Subject to the preferential dividend rights of any class or series of Preferred Stock outstanding from time to time, and subject to the other provisions of this section 5(d)(ii), the holders of outstanding shares of Common Stock shall be entitled to receive dividends and other distributions in cash, stock or property of the Corporation when, as and to the extent declared by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor.

(iii).Liquidation.  In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of outstanding shares of Common Stock shall be entitled to share in the assets of the Corporation remaining after payment of or provision for all debts and other liabilities of the Corporation and the liquidation preference of all classes or series of outstanding Preferred Stock.

(iv).Voting Rights.  Except as otherwise expressly set forth in this amended and restated certificate of incorporation, any certificate of designation, any resolution or resolutions providing for the issuance of a class or series of capital stock adopted by the Board of Directors, or any agreement between the Corporation and its stockholders, and except as otherwise required by law:

(A).each holder of shares of Common Stock shall be entitled, with respect to each share of Common Stock held by such holder, to one vote in person or by proxy on all matters submitted to a vote of the holders of Common Stock, whether voting separately as a class or otherwise.

(B).the holders of outstanding shares of Common Stock shall vote together as a single class on all matters to be voted on by the holders of Common Stock.

(e).No Preemptive Rights.  Except as expressly set forth in this amended and restated certificate of incorporation, any certificate of designation, any resolution or resolutions providing for the issuance of a class or series of capital stock adopted by the Board of Directors, or any agreement between the Corporation and the holders of its capital stock, no holder of shares of capital stock of the Corporation shall have any preemptive right

7

to subscribe for any shares of any class or series of capital stock of the Corporation whether now or hereafter authorized.

6.Provisions relating to stock ownership and Federal and state communications laws.

(a).Requests for Information.  So long as the Corporation or any of its subsidiaries holds any authorization, license, permit, order, filing or consent from the Federal Communications Commission (or any successor thereto) or any state regulatory commission having jurisdiction over the Corporation or any of its subsidiaries, if the Corporation has reason to believe that the ownership, or proposed ownership, of shares of capital stock of the Corporation by any stockholder or any person presenting any shares of capital stock of the Corporation for transfer into its name (a “Transferee”) may be inconsistent with, or in violation of, any provision of the Communications Laws, or if the Corporation needs information in order to make a determination as to whether the ownership, or proposed ownership, of shares of capital stock of the Corporation by any stockholder or any Transferee may be inconsistent with, or in violation of, any provision of the Communications Laws, such stockholder or Transferee, upon request of the Corporation, shall furnish promptly to the Corporation such information (including, without limitation, information with respect to citizenship, other ownership interests and affiliations) as the Corporation shall reasonably request to determine whether the ownership of, or the existence or exercise of any rights with respect to, shares of capital stock of the Corporation by such stockholder or Transferee is inconsistent with, or in violation of, any provision of the Communications Laws.

(b).Denial of Rights.  If any stockholder or Transferee from whom information is requested should fail to respond to any request for information made by the Corporation pursuant to section 6(a) hereof, or if the Corporation shall conclude that the ownership of, or existence or exercise of any rights of stock ownership with respect to, shares of capital stock of the Corporation by such stockholder or Transferee could result in any inconsistency with, or violation of, any provision of the Communications Laws, the Corporation may suspend those rights of stock ownership the existence or exercise of which would result in any inconsistency with, or violation of, any provision of the Communications Laws, such suspension to remain in effect until the requested information has been received and the Corporation has determined that the existence or exercise of such suspended rights is not inconsistent with, or in violation of, any provision of the Communications Laws.

(c).Remedies.  The Corporation may exercise any and all appropriate remedies, at law or in equity, in any court of competent jurisdiction, against any stockholder or Transferee, with a view towards obtaining any

8

information requested pursuant to section 6(a) hereof or preventing or curing any situation which would cause an inconsistency with, or violation of, any provision of the Communications Laws.

7.Renunciation of interest or expectancy.  The Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity.

8.Management of the business and conduct of the affairs of the Corporation.  The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation and for the purpose of creating, defining, limiting and regulating the powers of the Corporation and its directors and stockholders.

(a).The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things, except as may otherwise be provided in the DGCL or elsewhere herein.

(b).The number of directors constituting the Board of Directors shall be as set forth in, or determined by the Board of Directors by resolution adopted by the Board of Directors in accordance with, the by-laws of the Corporation, but shall not be less than five nor more than 11.

(c).Classification of the Board of Directors.

(i).From and after the IPO Closing Date, the Board of Directors shall be divided into three classes, designated Classes I, II and III, which shall be as nearly equal in number of directors per Class as possible.

(ii).Directors of Class I shall be elected to hold office for an initial term expiring at the first annual meeting of stockholders held after the IPO Closing Date.

(iii).Directors of Class II shall be elected to hold office for an initial term expiring at the second annual meeting of stockholders held after the IPO Closing Date.

(iv).Directors of Class III shall be elected to hold office for an initial term of office expiring at the third annual meeting of stockholders held after the IPO Closing Date.

(v).At each annual meeting of stockholders, the respective successors of the directors whose terms are expiring shall be elected for terms expiring at the annual meeting of stockholders held in the third succeeding year.

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(vi).Subject to section 12 hereof, vacancies in the Board of Directors and newly-created directorships resulting from any increase in the authorized number of directors may be filled as provided in the by-laws.

(d).Advance notice of nominations by stockholders for the election of directors, and of stockholder proposals regarding action to be taken at any meeting of stockholders, shall be given in the manner and to the extent provided in the by-laws of the Corporation.

9.By-laws.

(a).The Board of Directors shall be authorized to adopt, amend and repeal the by-laws of the Corporation without a stockholder vote in any manner not inconsistent with the laws of the State of Delaware, this amended and restated certificate of incorporation and the by-laws of the Corporation as from time to time in effect, subject to the power of the stockholders entitled to vote to adopt, amend, alter, change, add to or repeal by-laws made by the Board of Directors.

(b).From and after the IPO Closing Date, notwithstanding anything contained in this amended and restated certificate of incorporation to the contrary, the affirmative vote of the holders of at least two-thirds in voting power of all the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required in order for the stockholders to adopt, amend, alter, change, add to or repeal the by-laws of the Corporation.

10.Exoneration.

(a).A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of his/her fiduciary duty as a director to the fullest extent permitted by the DGCL, as the DGCL exists on the Effective Date or may thereafter be amended.

(b).Any repeal or modification of section 10(a) hereof shall be prospective only, and shall not adversely affect any elimination or limitation of the personal liability of a director of the Corporation in respect of any act or omission occurring prior to the time of such repeal or modification.

11.Stockholder action.

(a).From and after the IPO Closing Date, any action required or permitted to be taken by the holders of the Common Stock of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders.

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(b).Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, special meetings of stockholders of the Corporation may be called only by:

(i).the Chairman of the Board of Directors of the Corporation,

(ii).the Board of Directors, or

(iii).the Board of Directors upon a request by the holders of at least 50% in voting power of all outstanding shares of the Corporation entitled to vote at such meeting.

(c).Meetings of stockholders may be held within or without the State of Delaware, as the by-laws of the Corporation may provide.

(d).The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated by the Board of Directors or in the by-laws of the Corporation.

(e).Elections of directors need not be by written ballot.

12.Quorum at stockholder meetings.  The holders of one-third in voting power of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except that the holders of a majority in voting power of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be required to constitute a quorum for:

(a).a vote for any director in a contested election,

(b).the removal of a director, or

(c).the filling of a vacancy on the Board of Directors by the stockholders of the Corporation.

13.Amendments to this amended and restated certificate of incorporation.

(a).The Corporation reserves the right to amend any provision contained in this amended and restated certificate of incorporation, as the same may be in effect from time to time, in the manner now or hereafter prescribed by law, and all rights conferred on stockholders or others hereunder are subject to such reservation.

(b).From and after the IPO Closing Date, anything contained in section 13(a) hereof to the contrary notwithstanding, the affirmative vote of the holders of at least two-thirds in voting power of all the shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting

11

together as a single class, shall be required to alter, amend or repeal sections 8, 9, 10, 11(a), 11(b) and 12 hereof and this section 13 or to adopt any provision inconsistent therewith.

14.Compromise.  Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed by the Corporation under the provisions of section 291 of the DGCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of section 279 of the DGCL, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said Court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the Court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all stockholders or class of stockholders of the Corporation, as the case may be, and also on the Corporation.

IN WITNESS WHEREOF, FAIRPOINT COMMUNICATIONS, INC. has caused this amended and restated certificate of incorporation to be executed by             , its           , on this    day of            , 2005.

	FAIRPOINT COMMUNICATIONS, INC.
	By:
	Name:
	Title:
Attest:
By:
Name:
Title:

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EX-3.5

Exhibit 3.5

FAIRPOINT COMMUNICATIONS, INC.

FORM OF AMENDED AND RESTATED BY-LAWS

As adopted on February   , 2005

ARTICLE I

STOCKHOLDERS

SECTION 1.1                 Annual Meetings.  The annual meeting of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other business as may properly be brought before such meeting shall be held on such date, and at such time and place within or without the State of Delaware, as may be designated from time to time by resolution of the Board of Directors and set forth in the notice or waiver of notice of the meeting.

SECTION 1.2                 Special Meetings.  Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock (as defined herein), special meetings of stockholders of the Corporation may be called only by (a) the Chairman of the Corporation; (b) the Board of Directors; or (c) the Board of Directors upon a request by the holders of at least fifty percent (50%) in voting power of all outstanding shares of capital stock of the Corporation entitled to vote at such meeting.  Such special meetings of the stockholders shall be held at such places, within or without the State of Delaware, as shall be specified in the respective notices or waivers of notice thereof.  The purpose or purposes of the proposed meeting shall be included in the notice setting forth such call.

SECTION 1.3                 Notice of Meetings.  The Secretary or any Assistant Secretary shall cause written notice of the place, if any, date and hour of each meeting of the stockholders and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which such meeting is called, to be given in the manner set forth in the next paragraph, not less than ten (10) nor more than sixty (60) calendar days prior to the meeting, to each stockholder of record entitled to vote at such meeting. If a stockholder meeting is to be held via electronic communications and stockholders will take action at such meeting, the notice of such meeting must: (a) specify the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present and vote at such meeting; and (b) provide the information required to access the stockholder list.

Notices are deemed given (i) if by mail, when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the record of stockholders of the Corporation, or, if he or she shall have filed with the Secretary of the Corporation a written request that notices to him or her be mailed to some other address, then directed to him or her at such other address; (ii) if by facsimile, when faxed to a number where the stockholder has consented to receive notice; (iii) if by electronic mail, when mailed

electronically to an electronic mail address at which the stockholder consented to receive such notice; (iv) if by posting on an electronic network (such as a website or chatroom) together with a separate notice to the stockholder of such specific posting, upon the later to occur of (A) such posting or (B) the giving of the separate notice of such posting; or (v) if by any other form of electronic communication, when directed to the stockholder in the manner consented to by the stockholder.

For notice given by electronic transmission to a stockholder to be effective, such stockholder must consent to the Corporation’s giving notice by that particular form of electronic transmission. A stockholder may revoke consent to receive notice by electronic transmission by written notice to the Corporation. A stockholder’s consent to notice by electronic transmission is automatically revoked if the Corporation is unable to deliver two consecutive electronic transmission notices and such inability becomes known to the Secretary, Assistant Secretary, the transfer agent or other person responsible for giving notice.

A written waiver of any notice of any annual or special meeting signed by the person entitled thereto, or a waiver by electronic transmission by the person entitled to notice, shall be deemed equivalent to notice, whether provided before or after the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in a waiver of notice. The attendance of any stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened.

SECTION 1.4                 Organization; Procedure.  The Chairman, or in the Chairman’s absence or at the Chairman’s direction, any officer of the Corporation shall call all meetings of the stockholders to order and shall act as chairman of such meeting. The Secretary of the Corporation or, in such officer’s absence, an Assistant Secretary shall act as secretary of the meeting. If neither the Secretary nor an Assistant Secretary is present, the chairman of the meeting shall appoint a secretary of the meeting. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the person presiding over any meeting of stockholders shall have the right and authority to convene and to adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding person of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (d) restrictions on entry to

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the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions or comments by participants. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

SECTION 1.5                 Quorum.  Except as otherwise provided by law, by the certificate of incorporation of the Corporation, as amended, restated or supplemented from time to time (hereinafter the “Certificate of Incorporation”) or these By-Laws, the holders of one-third (1/3) in voting power of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except that the holders of a majority in voting power of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be required to constitute a quorum for (a) a vote for any director in a contested election; (b) the removal of a director; or (c) the filling of a vacancy on the Board of Directors if the filling of such vacancy is submitted to a vote of the stockholders. If a quorum is not present at any meeting of the stockholders, the presiding officer shall have the power to adjourn any such meeting from time to time until a quorum is present. Notice of any adjourned meeting of the stockholders of the Corporation need not be given if the place, if any, date and hour thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty (30) calendar days, or if after the adjournment a new record date for the adjourned meeting is fixed pursuant to Section 1.6 of these By-Laws, a notice of the adjourned meeting, conforming to the requirements of Section 1.3 of these By-Laws, shall be given to each stockholder of record entitled to vote at such meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted on the original date of the meeting.

SECTION 1.6                 Record Date.  In order that the Corporation may determine the stockholders (a) entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof; (b) entitled to receive payment of any dividend or other distribution or allotment of any rights; or (c) entitled to exercise any rights in respect of any change, conversion or exchange of capital stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date (i) in the case of clause (a) above, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) calendar days before the date of such meeting; and (ii) in the case of clause (b) above, shall not be more than sixty (60) calendar days prior to such action. If for any reason the Board of Directors shall not have fixed a record date for any such purpose, the record date for such purpose shall be determined as provided by law. A determination of the stockholders of

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record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

SECTION 1.7                 Stockholder Lists.  The officer who has charge of the stock ledger of the Corporation shall prepare and make at least ten (10) calendar days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) calendar days prior to the meeting, as required by applicable law. The list shall also be produced at the time and kept at the place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present.

SECTION 1.8                 Proxies.  At all meetings of stockholders, any stockholder entitled to vote thereat shall be entitled to vote in person or by proxy, but no proxy shall be voted or acted upon after three years from its date, unless such proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy pursuant to the General Corporation Law of the State of Delaware (hereinafter the “DGCL”), the following shall constitute a valid means by which a stockholder may grant such authority: (a) a stockholder may execute a written instrument authorizing another person or persons to act for such stockholder as proxy, and execution of the written instrument may be accomplished by the stockholder or the stockholder’s authorized officer, director, employee, trustee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature; or (b) a stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors, or if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.

Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to the preceding paragraph of this Section 1.8 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

Proxies shall be filed with the Secretary of the meeting prior to or at the commencement of the meeting to which they relate. A proxy shall be irrevocable if it states that

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it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary.

SECTION 1.9                 Voting.  Except as otherwise provided by law or the Certificate of Incorporation and subject to the rights of the holders of any class or series of preferred stock of the Corporation (hereinafter the “Preferred Stock”), every holder of record of capital stock entitled to vote at a meeting of stockholders shall be entitled to one vote for each share of capital stock outstanding in his or her name on the books of the Corporation at the close of business on the date fixed pursuant to Section 1.6 of these By-Laws as the record date for the determination of the stockholders entitled to notice of and to vote at such meeting.  When a quorum is present at any meeting, the vote of the holders of a majority in voting power of the capital stock present in person or represented by proxy and entitled to vote on the matter shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation, these By-Laws or the rules or regulations of any stock exchange applicable to the Corporation, a different vote is required, in which case such express provision shall govern and control the decision of such question.

SECTION 1.10               Voting by Ballot.  No vote of the stockholders need be taken by written ballot, or by a ballot submitted by electronic transmission, or conducted by inspectors of elections unless otherwise required by law. Any vote not required to be taken by ballot or by ballot submitted by electronic transmission may be conducted in any manner approved by the presiding officer at the meeting at which such vote is taken.

SECTION 1.11               Inspector of Elections.  The Corporation may, and shall if required by law, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the Corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (a) ascertain the number of shares of capital stock of the Corporation outstanding and the voting power of each such share; (b) determine the shares of capital stock of the Corporation represented at the meeting and the validity of proxies and ballots; (c) specify the information relied upon to determine the validity of electronic transmissions in accordance with Section 1.8 hereof; (d) count all votes and ballots; (e) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors; and (f) certify their determination of the number of shares of capital stock of the Corporation represented at the meeting and such inspectors’ count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. No person who is a candidate for an office at an election may serve as an inspector at such election.

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When determining the shares of capital stock represented and the validity of proxies and ballots, the inspector shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Section 1.8 of these By-Laws, ballots and the regular books and records of the Corporation. The inspector may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers or their nominees or a similar person which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspector considers other reliable information as outlined in this section, the inspector, at the time of his or her certification pursuant to provision (f) of this section shall specify the precise information considered, the person or persons from whom the information was obtained, when this information was obtained, the means by which the information was obtained, and the basis for the inspector’s belief that such information is accurate and reliable.

SECTION 1.12               Notice of Stockholder Business and Nominations.

(a)           Annual Meetings of Stockholders.

(i)            Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders at an annual meeting of stockholders may be made only (A) by or at the direction of the Board of Directors or the Chief Executive Officer; (B) by any stockholder of the Corporation who is entitled to vote at the meeting, who complies with the applicable requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, and the notice procedures set forth in clause (ii) of this Section 1.12(a) and who was a stockholder of record at the time such notice is delivered to the Secretary of the Corporation; or (C) pursuant to the Corporation’s notice of meeting (or any supplement thereto).

(ii)           For nominations or other business to be properly brought before an annual meeting by a stockholder, pursuant to clause (B) of paragraph (a)(i) of this Section 1.12, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and any such other business other than nominations of persons for election to the Board of Directors must otherwise be a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered or mailed to the Secretary at the principal executive offices of the Corporation and received not less than ninety (90) calendar days, nor more than one hundred twenty (120) calendar days prior to the first anniversary of the previous year’s annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting was changed by more than thirty (30) calendar days from the anniversary date of the previous year’s annual meeting, notice by the stockholder must be so received not less than ninety (90) calendar days nor more than one hundred twenty (120) calendar days prior to such annual meeting or ten (10) calendar days following the date on which public announcement of the date of the meeting is first made by the Corporation or notice of such meeting is given. In no event shall an adjournment or postponement of an annual meeting (or the public announcement thereof) commence a new time period (or extend any time period)

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for the giving of stockholder’s notice as described above. Such stockholder’s notice shall set forth (A) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act, and Rule 14a-11 thereunder, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting (including the text of any resolutions proposed for consideration), the reasons for conducting such business at the meeting and, in the event that such business includes a proposal to amend either the Certificate of Incorporation or the By-Laws of the Corporation, the language of the proposed amendment; (C) any material interest in such business of such stockholder and of any beneficial owner on whose behalf the proposal is made and, in the case of nominations, a description of all arrangements or understandings between the stockholder and each nominee and any other persons (naming them) pursuant to which the nominations are to be made by the stockholder; (D) a representation that the stockholder is a holder of record of capital stock of the Corporation entitled to vote at such meeting and intends to appear in person or by a qualified representative at the meeting to propose such business; (E) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (2) otherwise to solicit proxies from stockholders in support of such proposal or nomination; and (F) as to the stockholder giving the notice and any beneficial owner on whose behalf the nomination or proposal is made, (1) the name and address of such stockholder, as it appears on the Corporation’s books, and of such beneficial owner and (2) the class and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. If such stockholder does not appear or send a qualified representative to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation. The presiding officer of any annual meeting of stockholders shall refuse to permit any business proposed by a stockholder to be brought before such annual meeting without compliance with the foregoing procedures or if the stockholder solicits proxies in support of such stockholder’s proposal without such stockholder having made the representation required by clause (E) above. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his or her intention to present a proposal at an annual meeting in compliance with Rule 14a-8 (or any successor thereof) promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation.

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(iii)          Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Section 1.12 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation at an annual meeting is increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) calendar days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 1.12 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.

(b)           Special Meetings of Stockholders.

(i)            Only such business as shall have been brought before the special meeting of the stockholders pursuant to the Corporation’s notice of meeting pursuant to Section 1.2 of these By-Laws shall be conducted at such meeting.

(ii)           In the event that directors are to be elected at a special meeting of stockholders pursuant to the Corporation’s notice of meeting, nominations of persons for election to the Board of Directors may be made at such special meeting of stockholders (A) by or at the direction of the Board of Directors; or (B) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in this Section 1.12 and who is a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. Nominations by stockholders of persons for election to the Board of Directors may be made at such special meeting of stockholders if the stockholder’s notice as required by paragraph (a)(ii) of this Section 1.12 shall be delivered to the Secretary at the principal executive offices of the Corporation not more than one hundred twenty (120) calendar days prior to such special meeting and not less than ninety (90) calendar days prior to such special meeting or ten (10) calendar days following the date on which a public announcement of the date of the special meeting and of the nominees to be elected at such meeting is first made or notice of such meeting is given. In no event shall the adjournment or postponement of a special meeting (or the public announcement thereof) commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

(c)           General.

(i)            Only persons who are nominated in accordance with the procedures set forth in this Section 1.12 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.12. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed in accordance with the procedures set forth in this Section 1.12 (including

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whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder’s representation as required by clause (a)(ii)(E) of this Section 1.12) and, if any proposed nomination or business is not in compliance with this Section 1.12, to declare that such defective proposal or nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 1.12, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

(ii)           For purposes of this Section 1.12, “public announcement” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14, or 15(d) of the Exchange Act.

(iii)          For purposes of this Section 1.12, no adjournment nor notice of adjournment of any meeting shall be deemed to constitute a new notice of such meeting for purposes of this Section 1.12 and in order for any notification required to be delivered by a stockholder pursuant to this Section 1.12 to be timely, such notification must be delivered within the periods set forth above with respect to the originally scheduled meeting.

(iv)          Notwithstanding the foregoing provisions of this Section 1.12, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 1.12. Nothing in this Section 1.12 shall be deemed to affect any rights (A) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act; or (B) of the holders of any class or series of Preferred Stock, if any, to elect directors if so provided under the Certificate of Incorporation or any applicable Certificate of Designation.

SECTION 1.13               Opening and Closing of Polls.  The date and time for the opening and the closing of the polls for the matters to be voted upon at a stockholder meeting shall be announced at the meeting. The inspector of the election shall be prohibited from accepting any ballots, proxies or votes or any revocations thereof or changes thereto after the closing of the polls, unless the Court of Chancery upon application by a stockholder shall determine otherwise.

SECTION 1.14               Confidential Voting.

(a)           Proxies and ballots that identify the votes of specific stockholders shall be kept in confidence by the inspectors of election unless:  (i) there is an opposing solicitation with respect to the election or removal of directors; (ii) disclosure is required by applicable law; (iii) a stockholder expressly requests or otherwise authorizes disclosure in relation to such

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stockholder’s vote; or (iv) the Corporation concludes in good faith that a bona fide dispute exists as to the authenticity of one or more proxies, ballots or votes, or as to the accuracy of any tabulation of such proxies, ballots or votes.

(b)           The inspectors of election and any authorized agents or other persons engaged in the receipt, count and tabulation of proxies and ballots shall be advised of this Section 1.14 and instructed to comply herewith.

(c)           The inspectors of election shall certify, to the best of their knowledge based on due inquiry, that proxies and ballots have been kept in confidence as required by this Section 1.14.

SECTION 1.15               No Stockholder Action by Written Consent.  Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of the stockholders of the Corporation, and the ability of the stockholders to consent in writing to the taking of any action is specifically denied.

ARTICLE II

BOARD OF DIRECTORS

SECTION 2.1                 General Powers; Membership Policies.  Except as may otherwise be provided by law, by the Certificate of Incorporation or by these By-Laws, the property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all the powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation directed or required to be exercised or done by the stockholders.

SECTION 2.2                 Number of Directors.  The Board of Directors of the Corporation shall consist of such number of directors as shall from time to time be fixed exclusively by resolution of the Board of Directors adopted by a majority of the entire Board of Directors. The Board of Directors shall at no time consist of fewer than five (5) directors nor more than eleven (11) directors. Directors shall be elected by stockholders by a plurality of the votes cast by holders of shares of the Corporation’s capital stock present in person or represented by proxy and entitled to vote thereon.

SECTION 2.3                 Classified Board; Election of Directors.  The Board of Directors of the Corporation shall be divided into three classes, designated Classes I, II and III, which shall be as nearly equal in number as possible. Directors of Class I shall hold office for an initial term expiring at the first annual meeting of stockholders to be held after the date hereof. Directors of Class II shall hold office for an initial term expiring at the second annual meeting of stockholders to be held after the date hereof. Directors of Class III shall hold office for an initial term of office expiring at the third annual meeting of stockholders to be held after the date hereof. Except as otherwise provided in Section 2.4 of these By-Laws and subject to the rights of the holders of

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shares of any class or series of Preferred Stock, at each annual meeting of stockholders of the Corporation, the respective successors of the directors whose terms are expiring shall be elected for terms expiring at the annual meeting of stockholders held in the third succeeding year.

SECTION 2.4                 Additional Directorships.  Newly created directorships or vacancies on the Board of Directors shall be filled by a majority of the directors then in office, regardless of whether such directors fulfill quorum requirements, or by a sole remaining director; and the newly created directorships shall be distributed among the three classes of directors so that, as nearly as possible, each class will consist of one-third (1/3) of the Corporation’s directors. Any director elected to fill any vacancy on the Board of Directors not resulting from an increase in the number of directors shall be of the same class as that of the director whose death, resignation, removal or other event caused the vacancy and shall have the same remaining term as that of his predecessor. A director elected to fill a vacancy or a newly created directorship shall hold office until such director’s successor has been elected and qualified or until such director’s earlier death, resignation or removal. Subject to the rights of the holders of any class or series of Preferred Stock, any vacancy or newly created directorship may also be filled by the vote of the holders of a majority in voting power of the capital stock issued and outstanding and entitled to vote. Directors may be removed only for cause, and only by the affirmative vote of at least a majority in voting power of all outstanding capital stock of the Corporation entitled to vote generally in the election of directors, voting as a single class.

SECTION 2.5                 Annual and Regular Meetings.  The annual meeting of the Board of Directors for the purpose of electing officers and for the transaction of such other business as may come before the meeting shall be held as soon as practicable following adjournment of the annual meeting of the stockholders. Notice of such annual meeting of the Board of Directors need not be given. The Board of Directors from time to time may by resolution provide for the holding of regular meetings and fix the place (which may be within or without the State of Delaware) and the date and hour of such meetings. Notice of regular meetings need not be given; provided, however, that if the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be mailed promptly, or sent by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, telegraph, facsimile, electronic mail or other electronic means, to each director who shall not have been present at the meeting at which such action was taken, addressed or transmitted to him or her at his or her usual place of business, or shall be delivered or transmitted to him or her personally. Notice of such action need not be given to any director who attends the first regular meeting after such action is taken without protesting the lack of notice to him or her, prior to or at the commencement of such meeting, or to any director who submits a signed waiver of notice, whether before or after such meeting.

SECTION 2.6                 Special Meetings; Notice.  Special meetings of the Board of Directors shall be held whenever called by the Chairman, any director or the Chief Executive Officer (or, in the event of the Chief Executive Officer’s absence or disability, by any other officer) at such place (within or without the State of Delaware), date and hour as may be specified in the respective notices or waivers of notice of such meetings. Special meetings of the Board of Directors may be called on twenty-four (24) hours’ notice, if notice is given to each director

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personally or by telephone, including a voice messaging system, or other system or technology designed to record and communicate messages, telegraph, facsimile, electronic mail or other electronic means, or on five (5) calendar days’ notice, if notice is mailed to each director, addressed or transmitted to him or her at such director’s usual place of business or other designated location. Notice of any special meeting shall be deemed to have been waived by any director who attends such meeting without protesting the lack of notice to him or her, prior to or at the commencement of such meeting, or to any director who submits a signed waiver of notice, whether before or after such meeting, and any business may be transacted thereat.

SECTION 2.7                 Quorum; Voting.  At all meetings of the Board of Directors, the presence of a majority of the directors shall constitute a quorum for the transaction of business. Except as otherwise required by law, the vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors.

SECTION 2.8                 Adjournment.  A majority of the directors present, whether or not a quorum is present, may adjourn any meeting of the Board of Directors to another time or place. No notice need be given of any adjourned meeting unless the time and place of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section 2.6 of these By-Laws shall be given to each director.

SECTION 2.9                 Action Without a Meeting.  Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission, and such writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board of Directors.

SECTION 2.10               Regulations; Manner of Acting.  To the extent consistent with applicable law, the Certificate of Incorporation and these By-Laws, the Board of Directors may adopt such rules and regulations for the conduct of meetings of the Board of Directors and for the management of the property, affairs and business of the Corporation as the Board of Directors may deem appropriate. The directors shall act only as a Board, and the individual directors shall have no power as such.

SECTION 2.11               Action by Telephonic Communications.  Members of the Board of Directors may participate in a meeting of the Board of Directors by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.

SECTION 2.12               Resignations.  Any director may resign at any time by submitting an electronic transmission or by delivering a written notice of resignation, signed by such director, to the Chairman or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery.

SECTION 2.13               Removal of Directors.  Any director may be removed at any time, but only for cause, upon the affirmative vote of the holders of a majority of the combined voting

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power of the then outstanding capital stock of the Corporation entitled to vote generally in the election of directors.

SECTION 2.14               Compensation.  The amount, if any, which each director shall be entitled to receive as compensation for his or her services as such shall be fixed from time to time by resolution of the Board of Directors.

SECTION 2.15               Reliance on Accounts and Reports, etc.  A director, or a member of any committee designated by the Board of Directors shall, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the Corporation and upon information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees designated by the Board of Directors, or by any other person as to the matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

ARTICLE III

BOARD COMMITTEES

SECTION 3.1                 How Constituted.  The Board of Directors may designate one or more Committees, including but not limited to an Executive Committee, an Audit Committee, a Compensation Committee, and a Corporate Governance Committee, each such Committee to consist of such number of directors as from time to time may be fixed by the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such Committee, who may replace any absent or disqualified member or members at any meeting of such Committee. Thereafter, members of each such Committee may be designated from time to time by the Board of Directors. Any such Committee may be abolished or re-designated from time to time by the Board of Directors. Each member (and each alternate member) of any such Committee (whether designated at an annual meeting of the Board of Directors or to fill a vacancy or otherwise) shall hold office until his or her successor shall have been designated or until he or she shall cease to be a director, or until his or her earlier death, resignation or removal.

SECTION 3.2                 Powers.

(a)           Executive Committee.  During the intervals between the meetings of the Board of Directors, the Executive Committee, except as otherwise provided in this section, and subject to the provisions of the Certificate of Incorporation, shall have and may exercise the powers and authority of the Board of Directors in the management of the property, affairs and business of the Corporation, including the power to declare dividends. At all times, a majority of the members of the Executive Committee necessary in order to constitute a quorum shall be U.S. citizens.

(b)           Audit Committee.  The Audit Committee, except as otherwise may be provided in any resolution of the Board of Directors or as may be required by applicable law or by the rules of any stock exchange upon which the securities of the Corporation may be listed or traded, shall have and may exercise the authority of the Board of Directors to:

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(i)            have direct responsibility for the selection, compensation, retention and oversight of the work of the Corporation’s independent auditors;

(ii)           set clear hiring policies for employees or former employees of the independent auditors;

(iii)          review the results and scope of the audit and other services provided by the Corporation’s independent auditors and discuss any audit problems or difficulties and management’s response;

(iv)          review reports by the Corporation’s independent auditors pertaining to the independent auditors’ internal quality-control procedures;

(v)           review the Corporation’s annual audited financial statement and quarterly financial statements and discuss the statements with management and the independent auditors;

(vi)          review and evaluate the Corporation’s internal control functions;

(vii)         review the Corporation’s compliance with legal and regulatory independence;

(viii)        review and discuss the Corporation’s earnings press releases, as well as financial information and earnings guidance provided to analysts and ratings agencies;

(ix)           review and discuss the Corporation’s risk assessment and risk management policies;

(x)            prepare an audit committee report required by the Securities and Exchange Commission to be included in the Corporation’s annual proxy statement; and

(xi)           establish procedures regarding complaints received by the Corporation or its employees regarding accounting, accounting controls or accounting matters.

(c)           Compensation Committee.  The Compensation Committee, except as otherwise may be provided in any resolution of the Board of Directors or as may be required by applicable law or by the rules of any stock exchange upon which the securities of the Corporation may be listed or traded, shall have and may exercise all the authority of the Board of Directors with respect to compensation, benefits and personnel administration of the employees of the Corporation to:

(i)            review and approve corporate goals and objectives relevant to the compensation of the Chief Executive Officer and the other executive officers of the Corporation and its subsidiaries;

(ii)           evaluate the performance of the Chief Executive Officer and the other executive officers in light of the corporate goals and objectives;

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(iii)          determine and approve the compensation of the Chief Executive Officer and the other executive officers of the Corporation and its subsidiaries;

(iv)          make recommendations to the Corporation’s Board of Directors regarding the salaries, incentive compensation plans and equity-based plans for the employees of the Corporation and its subsidiaries;

(v)           produce a compensation committee report on executive compensation as required by the Securities and Exchange Commission to be included in the Corporation’s annual proxy statement or annual report on Form 10-K filed with the Securities and Exchange Commission;

(vi)          oversee regulatory compliance with respect to compensation matters;

(vii)         review and approve any severance or similar termination payments proposed to be made to any current or former executive officer of the Corporation; and

(viii)        perform any other duties or responsibilities expressly delegated to the Compensation Committee by the Board of Directors relating to the Corporation’s compensation programs.

(d)           Corporate Governance Committee.  The Corporate Governance Committee, except as otherwise may be provided in any resolution of the Board of Directors or as required by applicable law or by the rules of any stock exchange upon which the securities of the Corporation may be listed or traded, shall:

(i)            review the structure of the Board of Directors, its committee structure, overall size, and the number of independent directors;

(ii)           identify candidates qualified to become board members, consistent with criteria approved by the Board of Directors;

(iii)          recommend the candidates identified to be selected as nominees for the next annual meeting of the shareholders;

(iv)          review and recommend directors to serve as members of each Committee;

(v)           develop, recommend, and oversee an annual self-evaluation process for the Board of Directors and its Committees;

(vi)          develop and recommend to the Board of Directors a set of corporate governance principles applicable to the Corporation;

(vii)         consider possible conflicts of interests of directors and any transactions involving related parties and make recommendations to the Board of Directors with respect to the determination of director independence;

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(viii)        review and make recommendations to the Board of Directors with respect to compensation arrangements for non-employee members of the Board of Directors; and

(ix)           oversee the evaluation of the Board of Directors and management.

(e)           Other Committees.  Each other Committee, except as otherwise provided in this section, shall have and may exercise such powers of the Board of Directors as may be provided by resolution or resolutions of the Board of Directors.

SECTION 3.3                 Proceedings.  Each Committee may, subject to approval of the Board of Directors, adopt a charter specifying its scope of responsibility and may fix its own rules of procedure and may meet at such place (within or without the State of Delaware), at such time and upon such notice, if any, as it shall determine from time to time. Each Committee shall keep minutes of its proceedings and shall report such proceedings to the Board of Directors at the meeting of the Board of Directors next following any such proceedings.

SECTION 3.4                 Quorum and Manner of Acting.  Except as may be otherwise provided in the resolution creating such Committee, at all meetings of any Committee the presence of members (or alternate members) constituting a majority of the total membership of such Committee shall constitute a quorum for the transaction of business. The act of the majority of the members present at any meeting at which a quorum is present shall be the act of such Committee. Any action required or permitted to be taken at any meeting of any such Committee may be taken without a meeting, if all members of such Committee shall consent to such action in writing or by electronic transmission, and such writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of the Committee. The members of any such Committee shall act only as a Committee, and the individual members of such Committee shall have no power as such.

SECTION 3.5                 Action by Telephonic Communications.  Members of any Committee designated by the Board of Directors may participate in a meeting of such Committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.

SECTION 3.6                 Resignations.  Any member of any Committee may resign at any time by delivering a written notice of resignation, signed by such member, to the Chairman or the Chief Executive Officer. Unless otherwise specified therein, such resignation shall take effect upon delivery.

SECTION 3.7                 Removal.  Any member (and any alternate member) of any Committee may be removed from his or her position as a member of such Committee at any time, either for or without cause, by resolution adopted by a majority of the whole Board of Directors.

SECTION 3.8                 Vacancies.  If any vacancy shall occur in any Committee, by reason of death, resignation, removal or otherwise, the remaining members (and alternate members) shall continue to act, and any such vacancy may be filled by the Board of Directors.

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ARTICLE IV

OFFICERS

SECTION 4.1                 Number.  The officers of the Corporation shall be elected by the Board of Directors and shall be a Chairman, a Chief Executive Officer, a Chief Operating Officer, a President, one or more Vice Presidents, a Chief Financial Officer, a Secretary, a Treasurer and a General Counsel. The Board of Directors may appoint such other officers as it may deem appropriate; provided that officers of the rank of Vice President and below may be appointed by the Compensation Committee. Such other officers shall exercise such powers and perform such duties as may be determined from time to time by the Board of Directors, the Chief Executive Officer, the Chief Operating Officer or the President. Any number of offices may be held by the same person. No officer, other than the Chairman, need be a director of the Corporation.

SECTION 4.2                 Election.  Unless otherwise determined by the Board of Directors, the officers of the Corporation shall be elected by the Board of Directors at the annual meeting of the Board of Directors, and shall be elected to hold office until the next succeeding annual meeting of the Board of Directors. In the event of the failure to elect officers at such meeting, officers may be elected at any regular or special meeting of the Board of Directors. Officers of the rank of Vice President and below may be elected by the Compensation Committee. Each officer shall hold office until such officer’s successor has been elected and qualified, or until such officer’s earlier death, resignation or removal.

SECTION 4.3                 Powers.  Each of the officers of the Corporation elected by the Board of Directors or appointed by an officer in accordance with these By-Laws shall have the powers and duties prescribed by law, by these By-Laws or by the Board of Directors and, in the case of appointed officers, the powers and duties prescribed by the appointing officer, and, unless otherwise prescribed by these By-Laws or by the Board of Directors or such appointing officer, shall have such further powers and duties as ordinarily pertain to that office.

SECTION 4.4                 Salaries.  Except as otherwise provided by Section 3.2 hereof, the salaries of all executive officers (as determined by the Board of Directors) of the Corporation shall be fixed by the Board of Directors.  The Chief Executive Officer shall fix the salaries of all non-executive officers.

SECTION 4.5                 Removal and Resignation; Vacancies.  Any officer may be removed for or without cause at any time by the Board of Directors. Any officer may resign at any time by delivering notice of resignation, either in writing signed by such officer or by electronic transmission, to the Board of Directors or the Chief Executive Officer. Unless otherwise specified therein, such resignation shall take effect upon delivery. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, shall be filled by the Board of Directors.

SECTION 4.6                 Authority and Duties of Officers.  The officers of the Corporation shall have such authority and shall exercise such powers and perform such duties as may be specified

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in these By-Laws, except that in any event each officer shall exercise such powers and perform such duties as may be required by law.

SECTION 4.7                 The Chairman.  The directors shall elect from among the members of the Board of Directors a Chairman, who shall be a U.S. citizen. The Chairman shall have such duties and powers as set forth in these By-Laws or as shall otherwise be conferred upon the Chairman from time to time by the Board of Directors. The Chairman shall preside over all meetings of the stockholders and the Board of Directors.

SECTION 4.8                 The Chief Executive Officer.  The Chief Executive Officer shall have general control and supervision of the policies and operations of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer shall be a U.S. citizen. He or she shall manage and administer the Corporation’s business and affairs and shall also perform all duties and exercise all powers usually pertaining to the office of a chief executive officer of a corporation. He or she shall have the authority to sign, in the name and on behalf of the Corporation, checks, orders, contracts, leases, notes, drafts and other documents and instruments in connection with the business of the Corporation and together with the Secretary, or any Assistant Secretary, conveyances of real estate and other documents and instruments to which the seal of the Corporation is affixed. He or she shall have the authority to cause the employment or appointment of such employees and agents of the Corporation as the conduct of the business of the Corporation may require, to fix their compensation, and to remove or suspend any employee or agent elected or appointed by the Chief Executive Officer or the Board of Directors. The Chief Executive Officer shall perform such other duties and have such other powers as the Board of Directors or the Chairman may from time to time prescribe.

SECTION 4.9                 The Chief Operating Officer.   The Chief Operating Officer, subject to the authority of the Chief Executive Officer, shall have primary responsibility for, and authority with respect to, the management of the day-to-day business and affairs of the Corporation, to the extent prescribed by the Chief Executive Officer. The Chief Operating Officer shall have the authority to sign, in the name and on behalf of the Corporation, checks, orders, contracts, leases, notes, drafts and other documents and instruments and perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe.

SECTION 4.10               The President.   The President shall perform such duties and have such powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe.

SECTION 4.11               Absence or Disability of the Chief Executive Officer.  In the event of the absence of the Chief Executive Officer or in the event of the Chief Executive Officer’s inability to act, the officer, if any, designated by resolution of the Board of Directors (or in the event there is more than one such designated officer, then in the order of designation) shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers and be subject to all the restrictions of the Chief Executive Officer. Any such officer or officers acting in the absence or inability to act of the Chief Executive Officer shall be U.S. citizens.

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SECTION 4.12               Vice Presidents.  The Vice Presidents shall have such designations and shall perform such duties and have such powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe.

SECTION 4.13               The Secretary.  The Secretary shall keep or cause to be kept a record of all the proceedings of the meetings of the stockholders and of the Board of Directors, and shall cause all notices to be duly given in accordance with the provisions of these By-Laws and as required by law. The Secretary shall be the custodian of the records and of the seal of the Corporation and cause such seal (or a facsimile thereof) to be affixed to instruments when appropriate. The Secretary shall perform, in general, all duties incident to the office of secretary and such other duties as may be specified in these By-Laws or as may be assigned to him or her from time to time by the Board of Directors or the Chief Executive Officer.

SECTION 4.14               The Chief Financial Officer.  The Chief Financial Officer shall be the principal financial officer of the Corporation and shall have responsibility for the financial affairs of the Corporation and shall keep or cause to be kept correct records of the business and transactions of the Corporation. The Chief Financial Officer shall perform such other duties and exercise such other powers as are normally incident to the office of chief financial officer and as may be prescribed by the Board of Directors or the Chief Executive Officer from time to time.

SECTION 4.15               The Treasurer.  The Treasurer shall have charge and supervision over and be responsible for the moneys, securities, receipts and disbursements of the Corporation, and shall keep or cause to be kept full and accurate records of all receipts of the Corporation, and shall cause the moneys and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation. The Treasurer shall cause the moneys of the Corporation to be disbursed by checks or drafts upon the authorized depositaries of the Corporation and cause to be taken and preserved proper vouchers for all moneys disbursed. The Treasurer shall perform, in general, all duties incident to the office of treasurer and such other duties as may be specified in these By-Laws or as may be assigned to him or her from time to time by the Board of Directors, the Chief Executive Officer, or the Chief Financial Officer.

SECTION 4.16               The General Counsel.  The General Counsel shall have responsibility for the legal affairs of the Corporation. The General Counsel shall perform such other duties and exercise such other powers as are normally incident to the office of general counsel and as may be prescribed by the Board of Directors or the Chief Executive Officer from time to time.

SECTION 4.17               Additional Officers.  The Board of Directors from time to time may delegate to any officer the power to appoint subordinate officers and to prescribe their respective rights, terms of office, authorities and duties. Any such officer may remove any such subordinate officer appointed by him or her, for or without cause, but such removal shall be without prejudice to the contractual rights of such subordinate officer or agent, if any, with the Corporation.

SECTION 4.18               Security.  The Board of Directors may require any officer, agent or employee of the Corporation to provide security for the faithful performance of such officer’s,

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agent’s or employee’s duties, in such amount and of such character as may be determined from time to time by the Board of Directors.

ARTICLE V

CAPITAL STOCK

SECTION 5.1                 Certificates of Stock, Uncertificated Shares.  The shares of capital stock of the Corporation may be either represented by certificates or uncertificated shares; provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the capital stock of the Corporation shall be uncertificated shares. Any resolution of the Board of Directors providing for uncertificated shares shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Subject to Section 5.3 below, notwithstanding the adoption of such resolution by the Board of Directors, every holder of capital stock represented by certificates and, upon request, every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of, the Corporation, (a) by the Chairman, the Chief Executive Officer, the Chief Operating Officer, the President or a Vice President; and (b) by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, representing the number of shares registered in certificate form. Such certificate shall be in such form as the Board of Directors may determine, to the extent consistent with applicable law, the Certificate of Incorporation and these By-Laws.

SECTION 5.2                 Signatures; Facsimile.  All signatures on the certificate referred to in Section 5.1 of these By-Laws may be in facsimile, engraved or printed form, to the extent permitted by law. In case any officer, transfer agent or registrar who has signed, or whose facsimile, engraved or printed signature has been placed upon a certificate representing shares of capital stock of the Corporation shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

SECTION 5.3                 Lost, Stolen or Destroyed Certificates.  The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon delivery to the Board of Directors of an affidavit of the owner or owners of such certificate, setting forth such allegation. The Board of Directors may require the owner of such lost, stolen or destroyed certificate, or his or her legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate.

SECTION 5.4                 Transfer of Stock.  Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares of stock, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Within a reasonable time after the transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on the certificates pursuant to Sections 151, 156, 202(a) or

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218(a) of the DGCL. Subject to the provisions of the Certificate of Incorporation and these By-Laws, the Board of Directors may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, transfer and registration of shares of the Corporation. For so long as required by the rules of any exchange upon which the securities of the Corporation may be listed or traded, the Corporation shall not close, and shall not permit to be closed, the transfer books on which transfers of such securities are recorded.

SECTION 5.5                 Registered Stockholders.  To the fullest extent permitted by law, prior to due surrender of a certificate for registration of transfer, the Corporation may treat the registered owner as the person exclusively entitled to receive dividends and other distributions, to vote, to receive notice and otherwise to exercise all the rights and powers of the owner of the shares represented by such certificate, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have notice of such claim or interests. Whenever any transfer of shares of capital stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer or uncertificated shares are requested to be transferred, both the transferor and transferee request the Corporation to do so.

SECTION 5.6                 Transfer Agent and Registrar.  The Board of Directors may appoint one or more transfer agents and one or more registrars, and may require all certificates representing shares to bear the signature of any such transfer agents or registrars.

ARTICLE VI

INDEMNIFICATION

To the fullest extent permitted by the laws of the State of Delaware:

SECTION 6.1                 Nature of Indemnity.  Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer or trustee of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in these By-Laws with respect to proceedings to enforce rights to indemnification and “advancement of expenses” (as defined below), the Corporation shall indemnify any such indemnitee in

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connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Furthermore, the Corporation may only indemnify such person if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding had no reasonable cause to believe that his or her conduct was unlawful; except that in the case of an action or suit by or in the name of the Corporation to procure a judgment in its favor (a) such indemnification shall be limited to expenses (including attorneys’ fees) actually and reasonably incurred by such person in the defense or settlement of such action or suit; and (b) no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.

The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

SECTION 6.2                 Advance Payment of Expenses.  In addition to the right to indemnification conferred in this Article VI, an indemnitee shall also have the right to be paid by the Corporation the expenses (including attorneys’ fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an “advancement of expenses”); provided, however, that, if the DGCL requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this Article VI or otherwise. Such expenses (including attorneys’ fees) incurred by former directors and officers shall be so paid upon such terms and conditions, if any, as the Corporation deems appropriate. The Board of Directors may authorize the Corporation’s counsel to represent such director or officer in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding.

SECTION 6.3                 Procedure for Indemnification.  If, following final disposition of a proceeding, a claim for indemnification under this Article VI is not paid in full by the Corporation within sixty (60) calendar days after a written claim has been received by the Corporation, or if, whether before or after final disposition of a proceeding, a claim for an advancement of expenses under this Article VI is not paid in full by the Corporation within

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twenty (20) calendar days after a written claim has been received by the Corporation, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit, including without limitation reasonable attorneys’ fees. In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that the indemnitee has not met any applicable standard for indemnification set forth in the DGCL.  In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VI or otherwise shall be on the Corporation.

SECTION 6.4                 Preservation of Other Rights.  The rights to indemnification and to the advancement of expenses conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or directors or otherwise.

SECTION 6.5                 Insurance.  The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

SECTION 6.6                 Employees and Agents.  The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VI with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.

SECTION 6.7                 Survival.  The rights conferred upon indemnitees in this Article VI shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the indemnitee’s heirs, executors and

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administrators. Any amendment, alteration or repeal of this Article VI that adversely affects any right of an indemnitee or its successors shall be prospective only and shall not limit or eliminate any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment, alteration or repeal.

ARTICLE VII

OFFICES

SECTION 7.1                 Registered Office.  The registered office of the Corporation in the State of Delaware shall be located at The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, New Castle County, Delaware 19801. The name and address of the Corporation’s registered agent at such address is The Corporation Trust Company.

SECTION 7.2                 Other Offices.  The Corporation may maintain offices or places of business at such other locations within or without the State of Delaware as the Board of Directors may from time to time determine or as the business of the Corporation may require.

ARTICLE VIII

GENERAL PROVISIONS

SECTION 8.1                 Dividends.  Subject to any applicable provisions of law and the Certificate of Incorporation or any resolution or resolutions adopted by the Board of Directors pursuant to authority expressly vested in it by the Certificate of Incorporation and Section 151 of the DGCL, the Board of Directors may, at any regular or special meeting of the Board of Directors, out of funds legally available therefore, declare dividends upon the capital stock of the Corporation, and any such dividend may be paid in cash, property, or shares of the Corporation’s stock.

A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors, or by any other person as to matters the director reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid.

SECTION 8.2                 Reserves.  There may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Board of Directors may similarly modify or abolish any such reserve.

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SECTION 8.3                 Execution of Instruments.  The Chief Executive Officer, the Chief Operating Officer, the President, the Chief Financial Officer, any Vice President, the Secretary or the Treasurer may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors or the Chief Executive Officer may authorize any other officer or agent to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization may be general or limited to specific contracts or instruments.

SECTION 8.4                 Facsimile Signatures.  In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By-Laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

SECTION 8.5                 Corporate Books.  The books of the Corporation may be kept outside of the State of Delaware at such place or places as the Board of Directors may from time to time determine.

SECTION 8.6                 Corporate Indebtedness.  No loan shall be contracted on behalf of the Corporation, and no evidence of indebtedness shall be issued in its name, unless authorized by the Board of Directors, the Chief Executive Officer or the Chief Financial Officer. Such authorization may be general or confined to specific instances. Loans so authorized may be effected at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual. All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans shall be made, executed and delivered as the Board of Directors, the Chief Executive Officer or the Chief Financial Officer shall authorize. When so authorized by the Board of Directors, the Chief Executive Officer or the Chief Financial Officer, any part of or all the properties, including contract rights, assets, business or good will of the Corporation, whether then owned or thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in trust as security for the payment of such bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation, and of the interest thereon, by instruments executed and delivered in the name of the Corporation.

SECTION 8.7                 Deposits.  Any funds of the Corporation may be deposited from time to time in such banks, trust companies or other depositaries as may be determined by the Board of Directors, the Chief Executive Officer, the Chief Financial Officer or the Treasurer or by such officers or agents as may be authorized by the Board of Directors or the Chief Executive Officer, the Treasurer or the Chief Financial Officer or the Treasurer to make such determination.

SECTION 8.8                 Checks.  All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as the Board of Directors or the Chief Executive Officer from time to time may determine.

SECTION 8.9                 Sale, Transfer, etc. of Securities.  To the extent authorized by the Board of Directors or by the Chief Executive Officer, the Chief Operating Officer, the President,

25

the Chief Financial Officer, any Vice President, the Secretary or the Treasurer or any other officers designated by the Board of Directors or the Chief Executive Officer may sell, transfer, endorse, and assign any shares of stock, bonds or other securities owned by or held in the name of the Corporation, and may make, execute and deliver in the name of the Corporation, under its corporate seal (if required), any instruments that may be appropriate to effect any such sale, transfer, endorsement or assignment.

SECTION 8.10               Voting as Stockholder.  Unless otherwise determined by resolution of the Board of Directors, the Chief Executive Officer, the Chief Operating Officer, the President or any Vice President shall have full power and authority on behalf of the Corporation to attend any meeting of stockholders of any corporation in which the Corporation may hold stock, and to act, vote (or execute proxies to vote) and exercise in person or by proxy all other rights, powers and privileges incident to the ownership of such stock. Such officers acting on behalf of the Corporation shall have full power and authority to execute any instrument expressing consent to or dissent from any action of any such corporation without a meeting. The Board of Directors may by resolution from time to time confer such power and authority upon any other person or persons.

SECTION 8.11               Fiscal Year.  The fiscal year of the Corporation shall be fixed by the Board of Directors.

SECTION 8.12               Seal.  The seal of the Corporation shall contain the name of the Corporation, the year of its incorporation and the words “Corporate Seal” and “Delaware.” The form of such seal shall be subject to alteration by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced, or may be used in any other lawful manner.

ARTICLE IX

AMENDMENT OF BY-LAWS

SECTION 9.1                 Amendment.  Subject to the provisions of this Section 9.1 and the Certificate of Incorporation and any Preferred Stock Certificate of Designations, these By-Laws (including this Article IX) may be amended, altered or repealed:

(a)           by resolution adopted by a majority of the Board of Directors without a stockholder vote at any special or regular meeting of the Board of Directors if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting; provided, however, that the amendment, alteration or repeal of the provisions of Sections 1.2, 1.15, 2.2, 2.3, or 2.13 hereof or this Section 9.1 shall require the affirmative vote of the holders of two-thirds (2/3) or more of the combined voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors; or

(b)           at any regular or special meeting of the stockholders upon the affirmative vote of the holders of two-thirds (2/3) or more of the combined voting power of the outstanding shares

26

of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting.

ARTICLE X

CONSTRUCTION

SECTION 10.1               Construction.  In the event of any conflict between the provisions of these By-Laws as in effect from time to time and the provisions of the Certificate of Incorporation of the Corporation as in effect from time to time, the provisions of such Certificate of Incorporation shall be controlling.

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EX-4.4

Exhibit 4.4

COMMON STOCK		COMMON STOCK
[GRAPHIC]		[GRAPHIC]
FRP
THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NY	a Delaware Corporation	CUSIP 305560 10 4

THIS CERTIFIES THAT

IS THE RECORD HOLDER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF

FAIRPOINT COMMUNICATIONS, INC., transferable only on the share register of the Corporation, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed or assigned. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.

WITNESS the facsimile Seal of the Corporation and the facsimile signatures of its duly authorized officers to be hereunto affixed.

Dated:

	[SEAL]
	FAIRPOINT COMMUNICATIONS INC.
Senior Vice President and Secretary	INCORPORATED	Vice President and Treasurer
	SEAL
	DELAWARE

COUNTERSIGNED AND REGISTERED:
	THE BANK OF NEW YORK
		TRANSFER AGENT AND REGISTRAR
BY:
			AUTHORIZED SIGNATURE

FairPoint Communications, Inc. will furnish to any shareholder, on request in writing and without charge, a statement of the designations, relative rights, preferences and limitations applicable to each class of the Corporation’s stock, the variations in rights, preferences and limitations determined for each series of the Corporation’s stock, and the authority of the Corporation’s board of directors to determine variations for future series of the Corporation’s stock. Requests should be directed to the Corporation’s General Counsel, Shirley J. Linn, Esq., at FairPoint Communications, Inc., 521 E. Morehead Street, Suite 250, Charlotte, NC, 28202.

The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM	—	as tenants in common	UNIF GIFT MIN ACT —		Custodian
TEN ENT	—	as tenants by the entireties		(Cust)		(Minor)
JT TEN	—	as joint tenants with right of		under Uniform Gifts to Minors Act
		survivorship and not as tenants in
		common		(State)

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED,                                             HEREBY SELL, ASSIGN AND TRANSFER UNTO

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
		Shares
represented by the within Certificate, and do hereby irrevocably constitute and appoint
	Attorney
to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises.
Dated

X
X
NOTICE:	THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR. WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS, AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15.

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

EX-5.1

Exhibit 5.1

January 28, 2005

FairPoint Communications, Inc.

521 East Morehead Street, Suite 250

Charlotte, North Carolina  28202

Re:FairPoint Communications, Inc. Registration Statement on Form S-1

Ladies and Gentlemen:

We have acted as counsel to FairPoint Communications, Inc., a Delaware corporation (the “Company”), in connection with the preparation and filing with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”), of the Registration Statement on Form S-1 (File No. 333-113937) of the Company (as amended through the date hereof, the “Registration Statement”) relating to the proposed offer and sale (the “Offering”) of up to an aggregate of 28,750,000 shares of the Company’s common stock, par value $.01 per share, by the Company and certain stockholders of the Company (the “Selling Stockholders”, and such shares of Common Stock, including up to 3,750,000 shares that may be sold by the Selling Stockholders upon exercise of the underwriters’ over-allotment option and any additional shares that may be registered in accordance with Rule 462(b) under the Securities Act, the “Shares”) pursuant to an underwriting agreement (the “Underwriting Agreement”) to be entered into among the Company, the Selling Stockholders and the several underwriters named therein.  We refer to the Shares to be issued and sold by the Company pursuant to the Underwriting Agreement as the “Company Shares” and to the Shares to be sold by the Selling Stockholders pursuant to the Underwriting Agreement as the “Stockholder Shares”.

In connection with this opinion, we have examined originals or copies of such documents, resolutions, certificates and instruments of the Company as we have deemed necessary to form a basis for the opinions hereinafter expressed.  In addition, we have reviewed certificates of public officials, statutes, records and such other instruments and documents and have made such investigations of law as we have deemed necessary to form a basis for the opinion hereinafter expressed.  In our examination of the foregoing, we have assumed, without independent investigation, (i) the genuineness of all signatures and the authority of all persons or entities

1

 signing all documents examined by us, (ii) the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies and (iii) the authenticity of the originals of such latter documents. With regard to certain factual matters, we have relied, without independent investigation or verification, upon, and assumed the accuracy and completeness of, statements and representations of representatives of the Company.  We have also assumed that the Company Shares will be sold for a price per share not less than the par value per share of the Common Stock, and that the Shares will be issued and sold as described in the Registration Statement and the Underwriting Agreement.

Based upon and subject to the foregoing, we are of the opinion that:

1.The Company Shares have been duly authorized, and when issued, delivered and paid for in the manner set forth in the Registration Statement and pursuant to the Underwriting Agreement, will be validly issued, fully paid and nonassessable.

2.The Stockholder Shares have been duly authorized and are validly issued, fully paid and nonassessable.

We are members of the Bar of the State of New York, and accordingly, do not purport to be experts on or to be qualified to express any opinion herein concerning the laws of any jurisdiction other than laws of the State of New York and the Delaware General Corporation Law, including the applicable provisions of the Delaware Constitution and the reported cases interpreting those laws, as currently in effect.

This opinion letter deals only with the specified legal issues expressly addressed herein, and you should not infer any opinion that is not explicitly addressed herein from any matter stated in this letter.

We consent to the use of this opinion as an exhibit to the Registration Statement, to the reference to our firm under the caption “Legal Matters” in the Prospectus which is a part of the Registration Statement and to the incorporation by reference of this opinion and consent as exhibits to any registration statement filed in accordance with Rule 462(b) under the Securities Act relating to the Offering.  In giving such consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations thereunder.  This opinion is rendered to you as of the date hereof and we assume no obligation to advise you or any other person hereafter with regard to

2

any change after the date hereof in the circumstances or the law that may bear on the matters set forth herein even though the change may affect the legal analysis or a legal conclusion or other matters in this letter.

Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker
	LLP

3

EX-8.1

Exhibit 8.1

January 28, 2005 32367.00019

FairPoint Communications, Inc.

521 East Morehead Street

Suite 250

Charlotte, NC  28202

Ladies and Gentlemen:

We have acted as special tax counsel to FairPoint Communications, Inc., a Delaware corporation (the “Company”), in connection with the preparation and filing with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”), of the Registration Statement on Form S-1 (File No. 333-113937) of the Company (as amended through the date hereof, the “Registration Statement”) relating to the proposed offer and sale of up to an aggregate of 28,750,000 shares of the Company’s common stock, par value $.01 per share, by the Company and certain stockholders of the Company (the “Selling Stockholders”), and any additional shares that may be registered in accordance with Rule 462(b) under the Securities Act, pursuant to an underwriting agreement to be entered into among the Company, the Selling Stockholders and the several underwriters named therein.

In connection with this opinion, we have examined originals or copies of such documents, resolutions, certificates and instruments of the Company as we have deemed necessary to form a basis for the opinions hereinafter expressed.  In addition, we have reviewed certificates of public officials, statutes, records and such other instruments and documents and have made such investigations of law as we have deemed necessary to form a basis for the opinion hereinafter expressed.

In our examination of the foregoing, we have assumed, without independent investigation, (i) the genuineness of all signatures and the authority of all persons or entities signing all documents examined by us, (ii) the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies and (iii) the authenticity of the originals of such latter documents. With regard to certain factual matters, we have relied, without independent investigation or verification, upon, and assumed the accuracy and completeness of, statements and representations of representatives of the Company.  We have also relied upon certain factual representations of, and determinations by the Company, and financial analyses prepared by the Company.

Our opinion set forth below is based on the Internal Revenue Code of 1986, as amended, Treasury Regulations promulgated thereunder, administrative pronouncements and judicial precedents, all as of the date hereof.  The foregoing authorities may be repealed, revoked, overruled or modified, and any such change may apply retroactively.

Based upon the foregoing, and subject to the qualifications and limitations stated herein, the statements set forth in the Registration Statement under the caption “Certain United States Federal Tax Considerations,” insofar as they related to matters of United States federal income tax law and regulations or legal conclusions with respect thereto, constitute our opinion as to those certain material United States federal income tax consequences identified therein as in counsel’s opinion, as of the date hereof.

We express no opinion with respect to the transactions referred to herein or in the Registration Statement other than as expressly set forth herein.  Our opinion is not binding on the Internal Revenue Service or the courts, any of which could take a contrary position.

We are members of the Bar of the State of New York, and we do not express any opinion herein concerning any law other than the federal income tax law of the United States.

We consent to the use of this opinion as an exhibit to the Registration Statement and the reference to our firm under the captions “Certain United States Federal Tax Considerations” and “Legal Matters” in the Prospectus which is a part of the Registration Statement.  In giving such consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations thereunder.  This opinion is rendered to you as of the date hereof and we assume no obligation to advise you or any other person hereafter with regard to any change after the date hereof in the circumstances or the law that may bear on the matters set forth herein even though the change may affect the legal analysis or a legal conclusion or other matters in this letter.

Very truly yours,

/s/ Paul, Hastings, Janofsky & Walker LLP

EX-10.1

Exhibit 10.1

CREDIT AGREEMENT

among

FAIRPOINT COMMUNICATIONS, INC.,

VARIOUS LENDING INSTITUTIONS,

BANC OF AMERICA SECURITIES LLC,
as SYNDICATION AGENT,

[      ]
and
[        ],
as CO-DOCUMENTATION AGENTS,

and

DEUTSCHE BANK TRUST COMPANY AMERICAS,
as ADMINISTRATIVE AGENT

Dated as of February     , 2005

DEUTSCHE BANK SECURITIES, INC.
and
BANC OF AMERICA SECURITIES LLC,
as JOINT LEAD ARRANGERS,

and

DEUTSCHE BANK SECURITIES, INC.,

BANC OF AMERICA SECURITIES,

GOLDMAN SACHS CREDIT PARTNERS, L.P.,

and

MORGAN STANLEY SENIOR FUNDING INC.,
as JOINT BOOK RUNNING MANAGERS

TABLE OF CONTENTS

3.02 Mandatory Prepayments

3.03 Method and Place of Payment

3.04 Net Payments

SECTION 4. Conditions Precedent

4.01 Conditions Precedent to Initial Borrowing Date and the Initial Incurrence of Loans

4.02 Conditions Precedent to All Loans (other than RF Loans and Delayed-Draw Term Loans Incurred to Finance an Optional Non-2008 Tender Offer Notes Redemption)

i

4.03 Special Condition Precedent to Incurrence of RF Loans and Delayed-Draw Term Loans Incurred to Finance an Optional Non-2008 Tender Offer Notes Redemption

SECTION 5. Representations, Warranties and Agreements

5.01 Company Status

5.02 Company Power and Authority

5.03 No Violation

5.04 Litigation

5.05 Use of Proceeds; Margin Regulations

5.06 Governmental Approvals

5.07 Investment Company Act

5.08 Public Utility Holding Company Act

5.09 True and Complete Disclosure

5.10 Financial Condition; Financial Statements

5.11 Security Interests

5.12 Compliance With Statutes

5.13 Tax Returns and Payments

5.14 Compliance with ERISA

5.15 Subsidiaries

5.16 Intellectual Property

5.17 Environmental Matters

5.18 Labor Relations

5.19 Subordination

5.20 Capitalization

SECTION 6. Affirmative Covenants

6.01 Information Covenants

6.02 Books, Records and Inspections

6.03 Insurance

6.04 Payment of Taxes

6.05 Company Franchises

6.06 Compliance with Statutes, etc.

6.07 ERISA

6.08 Good Repair

6.09 End of Fiscal Years; Fiscal Quarters; Etc.

6.10 Permitted Acquisitions

6.11 CoBank Capital

6.12 Margin Stock

6.13 Post-Closing Refinancing

6.14 Special Covenant Regarding Cash Management Policy

6.15 PIK Requirements.

SECTION 7. Negative Covenants

7.01 Changes in Business

7.02 Consolidation, Merger, Sale or Purchase of Assets, etc.

7.03 Liens

ii

7.04 Indebtedness

7.05 Capital Expenditures.

7.06 Advances, Investments and Loans

7.07 Limitation on Creation of Subsidiaries

7.08 Modifications

7.09 Restricted Payments, Etc.

7.10 Transactions with Affiliates

7.11 Interest Coverage Ratio

7.12 Leverage Ratio

7.13 Limitation On Issuance of Equity Interests

7.14 Designated Senior Debt

SECTION 8. Events of Default

8.01 Payments

8.02 Representations, etc.

8.03 Covenants

8.04 Default Under Other Agreements

8.05 Bankruptcy, etc.

8.06 ERISA

8.07 Pledge Agreement

8.08 Subsidiary Guaranty

8.09 Judgments

SECTION 9. Definitions

SECTION 10. The Agents

10.01 Appointment

10.02 Nature of Duties

10.03 Certain Rights of the Agents

10.04 Reliance by Agents

10.05 Notice of Default, etc.

10.06 Nonreliance on Agents and Other Lenders

10.07 Indemnification

10.08 Agents in their Individual Capacities

10.09 Holders

10.10 Resignation of the Agents

10.11 Collateral Matters

10.12 Delivery of Information

SECTION 11. Miscellaneous

11.01 Payment of Expenses, etc.

11.02 Right of Setoff

11.03 Notices

11.04 Benefit of Agreement

11.05 No Waiver; Remedies Cumulative

11.06 Payments Pro Rata

iii

11.07 Calculations; Computations

11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial

11.09 Counterparts

11.10 Effectiveness

11.11 Headings Descriptive

11.12 Amendment or Waiver

11.13 Survival

11.14 Domicile of Loans

11.15 Confidentiality

11.16 Lender Register

11.17 Patriot Act Notice

11.18 Post-Closing Actions

ANNEX I	—	Commitments
ANNEX II	—	Addresses
ANNEX III	—	Subsidiaries
ANNEX IV	—	ERISA
ANNEX V	—	Existing Liens
ANNEX VI	—	Scheduled Existing Indebtedness
ANNEX VII	—	Existing Investments
ANNEX VIII	—	Affiliate Transactions
ANNEX IX	—	Existing Letters of Credit

EXHIBIT A-1	—	Form of Notice of Borrowing
EXHIBIT A-2	—	Form of Letter of Credit Request
EXHIBIT A-3	—	Form of Notice of Conversion/Continuation
EXHIBIT B-1	—	Form of B Term Note
EXHIBIT B-2	—	Form of Delayed-Draw Term Note
EXHIBIT B-3	—	Form of RF Note
EXHIBIT B-4	—	Form of Swingline Note
EXHIBIT C	—	Form of Section 3.04 Certificate
EXHIBIT D	—	Form of Opinion of Paul, Hastings, Janofsky & Walker LLP
EXHIBIT E	—	Form of Officer’s Certificate
EXHIBIT F	—	Form of Subsidiary Guaranty
EXHIBIT G	—	Form of Pledge Agreement
EXHIBIT H	—	Form of Solvency Certificate
EXHIBIT I	—	Form of Assignment Agreement
EXHIBIT J	—	Form of Intercompany Subordination Agreement
EXHIBIT K	—	Form of Intercompany Note
EXHIBIT L	—	Form of Incremental B Term Commitment Agreement

iv

CREDIT AGREEMENT, dated as of February     , 2005, among FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation (the “Borrower”), the Lenders from time to time party hereto, BANC OF AMERICA SECURITIES LLC, as Syndication Agent (in such capacity, the “Syndication Agent”), [                          ] and [                          ], as Co-Documentation Agents (in such capacity, each, a “Co-Documentation Agent” and, collectively, the “Co-Documentation Agents”), and DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent (in such capacity, the “Administrative Agent” and, together with the Syndication Agent and the Co-Documentation Agents, collectively, the “Agents”).  Unless otherwise defined herein, all capitalized terms used herein and defined in Section 9 are used herein as so defined.

W I T N E S S E T H :

WHEREAS, subject to and upon the terms and conditions set forth herein, the Lenders are willing to make available to the Borrower the respective credit facilities provided for herein;

NOW, THEREFORE, IT IS AGREED:

SECTION 1.  Amount and Terms of Credit.

1.01  Commitment.  Subject to and upon the terms and conditions herein set forth (including, in the case of Incremental B Term Loans, the terms and conditions of Section 1.14), each Lender severally agrees to make and/or continue a loan or loans (each, a “Loan” and, collectively, the “Loans”) to the Borrower, as set forth below:

(a)           Loans under the Initial B Term Facility (each, an “Initial B Term Loan” and, collectively, the “Initial B Term Loans”) (i) shall be made to the Borrower by each Lender with an Initial B Term Commitment pursuant to a single drawing on the Initial Borrowing Date, (ii) except as hereinafter provided, may, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (x) all Initial B Term Loans made as part of the same Borrowing shall, unless specifically provided herein, consist of Initial B Term Loans of the same Type and (y) unless the Administrative Agent has determined that the Syndication Date has occurred (at which time this clause (y) shall no longer be applicable), no more than three Borrowings of Initial B Term Loans to be maintained as Eurodollar Loans may be incurred prior to the 90th day after the Initial Borrowing Date (or, if later, the last day of the Interest Period applicable to the third Borrowing of Eurodollar Loans referred to below), each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and the first of which Borrowings may be made no earlier than the fourth Business Day, and no later than the fifth Business Day, after the Initial Borrowing Date, the second of which Borrowings may only be made on the last day of the Interest Period of the first such Borrowing and the third of which Borrowings may only be made on the last day of the Interest Period of the second such Borrowing, and (iii) shall not exceed in aggregate principal amount for any Lender in respect of any incurrence of Initial B Term Loans the Initial B Term Commitment, if any, of such Lender as in effect immediately

prior to such incurrence.  Once prepaid or repaid, Initial B Term Loans may not be reborrowed.

(b)           Loans under the Delayed-Draw Term Facility (each, a “Delayed-Draw Term Loan” and, collectively, the “Delayed-Draw Term Loans”) (i) shall be made to the Borrower by each Lender with a Delayed-Draw Term Commitment pursuant to one or more drawings after the Initial Borrowing Date for the purposes described in Section 5.05(b), (ii) except as hereinafter provided, may, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that all Delayed-Draw Term Loans made as part of the same Borrowing shall, unless specifically provided herein, consist of Delayed-Draw Term Loans of the same Type and (iii) shall not exceed in aggregate principal amount for any Lender in respect of any incurrence of Delayed-Draw Term Loans the Delayed-Draw Term Commitment, if any, of such Lender as in effect immediately prior to such incurrence.  Once prepaid or repaid, Delayed-Draw Term Loans may not be reborrowed.

(c)           Loans under the Revolving Facility (each, an “RF Loan” and, collectively, the “RF Loans”) (i) shall be made to the Borrower at any time and from time to time on and after the Initial Borrowing Date and prior to the RF Maturity Date, (ii) except as hereinafter provided, may, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (x) all RF Loans made as part of the same Borrowing shall, unless otherwise specifically provided herein, consist of RF Loans of the same Type and (y) unless the Administrative Agent has determined that the Syndication Date has occurred (at which time this clause (y) shall no longer be applicable), no more than three Borrowings of RF Loans to be maintained as Eurodollar Loans may be incurred prior to the 90th day after the Initial Borrowing Date (or, if later, the last day of the Interest Period applicable to the third Borrowing of Eurodollar Loans referred to below), each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and the first of which Borrowings may only be made on the same date as the initial Borrowing of Initial B Term Loans that are maintained as Eurodollar Loans, the second of which Borrowings may only be made on the last day of the Interest Period of the first such Borrowing and the third of which Borrowings may only be made on the last day of the Interest Period of the second such Borrowing, (iii) may be repaid and reborrowed in accordance with the provisions hereof, and (iv) shall not exceed (giving effect to any incurrence thereof and the use of the proceeds of such incurrence) for any Lender in aggregate principal amount at any time outstanding that amount which, when added to such Lender’s Percentage of the sum of (x) the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of RF Loans) at such time and (y) the outstanding principal amount of Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of RF Loans) at such time, equals the Revolving Commitment, if any, of such Lender at such time.

(d)           Subject to and upon the terms and conditions herein set forth, the Swingline Lender agrees to make at any time and from time to time after the Initial Borrowing Date and prior to the Swingline Expiry Date, a loan or loans to the Borrower

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(each, a “Swingline Loan,” and, collectively the “Swingline Loans”), which Swingline Loans (i) shall be made and maintained as Base Rate Loans, (ii) may be repaid and reborrowed in accordance with the provisions hereof, (iii) shall not exceed in aggregate principal amount at any time outstanding, when combined with the aggregate principal amount of all RF Loans then outstanding (exclusive of RF Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Swingline Loans) and the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Swingline Loans) at such time, an amount equal to the Total Revolving Commitment then in effect and (iv) shall not exceed in aggregate principal amount at any time outstanding the Maximum Swingline Amount.  Notwithstanding anything to the contrary contained in this Section 1.01(d), (i) the Swingline Lender shall not be obligated to make any Swingline Loans at a time when a Lender Default exists with respect to an RF Lender unless the Swingline Lender has entered into arrangements satisfactory to it and the Borrower to eliminate the Swingline Lender’s risk with respect to the Defaulting Lender’s or Defaulting Lenders’ participation in such Swingline Loans, including by cash collateralizing such Defaulting Lender’s or Defaulting Lenders’ Percentage of the outstanding Swingline Loans, and (ii) the Swingline Lender shall not make any Swingline Loan after it has received written notice from the Borrower, any other Credit Party or the Required Lenders stating that a Default or an Event of Default exists and is continuing until such time as the Swingline Lender shall have received written notice (A) of rescission of all such notices from the party or parties originally delivering such notice or notices or (B) of the waiver of such Default or Event of Default by the Required Lenders.

(e)           On any Business Day, the Swingline Lender may, in its sole discretion, give notice to the RF Lenders that its outstanding Swingline Loans shall be funded with a Borrowing of RF Loans (provided that each such notice shall be deemed to have been automatically given upon the occurrence of an Event of Default under Section 8.05 or upon the exercise of any of the remedies provided in the last paragraph of Section 8), in which case a Borrowing of RF Loans constituting Base Rate Loans (each such Borrowing, a “Mandatory Borrowing”) shall be made on the immediately succeeding Business Day by all RF Lenders pro rata based on each RF Lender’s Percentage, and the proceeds thereof shall be applied directly to repay the Swingline Lender for such outstanding Swingline Loans.  Each RF Lender hereby irrevocably agrees to make Base Rate Loans upon one Business Day’s notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by the Swingline Lender notwithstanding:  (i) that the amount of the Mandatory Borrowing may not comply with the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any conditions specified in Section 4.02 or 4.03 are then satisfied, (iii) whether a Default or an Event of Default has occurred and is continuing, (iv) the date of such Mandatory Borrowing and (v) any reduction in the Total Revolving Commitment after any such Swingline Loans were made.  In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code in respect of the Borrower), each RF Lender (other than the Swingline Lender) hereby agrees that it shall forthwith purchase from the Swingline

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Lender (without recourse or warranty) such assignment of the outstanding Swingline Loans as shall be necessary to cause the RF Lenders to share in such Swingline Loans ratably based upon their respective Percentages, provided that (x) all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date as of which the respective participation is required to be purchased and, to the extent attributable to the purchased participation, shall be payable to the RF Lender purchasing same from and after such date and (y) at the time any purchase of participations pursuant to this sentence is actually made, the purchasing RF Lender shall be required to pay the Swingline Lender interest on the principal amount of participation purchased for each day from and including the day upon which the Mandatory Borrowing would otherwise have occurred to but excluding the date of payment for such participation, at the overnight Federal Funds Effective Rate for the first three days and at the interest rate otherwise applicable to RF Loans maintained as Base Rate Loans hereunder for each day thereafter.

(f)            Loans under the Incremental B Term Facility (each, an “Incremental B Term Loan” and, collectively, the “Incremental B Term Loans”) (i) shall be made to the Borrower by each Lender with an Incremental B Term Commitment pursuant to a single drawing on the respective Incremental B Term Loan Borrowing Date, (ii) except as hereinafter provided, may, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that all Incremental B Term Loans incurred on such Incremental B Term Loan Borrowing Date shall be added to the then outstanding Borrowings of Initial B Term Loans as provided in Section 1.14(c) and (iii) shall not exceed in an aggregate principal amount for any Lender in respect of any incurrence of Incremental B Term Loans the Incremental B Term Commitment, if any, of such Lender as in effect immediately prior to such incurrence.  Once repaid, Incremental B Term Loans may not be reborrowed.

1.02  Minimum Borrowing Amounts, etc.  The aggregate principal amount of each Borrowing shall not be less than the Minimum Borrowing Amount.  More than one Borrowing may be incurred on any day, provided that at no time shall there be outstanding more than twelve Borrowings of Eurodollar Loans.

1.03  Notice of Borrowing.  (a)  Whenever the Borrower desires to incur Loans under any Facility (excluding Swingline Loans and RF Loans made pursuant to a Mandatory Borrowing), it shall give the Administrative Agent at its Notice Office, (x) prior to 12:00 Noon (New York time), at least three Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) of each proposed incurrence of Eurodollar Loans and (y) prior to 12:00 Noon (New York time) on the proposed date thereof, written notice (or telephonic notice promptly confirmed in writing) of each proposed incurrence of Base Rate Loans.  Each such notice (each, a “Notice of Borrowing”) shall be in the form of Exhibit A-1 and shall be irrevocable and shall specify (i) the Facility pursuant to which such incurrence is being made, (ii) the aggregate principal amount of the Loans to be made pursuant to such incurrence, (iii) the date of incurrence (which shall be a Business Day) and (iv) whether the respective Borrowing shall consist of Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be initially applicable thereto.  The Administrative Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of each proposed incurrence

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of Loans of such Lender’s proportionate share thereof and of the other matters covered by the Notice of Borrowing.

(b)           (i)  Whenever the Borrower desires to make a Borrowing of Swingline Loans hereunder, it shall give the Swingline Lender, prior to 12:00 Noon  (New York time) on the day such Swingline Loan is to be made, written notice (or telephonic notice promptly confirmed in writing) of each Swingline Loan to be made hereunder.  Each such notice shall be irrevocable and shall specify in each case (x) the date of such Borrowing (which shall be a Business Day) and (y) the aggregate principal amount of the Swingline Loan to be made pursuant to such Borrowing.

(ii)           Mandatory Borrowings shall be made upon the notice specified in Section 1.01(e), with the Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of Mandatory Borrowings as set forth in such Section 1.01(e).

(c)           Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Administrative Agent, the Swingline Lender and any Letter of Credit Issuer, prior to receipt of written confirmation may act without liability upon the basis of and consistent with such telephonic notice, believed by the Administrative Agent, the Swingline Lender or such Letter of Credit Issuer, as the case may be, in good faith to be from an Authorized Officer.  In each such case, the Borrower hereby waives the right to dispute the Administrative Agent’s, the Swingline Lender’s or such Letter of Credit Issuer’s record of the terms of such telephonic notice, unless such record reflects gross negligence or willful misconduct on the part of the Administrative Agent, the Swingline Lender or such Letter of Credit Issuer, as the case may be (as determined by a court of competent jurisdiction in a final and nonappealable decision).

1.04  Disbursement of Funds.  (a)  No later than 1:00 P.M. (New York time) (3:00 P.M. (New York time) in the case of Base Rate Loans made pursuant to same day notice) on the date specified in each Notice of Borrowing (or, where applicable, each notice described in Section 1.03(b)(i) or (ii)), each Lender with a Commitment under the respective Facility will make available its pro rata share of each Borrowing requested to be made on such date (or (x) in the case of Swingline Loans, the Swingline Lender will make available the full amount thereof or (y) in the case of a funding of Incremental B Term Loans on an Incremental B Term Loan Borrowing Date, in an amount equal to such Lender’s Incremental B Term Commitment on such date).  All such amounts shall be made available to the Administrative Agent in Dollars and immediately available funds at the Payment Office and, except in the case of RF Loans made pursuant to a Mandatory Borrowing, the Administrative Agent promptly will make available to the Borrower by depositing to its account at the Payment Office or as otherwise directed in the applicable Notice of Borrowing the aggregate of the amounts so made available in the type of funds received.  Unless the Administrative Agent shall have been notified by any Lender prior to the date of the proposed incurrence that such Lender does not intend to make available to the Administrative Agent its portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date, and the Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to

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the Administrative Agent by such Lender and the Administrative Agent has made available same to the Borrower, the Administrative Agent shall be entitled to recover such corresponding amount from such Lender.  If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent may notify the Borrower, and, upon receipt of such notice, the Borrower shall promptly pay such corresponding amount to the Administrative Agent.  The Administrative Agent shall also be entitled to recover on demand from such Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (x) if paid by such Lender, the overnight Federal Funds Effective Rate or (y) if paid by the Borrower, the then applicable rate of interest, calculated in accordance with Section 1.08, for the respective Loans.

(b)           Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder.

1.05  Notes.  (a)  The Borrower’s obligation to pay the principal of, and interest on, the Loans made by each Lender shall be set forth in the Lender Register maintained by the Administrative Agent pursuant to Section 11.16 and, subject to the provisions of Section 1.05(g), shall be evidenced (i) if B Term Loans, by a promissory note substantially in the form of Exhibit B-1 with blanks appropriately completed in conformity herewith (each, a “B Term Note” and, collectively, the “B Term Notes”), (ii) if Delayed-Draw Term Loans, by a promissory note substantially in the form of Exhibit B-2 with blanks appropriately completed in conformity herewith (each, a “Delayed-Draw Term Note” and, collectively, the “Delayed-Draw Term Notes”), (iii) if RF Loans, by a promissory note substantially in the form of Exhibit B-3 with blanks appropriately completed in conformity herewith (each, an “RF Note” and, collectively, the “RF Notes”) and (iv) if Swingline Loans, by a promissory note substantially in the form of Exhibit B-4 with blanks appropriately completed in conformity herewith (the “Swingline Note”).

(b)           The B Term Note issued to each Lender that makes any B Term Loan shall (i) be executed by the Borrower, (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date (or, if issued after the Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Initial B Term Commitment of such Lender on the Initial Borrowing Date (or, if issued after the Initial Borrowing Date, be in a stated principal amount equal to the outstanding principal amount of B Term Loans of such Lender at such time) and be payable in the principal amount of B Term Loans evidenced thereby, (iv) mature on the Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 3.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.

(c)           The Delayed-Draw Term Note issued to each Lender that makes any Delayed-Draw Term Loan shall (i) be executed by the Borrower, (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date (or, if issued after the Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Delayed-Draw Term Commitment of such Lender on the Initial Borrowing Date (or, if issued

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after the Initial Borrowing Date, be in a stated principal amount equal to the sum of the Delayed-Draw Term Commitment and the outstanding principal amount of Delayed-Draw Term Loans of such Lender at such time) and be payable in the principal amount of Delayed-Draw Term Loans evidenced thereby, (iv) mature on the Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 3.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.

(d)           The RF Note issued to each RF Lender shall (i) be executed by the Borrower, (ii) be payable to the order of such RF Lender and be dated the Initial Borrowing Date (or, in the case of any RF Note issued after the Initial Borrowing Date, the date of issuance thereof), (iii) be in a stated principal amount equal to the Revolving Commitment of such RF Lender and be payable in the principal amount of the RF Loans evidenced thereby, (iv) mature on the RF Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 3.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.

(e)           The Swingline Note issued to the Swingline Lender shall (i) be executed by the Borrower, (ii) be payable to the order of the Swingline Lender and be dated the Initial Borrowing Date (or, in the case of any Swingline Note issued after the Initial Borrowing Date, the date of issuance thereof), (iii) be in a stated principal amount equal to the Maximum Swingline Amount and be payable in the principal amount of Swingline Loans evidenced thereby, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided in Section 1.08 in respect of the Base Rate Loans evidenced thereby, (vi) be subject to mandatory prepayment as provided in Section 3.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.

(f)            Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will, prior to any transfer of any of its Notes, endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby.  Failure to make (or any error in making) any such notation shall not affect the Borrower’s obligations in respect of such Loans.

(g)           Notwithstanding anything to the contrary contained above or elsewhere in this Agreement, Notes shall only be delivered to Lenders that at any time specifically request the delivery of such Notes.  No failure of any Lender to request or obtain a Note evidencing its Loans to the Borrower shall affect or in any manner impair the obligations of the Borrower to pay the Loans (and all related Obligations) which would otherwise be evidenced thereby in accordance with the requirements of this Agreement, and shall not in any way affect the security or guaranties therefor provided pursuant to the various Credit Documents.  Any Lender that does not have a Note evidencing its outstanding Loans shall in no event be required to make the notations otherwise described in preceding clause (f).  At any time when any Lender requests the delivery of a Note to evidence any of its Loans, the Borrower shall promptly execute and deliver to the respective Lender the requested Note or Notes in the appropriate amount or amounts to evidence such Loans.

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1.06  Conversions.  The Borrower shall have the option to convert on any Business Day all or a portion at least equal to the applicable Minimum Borrowing Amount of the outstanding principal amount of the Loans (other than Swingline Loans, which at all times shall be maintained as Base Rate Loans) owing pursuant to a single Facility into a Borrowing or Borrowings pursuant to such Facility of another Type of Loan, provided that (i) no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Eurodollar Loans made pursuant to such Borrowing to less than the Minimum Borrowing Amount applicable thereto, (ii) Base Rate Loans may not be converted into Eurodollar Loans when a Default under Section 8.01 or an Event of Default is in existence on the date of the proposed conversion if the Administrative Agent or the Required Lenders shall have determined in its or their sole discretion not to permit such conversion, (iii) unless the Administrative Agent has determined that the Syndication Date has occurred (at which time this clause (iii) shall no longer be applicable), prior to the 90th day after the Initial Borrowing Date, conversions of Base Rate Loans into Eurodollar Loans may only be made if any such conversion is effective on the first day of the first, second or third Interest Period referred to in clause (y) of the proviso appearing in each of Sections 1.01(a)(ii) and 1.01(c)(ii) and so long as such conversion does not result in a greater number of Borrowings of Eurodollar Loans prior to the 90th day after the Initial Borrowing Date as are permitted under Sections 1.01(a)(ii) and 1.01(c)(ii) and (iv) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be limited in number as provided in Section 1.02.  Each such conversion shall be effected by the Borrower giving the Administrative Agent at its Notice Office, prior to 12:00 Noon (New York time), at least three Business Days’ (or one Business Day’s, in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each, a “Notice of Conversion/Continuation”) in the form of Exhibit A-3, appropriately completed to specify the Loans to be so converted (including the relevant Facility), the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto.  The Administrative Agent shall give each Lender prompt notice of any such proposed conversion affecting any of its Loans.

1.07  Pro Rata Borrowings.  All Initial B Term Loans, Delayed-Draw Term Loans, Incremental B Term Loans and RF Loans under this Agreement shall be made by the Lenders pro rata on the basis of their Initial B Term Commitments, Delayed-Draw Term Commitments, Incremental B Term Commitments or Revolving Commitments, as the case may be, if any.  It is understood that no Lender shall be responsible for any default by any other Lender in its obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its commitments hereunder.

1.08  Interest.  (a)  The unpaid principal amount of each Base Rate Loan shall bear interest from the date of the Borrowing thereof until the earlier of repayment or conversion thereof and maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Applicable Base Rate Margin plus the Base Rate in effect from time to time.

(b)           The unpaid principal amount of each Eurodollar Loan shall bear interest from the date of the Borrowing thereof until the earlier of repayment or conversion thereof and maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Applicable Eurodollar Margin plus the relevant Eurodollar Rate.

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(c)           Interest in respect of any overdue amount payable hereunder shall accrue at a rate per annum equal to the Base Rate in effect from time to time plus the sum of (i) 2% and (ii) the Applicable Base Rate Margin, provided that principal in respect of Eurodollar Loans shall bear interest from the date the same becomes due (whether by acceleration or otherwise) until the end of the Interest Period then applicable to such Eurodollar Loan at a rate per annum no less than one which is equal to 2% in excess of the rate of interest applicable thereto on such date.

(d)           Interest shall accrue from and including the date of any Borrowing to but excluding the date of any repayment thereof and shall be payable (i) in respect of each Base Rate Loan, quarterly in arrears on the last Business Day of each March, June, September and December, (ii) in respect of each Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period, and (iii) in respect of each such Loan, on any prepayment or conversion (on the amount prepaid or converted), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand.

(e)           All computations of interest hereunder shall be made in accordance with Section 11.07(b).

(f)            The Administrative Agent, upon determining the interest rate for any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify the Borrower and the Lenders thereof.

1.09  Interest Periods.  (a)  At the time the Borrower gives a Notice of Borrowing or Notice of Conversion/Continuation in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of the Borrower (but otherwise subject to clause (y) of the provisos appearing in Sections 1.01(a)(ii) and 1.01(c)(ii) and clause (iii) of the proviso appearing in Section 1.06), be a one, two, three, six or, to the extent available to all Lenders with a Commitment and/or outstanding Loans under the respective Facility, nine or twelve month period.  Notwithstanding anything to the contrary contained above:

(i)            the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires;

(ii)           if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month;

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(iii)          if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day;

(iv)          no Interest Period with respect to a Borrowing of RF Loans, B Term Loans or Delayed-Draw Term Loans shall extend beyond the Maturity Date for the respective Facility of Loans; and

(v)           no Interest Period may be elected at any time when a Default under Section 8.01 or an Event of Default is then in existence if the Administrative Agent or the Required Lenders shall have determined in its or their sole discretion not to permit such election.

(b)           If upon the expiration of any Interest Period, the Borrower has failed to (or may not) elect a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to convert such Borrowing into a Borrowing of Base Rate Loans effective as of such expiration.

1.10  Increased Costs, Illegality, etc.  (a)  In the event that (x) in the case of clause (i) below, the Administrative Agent or (y) in the case of clauses (ii) and (iii) below, any Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto):

(i)            on any date for determining the Eurodollar Rate for any Interest Period that, by reason of any changes arising after the Effective Date affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate or the making or continuance of any Eurodollar Loan has become impracticable as a result of a contingency occurring after the Effective Date which materially and adversely affects the interbank Eurodollar market;

(ii)           at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loans because of (x) any change since the Effective Date in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or order) (including, but not limited to, a change in the basis of taxation of payments to a Lender of the principal of or interest on the Loans or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or net profits of such Lender imposed by the jurisdiction in which its principal office or applicable lending office is located) or a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurodollar Rate) and/or (y) other circumstances affecting the interbank Eurodollar market or the position of such Lender in such market; or

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(iii)          at any time, that the making or continuance of any Eurodollar Loan has become unlawful by compliance by such Lender in good faith with any law, governmental rule, regulation, guideline or order (or would conflict with any such governmental rule, regulation, guideline or order not having the force of law but with which such Lender customarily complies even though the failure to comply therewith would not be unlawful);

then, and in any such event, such Lender (or the Administrative Agent in the case of clause (i) above) shall (x) on such date and (y) within ten Business Days of the date on which such event no longer exists give notice (by telephone confirmed in writing) to the Borrower and to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Lenders).  Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any Notice of Borrowing or Notice of Conversion/Continuation given by the Borrower with respect to Eurodollar Loans which have not yet been incurred shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such Lender, within 10 Business Days after the Borrower’s receipt of written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its reasonable discretion shall determine after consultation with the Borrower) as shall be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Lender, describing the basis for such increased costs and showing the calculation thereof, submitted to the Borrower by such Lender shall, absent manifest error, be final and conclusive and binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law.

(b)           At any time that any Eurodollar Loan is affected by the circumstances described in Section 1.10(a)(ii), the Borrower may (and in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii), the Borrower shall within the time period required by law) either (x) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Administrative Agent telephonic notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by a Lender pursuant to Section 1.10(a)(ii) or (iii), or (y) if the affected Eurodollar Loan is then outstanding, upon at least three Business Days’ notice to the Administrative Agent, require the affected Lender to convert each such Eurodollar Loan into a Base Rate Loan (which conversion, in the case of the circumstances described in Section 1.10(a)(iii), shall occur no later than the last day of the Interest Period then applicable to such Eurodollar Loan (or such earlier date as shall be required by applicable law)); provided, that if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Section 1.10(b).

(c)           If any Lender shall have determined that the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, in each case after the Effective Date, or compliance by such Lender or its parent corporation with any

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request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency first made after the Effective Date, has or would have the effect of reducing the rate of return on such Lender’s or its parent corporation’s capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender or its parent corporation could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender’s or its parent corporation’s policies with respect to capital adequacy), then from time to time, within 10 Business Days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or its parent corporation for such reduction.  Each Lender, upon determining in good faith that any additional amounts will be payable pursuant to this Section 1.10(c), will give prompt written notice thereof to the Borrower, which notice shall describe the basis for such claim and set forth in reasonable detail the calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any of the Borrower’s obligations to pay additional amounts pursuant to this Section 1.10(c) upon the subsequent receipt of such notice.

1.11  Compensation.  (a)  The Borrower shall, without duplication, compensate each Lender, upon its written request (which request shall set forth the basis for requesting such compensation and reasonably detailed calculations thereof), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Eurodollar Loans but excluding in any event the loss of anticipated profits) which such Lender may sustain:  (i) if for any reason (other than a default by any Lender or the Administrative Agent) a Borrowing of Eurodollar Loans by the Borrower does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any prepayment, repayment or conversion of any of its Eurodollar Loans occurs on a date which is not the last day of an Interest Period applicable thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any other default by the Borrower to repay its Eurodollar Loans when required by the terms of this Agreement, (y) an election made pursuant to Section 1.10(b) or (z) actions required to be taken by the Borrower pursuant to Section 1.14(c).

(b)           Notwithstanding anything in this Agreement to the contrary, to the extent any notice or request required by Section 1.10, 1.11, 1A.06 or 3.04 of this Agreement is given by any Lender more than 120 days after such Lender obtained, or reasonably should have obtained, knowledge of the occurrence of the event giving rise to the additional costs, reductions in amounts, losses, taxes or other additional amounts of the type described in such Section, such Lender shall not be entitled to compensation under Section 1.10, 1.11, 1A.06 or 3.04 of this Agreement for any amounts incurred or accruing prior to the giving of such notice to the Borrower.

1.12  Change of Lending Office.  Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), 1.10(c), 1A.06 or 3.04 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans

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affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no material economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section.  Nothing in this Section 1.12 shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided in Section 1.10, 1A.06 or 3.04.

1.13  Replacement of Lenders.  (x) Upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 1A.06 or Section 3.04 with respect to any Lender which results in such Lender charging to the Borrower increased costs in a material amount in excess of those being generally charged by the other Lenders, (y) if any Lender becomes a Defaulting Lender, or (z) in the case of a refusal by a Lender to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by the Required Lenders as provided in Section 11.12(b), the Borrower shall have the right, in accordance with Section 11.04(b), if no Default under Section 8.01 or Event of Default then exists or would exist after giving effect to such replacement, to replace such Lender (the “Replaced Lender”) with one or more other Eligible Transferee or Eligible Transferees, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the “Replacement Lender”) and each of which shall be reasonably acceptable to the Administrative Agent or, at the option of the Borrower, to replace only (a) the Revolving Commitment (and outstandings pursuant thereto) of the Replaced Lender with an identical Revolving Commitment provided by the Replacement Lender or (b) in the case of a replacement as provided in Section 11.12(b) where the consent of the respective Lender is required with respect to less than all Facilities, the Commitments and/or outstanding Loans of such Lender in respect of each Facility where the consent of such Lender would otherwise be individually required, with identical Commitments and/or Loans of the respective Facility provided by the Replacement Lender; provided that:

(i)            at the time of any replacement pursuant to this Section 1.13, the Replacement Lender shall enter into one or more Assignment Agreements pursuant to Section 11.04(b) (and with all fees payable pursuant to said Section 11.04(b) to be paid by the Replacement Lender and/or the Replaced Lender (as agreed between them)) pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Loans (or, in the case of the replacement of only (a) the Revolving Commitment, the Revolving Commitment and outstanding Revolving Loans and participations in Letter of Credit Outstandings and/or (b) the Commitments and/or outstanding Term Loans under a given Facility of Term Loans, the Commitment and outstanding Term Loans under the Facility with respect to which such Lender is being replaced) of, and in each case (except for the replacement of only the outstanding Commitments and/or Term Loans of any or all of the Facilities of Term Loans of the respective Lender) participations in Letters of Credit by, the Replaced Lender and, in connection therewith, shall pay to (x) the Replaced Lender in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans (or of the Loans of the respective Facility being replaced) of the Replaced Lender, (B) an amount equal to all Unpaid Drawings (unless there are no Unpaid Drawings with respect to the Facility being replaced) that have been funded by (and not reimbursed to) such Replaced Lender, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore

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unpaid, Fees owing to the Replaced Lender (but only with respect to the relevant Facility, in the case of the replacement of less than all Facilities of Loans then held by the respective Replaced Lender) pursuant to Section 2.01, (y) except in the case of the replacement of only the Commitments and/or outstanding Term Loans of one or more Facilities of Term Loans of a Replaced Lender, each Letter of Credit Issuer an amount equal to such Replaced Lender’s Percentage of any Unpaid Drawing relating to Letters of Credit issued by such Letter of Credit Issuer (which at such time remains an Unpaid Drawing) to the extent such amount was not theretofore funded by such Replaced Lender and (z) in the case of any replacement of Revolving Commitments, the Swingline Lender an amount equal to such Replaced Lender’s Percentage of any Mandatory Borrowing to the extent such amount was not theretofore funded by such Replaced Lender; and

(ii)           all obligations of the Borrower then owing to the Replaced Lender (other than those (a) specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid, but including all amounts, if any, owing under Section 1.11 or (b) relating to any Facility of Loans and/or Commitments of the respective Replaced Lender which will remain outstanding after giving effect to the respective replacement) shall be paid in full to such Replaced Lender concurrently with such replacement.

Upon the execution of the respective Assignment Agreements, the payment of amounts referred to in clauses (i) and (ii) above, recordation of the assignment on the Lender Register by the Administrative Agent pursuant to Section 11.16 and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by the Borrower, (x) the Replacement Lender shall become a Lender hereunder and, unless the respective Replaced Lender continues to have outstanding Term Loans and/or a Commitment hereunder, the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement (including, without limitation, Sections 1.10, 1.11, 1A.06, 3.04, 11.01 and 11.06), which shall survive as to such Replaced Lender and (y) except in the case of the replacement of only Commitments and/or outstanding Term Loans under one or more Facilities of Term Loans, the Percentages of the RF Lenders shall be automatically adjusted at such time to give effect to such replacement.

1.14  Incremental B Term Loan Commitments.  (a)  The Borrower, with the prior consent of the Administrative Agent, shall have the right to request from time to time (by written notice to the Lenders) that one or more Lenders (and/or one or more other Persons which will become Lenders as provided below) provide Incremental B Term Commitments and, subject to the terms and conditions contained in this Agreement, make Incremental B Term Loans pursuant thereto, so long as (w) no Default or Event of Default then exists or would result therefrom, (x) any Incremental B Term Loans are incurred on the date of the effectiveness of the respective Incremental B Term Commitment Agreement pursuant to which the related Incremental B Term Commitments are provided, (y) the Borrower shall have demonstrated to the Administrative Agent’s reasonable satisfaction that the full amount of the respective Incremental B Term Facility (assuming the full utilization of the Incremental B Term Commitments thereunder) may be incurred without violating the terms of any Permitted Junior Capital, any Permitted Senior Unsecured Notes, any other material debt of the Borrower or the documentation governing any such Indebtedness and (z) the Borrower and its subsidiaries are in compliance on a Pro Forma

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Basis with each of the covenants contained in Sections 7.11 and 7.12 (determined after giving effect to the full utilization of the commitments provided under such Incremental B Term Facility); it being understood and agreed, however, that (i) no Lender shall be obligated to provide an Incremental B Term Commitment as a result of any such request by the Borrower, and until such time, if any, as such Lender has agreed in its sole discretion to provide an Incremental B Term Commitment and executed and delivered to the Administrative Agent an Incremental B Term Commitment Agreement as provided in clause (b) of this Section 1.14, such Lender shall not be obligated to fund any Incremental B Term Loans, (ii) any Lender (or, in the circumstances contemplated by clause (v) below, any other Person which will qualify as an Eligible Transferee) may so provide an Incremental B Term Commitment without the consent of any other Lender, (iii) each provision of Incremental B Term Commitments pursuant to this Section 1.14 on a given date shall be in a minimum aggregate amount (for all Lenders (including in the circumstances contemplated by clause (v) below, Eligible Transferees who will become Lenders)) of at least $20,000,000 and in integral multiples of $5,000,000 in excess thereof, (iv) the aggregate amount of all Incremental B Term Commitments permitted to be provided pursuant to this Section 1.14 shall not exceed $200,000,000, (v) if the Borrower has requested the then existing Lenders (other than Defaulting Lenders) to provide at least 75% of the aggregate Incremental B Term Commitments then being requested pursuant to this Section 1.14, then the Borrower may request Incremental B Term Commitments from Persons reasonably acceptable to the Administrative Agent which would qualify as Eligible Transferees hereunder in an aggregate amount equal to the sum of (x) 25% of the aggregate Incremental B Term Commitments then being requested pursuant to this Section 1.14 plus (y) if the Borrower has not received Incremental B Term Commitments in an aggregate amount equal to 75% of that aggregate amount of the Incremental B Term Commitments which the Borrower desires to obtain pursuant to such request (as set forth in the notice provided by the Borrower in connection with its initial request), the amount of such deficiency, provided that any such Incremental B Term Commitment provided by any such Eligible Transferee which is not already a Lender shall be in a minimum amount (for such Eligible Transferee) of at least $1,000,000 (and with the fees to be paid to such Eligible Transferee to be no greater than those fees to be paid to the then existing Lenders (if any) providing Incremental B Term Commitments) and (vi) all actions taken by the Borrower pursuant to this Section 1.14 shall be done in coordination with the Administrative Agent.

(b)           In connection with any provision of Incremental B Term Commitments pursuant to this Section 1.14, (i) the Borrower, the Administrative Agent and each such Lender or other Eligible Transferee (each, an “Incremental B Term Lender”) which agrees to provide an Incremental B Term Commitment shall execute and deliver to the Administrative Agent an Incremental B Term Commitment Agreement substantially in the form of Exhibit L hereto (appropriately completed) (each, an “Incremental B Term Commitment Agreement”), with the effectiveness of such Incremental B Term Lender’s Incremental B Term Commitment to occur upon delivery of such Incremental B Term Commitment Agreement to the Administrative Agent, the payment of any fees required in connection therewith (including, without limitation, any agreed upon up-front or arrangement fees owing to the Administrative Agent) and the satisfaction of the other terms and conditions described in this Section 1.14 (it being understood that no fees shall be required to be paid to any existing Lender (in its capacity as such) in connection with the provision of any Incremental B Term Commitment by an Incremental B Term Lender), and (ii) the Borrower shall deliver to the Administrative Agent (x) an opinion or

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opinions, in form and substance reasonably satisfactory to the Administrative Agent, from counsel to the Borrower reasonably satisfactory to the Administrative Agent and dated the applicable Incremental B Term Loan Borrowing Date, covering such matters relating to the provision of the Incremental B Term Commitments as may be reasonably requested by the Administrative Agent and (y) a solvency certificate from the Chief Financial Officer of the Borrower, dated the applicable Incremental B Term Loan Borrowing Date, in form and substance satisfactory to the Administrative Agent. The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Incremental B Term Commitment Agreement, and at such time (A) Annex I to the Credit Agreement shall be deemed modified to reflect the Incremental B Term Commitments of such Incremental B Term Lenders and (B) to the extent requested by any Incremental B Term Lender, a B Term Note will be issued at the Borrower’s expense to such Incremental B Term Lender, to be in conformity with the requirements of Section 1.05 (with appropriate modification) to the extent needed to reflect the new Incremental B Term Loans made by such Incremental B Term Lender.  Each Incremental B Term Lender with an outstanding B Term Note which requests a new B Term Note as contemplated by preceding clause (B) agrees to use good faith efforts to return the outstanding B Term Note held by it to the Borrower for cancellation.

(c)           In connection with each incurrence of Incremental B Term Loans pursuant to Section 1.01(f), the Lenders and the Borrower hereby agree that, notwithstanding anything to the contrary contained in this Agreement, the Borrower and the Administrative Agent may take all such actions as may be necessary to ensure that all Lenders with outstanding B Term Loans continue to participate in each Borrowing of outstanding B Term Loans (after giving effect to the incurrence of Incremental B Term Loans pursuant to Section 1.01(f)) on a pro rata basis, including by adding the Incremental B Term Loans to be so incurred to the then outstanding Borrowings of Initial B Term Loans on a pro rata basis even though as a result thereof such new Incremental B Term Loans (to the extent required to be maintained as Eurodollar Loans) may effectively have a shorter Interest Period than the then outstanding Borrowings of Initial B Term Loans.  It is hereby agreed that, to the extent the Incremental B Term Loans are to be so incurred or added to the then outstanding Borrowings of Initial B Term Loans which are maintained as Eurodollar Loans, the Lenders that have made such Incremental B Term Loans shall be entitled to receive from the Borrower such amounts, as reasonably determined by the respective Lenders, to compensate them for funding the various Incremental B Term Loans during an existing Interest Period (rather than at the beginning of the respective Interest Period, based upon rates then applicable thereto).  All determinations by any Lender pursuant to the immediately preceding sentence shall, absent manifest error, be final and conclusive and binding on all parties hereto.

SECTION 1A.  Letters of Credit.

1A.01  Letters of Credit.  (a)  Subject to and upon the terms and conditions herein set forth, the Borrower may request that a Letter of Credit Issuer, at any time and from time to time on or after the Effective Date and prior to the date which is thirty Business Days prior to the RF Maturity Date, issue, for the account of the Borrower and in support of such obligations of the Borrower and/or its Subsidiaries that are incurred in the ordinary course of business or are acceptable to the Administrative Agent and, subject to and upon the terms and conditions herein set forth, such Letter of Credit Issuer agrees to issue from time to time, irrevocable standby

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letters of credit (each such letter of credit, a “Letter of Credit” and, collectively, the “Letters of Credit”) denominated in Dollars and issued on a sight basis, in such form as may be approved by such Letter of Credit Issuer and the Administrative Agent.

(b)           Notwithstanding the foregoing, (i) no Letter of Credit shall be issued if after giving effect thereto (x) the Letter of Credit Outstandings would exceed $10.0 million or (y) the sum of all Letter of Credit Outstandings (less any portion thereof subject to Section 1A.01(c) Arrangements) and the aggregate principal amount of all RF Loans and all Swingline Loans then outstanding would exceed the Total Revolving Commitment at such time, (ii) each Letter of Credit shall by its terms terminate on or before the earlier of (A) the date which occurs 12 months after the date of the issuance thereof (although any such standby Letter of Credit may be automatically renewable for successive periods of up to 12 months, but, in each case, not beyond the tenth Business Day prior to the RF Maturity Date, so long as such Letter of Credit provides that the respective Letter of Credit Issuer retains an option, reasonably satisfactory to such Letter of Credit Issuer, to terminate such Letter of Credit within a specified period of time prior to each scheduled renewal date) and (B) ten Business Days prior to the RF Maturity Date, (iii) no Letter of Credit shall be a trade or commercial letter of credit and (iv) no Letter of Credit Issuer shall be under any obligation to issue any Letter of Credit of the types described above if at the time of such issuance:

(x)            any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain such Letter of Credit Issuer from issuing such Letter of Credit or any requirement of law applicable to such Letter of Credit Issuer or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over such Letter of Credit Issuer shall prohibit, or request that such Letter of Credit Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Lender with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Letter of Credit Issuer is not otherwise compensated hereunder) not in effect with respect to such Letter of Credit Issuer on the Effective Date, or any unreimbursed loss, cost or expense which was not applicable or in effect with respect to such Letter of Credit Issuer as of the date hereof and which such Letter of Credit Issuer in good faith deems material to it; or

(y)           such Letter of Credit Issuer shall have received from the Borrower, any other Credit Party or the Required Lenders prior to the issuance of such Letter of Credit notice of the type described in the second sentence of Section 1A.03(c).

(c)           Notwithstanding the foregoing, in the event a Lender Default exists, the respective Letter of Credit Issuer shall not be required to issue any Letter of Credit unless such Letter of Credit Issuer has entered into arrangements satisfactory to it and the Borrower (“Section 1A.01(c) Arrangements”) to eliminate such Letter of Credit Issuer’s risk with respect to the participation in Letters of Credit of the Defaulting Lender or Lenders, which may include requiring that the Borrower cash collateralize such Defaulting Lender’s or Lenders’ Percentage of the Letter of Credit Outstandings.

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(d)           Annex IX hereto contains a description of certain letters of credit issued pursuant to the Existing Credit Agreement and outstanding on the Initial Borrowing Date.  Each such letter of credit, including any extension or renewal thereof (each, as amended from time to time in accordance with the terms hereof and thereof, an “Existing Letter of Credit”) shall constitute a “Letter of Credit” for all purposes of this Agreement, issued, for purposes of Sections 1A.04(a) and 1A.05, on the Initial Borrowing Date.

1A.02  Minimum Stated Amount.  The initial Stated Amount of each Letter of Credit shall be not less than $100,000 or such lesser amount as is acceptable to the respective Letter of Credit Issuer.

1A.03  Letter of Credit Requests; Notices of Issuance.  (a)  Whenever it desires that a Letter of Credit be issued, the Borrower shall give the Administrative Agent and the respective Letter of Credit Issuer written notice (which may include by way of facsimile transmission) in the form of Exhibit A-2 hereto prior to 1:00 P.M. (New York time) at least three Business Days (or such shorter period as may be acceptable to such Letter of Credit Issuer in any given case) prior to the proposed date of issuance (which shall be a Business Day) (each, a “Letter of Credit Request”), which Letter of Credit Request shall include any documents that such Letter of Credit Issuer customarily requires in connection therewith.

(b)           Each Letter of Credit Issuer shall, promptly after the issuance of, or amendment or modification to, a Letter of Credit, give the Administrative Agent and the Borrower written notice of such issuance, amendment or modification, as the case may be, and such notice shall be accompanied by a copy of such Letter of Credit, such amendment or such modification, as the case may be.  Promptly upon receipt of such notice, the Administrative Agent shall notify each Participant, in writing, of such issuance, amendment or modification and if any Participant shall so request, the Administrative Agent shall furnish said Participant with a copy of such Letter of Credit, such amendment or such modification, as the case may be.

(c)           The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Borrower to the respective Letter of Credit Issuer and the Lenders that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 1A.01(a) or (b).  Unless the respective Letter of Credit Issuer has received notice from the Borrower, any other Credit Party or the Required Lenders before it issues a Letter of Credit that one or more of the conditions specified in Section 4 are not then satisfied, or that the issuance of such Letter of Credit would violate Section 1A.01(a) or (b), then such Letter of Credit Issuer shall, subject to the terms and conditions of this Agreement, issue the requested Letter of Credit for the account of the Borrower in accordance with such Letter of Credit Issuer’s usual and customary practices.

1A.04  Agreement to Repay Letter of Credit Drawings.  (a)  The Borrower hereby agrees to reimburse the respective Letter of Credit Issuer, by making payment to the Administrative Agent at the Payment Office, for any payment or disbursement made by such Letter of Credit Issuer under any Letter of Credit (each such amount so paid or disbursed until reimbursed, an “Unpaid Drawing”) immediately after, and in any event on the date on which the Borrower is notified by such Letter of Credit Issuer of, such payment or disbursement with interest on the amount so paid or disbursed by such Letter of Credit Issuer, to the extent not

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reimbursed prior to 3:00 P.M. (New York time) on the date of such payment or disbursement, from and including the date paid or disbursed to but not including the date such Letter of Credit Issuer is reimbursed therefor at a rate per annum which shall be the Applicable Base Rate Margin plus the Base Rate as in effect from time to time (plus an additional 2% per annum if not reimbursed by the third Business Day after the date of such notice of payment or disbursement), such interest also to be payable on demand.

(b)           The Borrower’s obligation under this Section 1A.04 to reimburse the respective Letter of Credit Issuer with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against any Letter of Credit Issuer, the Administrative Agent or any Lender, including, without limitation, any defense based upon the failure of any drawing under a Letter of Credit to conform to the terms of the Letter of Credit or any non-application or misapplication by the beneficiary of the proceeds of such drawing; provided, however, that the Borrower shall not be obligated to reimburse such Letter of Credit Issuer for any wrongful payment made by such Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of such Letter of Credit Issuer as determined by a final judgment issued by a court of competent jurisdiction.

1A.05  Letter of Credit Participations.  (a)  Immediately upon the issuance by any Letter of Credit Issuer of any Letter of Credit, such Letter of Credit Issuer shall be deemed to have sold and transferred to each other RF Lender, and each such RF Lender (each, a “Participant”) shall be deemed irrevocably and unconditionally to have purchased and received from such Letter of Credit Issuer, without recourse or warranty, an undivided interest and participation, to the extent of such Participant’s Percentage, in such Letter of Credit, each substitute letter of credit, each drawing made thereunder and the obligations of the Borrower under this Agreement with respect thereto (although the Letter of Credit Fee shall be payable directly to the Administrative Agent for the account of the RF Lenders as provided in Section 2.01(b) and the Participants shall have no right to receive any portion of any Facing Fees) and any security therefor or guaranty pertaining thereto.  Upon any change in the Revolving Commitments pursuant to Section 1.13 or 11.04(b), it is hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic adjustment to the participations pursuant to this Section 1A.05 to reflect the new Percentages of the RF Lenders.

(b)           In determining whether to pay under any Letter of Credit, the applicable Letter of Credit Issuer shall not have any obligation relative to the Participants other than to determine that any documents required to be delivered under such Letter of Credit have been delivered and that they substantially comply on their face with the requirements of such Letter of Credit.  Any action taken or omitted to be taken by any Letter of Credit Issuer under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct as determined by a final judgment issued by a court of competent jurisdiction shall not create for such Letter of Credit Issuer any resulting liability.

(c)           In the event that any Letter of Credit Issuer makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to such Letter of Credit Issuer pursuant to Section 1A.04(a), such Letter of Credit Issuer shall promptly notify the

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Administrative Agent, and the Administrative Agent shall promptly notify each Participant of such failure, and each Participant shall promptly and unconditionally pay to the Administrative Agent for the account of such Letter of Credit Issuer, the amount of such Participant’s Percentage of such payment in Dollars and in same day funds; provided, however, that no Participant shall be obligated to pay to the Administrative Agent its Percentage of such unreimbursed amount for any wrongful payment made by such Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of such Letter of Credit Issuer as determined by a final judgment issued by a court of competent jurisdiction.  If the Administrative Agent so notifies any Participant required to fund an Unpaid Drawing under a Letter of Credit prior to 1:00 P.M. (New York time) on any Business Day, such Participant shall make available to the Administrative Agent for the account of the respective Letter of Credit Issuer such Participant’s Percentage of the amount of such payment on such Business Day in same day funds.  If and to the extent such Participant shall not have so made its Percentage of the amount of such Unpaid Drawing available to the Administrative Agent for the account of the respective Letter of Credit Issuer, such Participant agrees to pay to the Administrative Agent for the account of such Letter of Credit Issuer, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Administrative Agent for the account of such Letter of Credit Issuer at the overnight Federal Funds Effective Rate.  The failure of any Participant to make available to the Administrative Agent for the account of the respective Letter of Credit Issuer its Percentage of any Unpaid Drawing under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to the Administrative Agent for the account of such Letter of Credit Issuer its Percentage of any payment under any Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to the Administrative Agent for the account of such Letter of Credit Issuer such other Participant’s Percentage of any such payment.

(d)           Whenever any Letter of Credit Issuer receives a payment of a reimbursement obligation (including interest on Unpaid Drawings) as to which the Administrative Agent has received for the account of such Letter of Credit Issuer any payments from any Participant pursuant to clause (c) above, such Letter of Credit Issuer shall pay to the Administrative Agent and the Administrative Agent shall promptly pay to each Participant which has paid its Percentage thereof, in Dollars and in same day funds, an amount equal to such Participant’s Percentage of the amount of the payment of such reimbursement obligation, including interest paid thereon to the extent accruing after the purchase of the respective participations.

(e)           The obligations of the Participants to make payments to the Administrative Agent for the account of the respective Letter of Credit Issuer with respect to Letters of Credit shall be irrevocable and not subject to counterclaim, set-off or other defense or any other qualification or exception whatsoever (provided that no Participant shall be required to make payments resulting from the Administrative Agent’s gross negligence or willful misconduct as determined by a final judgment issued by a court of competent jurisdiction) and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances:

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(i)            any lack of validity or enforceability of this Agreement or any of the other Credit Documents;

(ii)           the existence of any claim, set-off, defense or other right which the Borrower or any of its Subsidiaries may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, any Letter of Credit Issuer, any Lender or other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower and the beneficiary named in any such Letter of Credit);

(iii)          any draft, certificate or other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(iv)          the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; or

(v)           the occurrence of any Default or Event of Default.

(f)            To the extent the respective Letter of Credit Issuer is not indemnified by the Borrower, the Participants will reimburse and indemnify such Letter of Credit Issuer, in proportion to their respective Percentages, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by such Letter of Credit Issuer in performing its respective duties in any way relating to or arising out of its issuance of Letters of Credit; provided that no Participants shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Letter of Credit Issuer’s gross negligence or willful misconduct as determined by a final judgment issued by a court of competent jurisdiction.

1A.06  Increased Costs.  If at any time after the Effective Date, the adoption or effectiveness of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central lender or comparable agency charged with the interpretation or administration thereof, or compliance by any Letter of Credit Issuer or any Participant with any request or directive (whether or not having the force of law) by any such authority, central lender or comparable agency shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against Letters of Credit issued by any Letter of Credit Issuer or such Participant’s participation therein, or (ii) shall impose on any Letter of Credit Issuer or any Participant any other conditions affecting this Agreement, any Letter of Credit or such Participant’s participation therein; and the result of any of the foregoing is to increase the cost to any Letter of Credit Issuer or such Participant of issuing, maintaining or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by any Letter of Credit Issuer or such Participant hereunder (other than, in the case of a change in the basis of taxation of payments to a Letter of Credit Issuer or Participant of the principal of or interest on the Loans or any other amounts

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payable hereunder, changes in the rate of tax on, or determined by reference to, the net income or net profits of such Letter of Credit Issuer or Participant imposed by the jurisdiction in which its principal office or applicable lending office is located), then, upon demand to the Borrower by any Letter of Credit Issuer or such Participant (a copy of which notice shall be sent by such Letter of Credit Issuer or such Participant to the Administrative Agent), the Borrower shall pay to such Letter of Credit Issuer or such Participant such additional amount or amounts as will compensate such Letter of Credit Issuer or such Participant for such increased cost or reduction.  A certificate submitted to the Borrower by such Letter of Credit Issuer or such Participant, as the case may be (a copy of which certificate shall be sent by such Letter of Credit Issuer or such Participant to the Administrative Agent), setting forth the basis for the determination of such additional amount or amounts necessary to compensate such Letter of Credit Issuer or such Participant as aforesaid shall be conclusive and binding on the Borrower absent manifest error, although the failure to deliver any such certificate shall not release or diminish any of the Borrower’s obligations to pay additional amounts pursuant to this Section 1A.06 upon the subsequent receipt thereof.

1A.07  Applicability of ISP, etc.         (a)  Unless otherwise expressly agreed by the Letter of Credit Issuer and the Borrower when a Letter of Credit is issued, the rules of the ISP shall apply to each Letter of Credit.

(b)           For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

SECTION 2.  Fees.

2.01  Fees.  (a)  The Borrower agrees to pay to the Administrative Agent a commitment commission (the “RF Commitment Commission”) for the account of each RF Lender that is a Non-Defaulting Lender for the period from and including the Effective Date to but not including the date upon which the Total Revolving Commitment has been terminated, computed for each day at the rate per annum equal to 0.50% for such day on the Unutilized Revolving Commitment of such Lender on such day.  Such Commitment Commission shall be due and payable in arrears on the last Business Day of each calendar quarter and on the date upon which the Total Revolving Commitment is terminated.

(b)           The Borrower agrees to pay to the Administrative Agent a commitment commission (the “DDTF Commitment Commission” and, together with the RF Commitment Commission, the “Commitment Commission”) for the account of each Lender with a Delayed-Draw Term Commitment that is a Non-Defaulting Lender for the period from and including the Effective Date to but not including the date upon which the Total Delayed-Draw Term Commitment has been terminated, computed for each day at the rate per annum equal to 0.50% for such day on the Delayed-Draw Term Commitment of such Lender on such day.  Such DDTF Commitment Commission shall be due and payable in arrears on the last Business Day of each calendar quarter and on the date upon which the Total Delayed-Draw Term Commitment is terminated.

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(c)           So long as any Letter of Credit is outstanding and has not been fully collateralized pursuant to Section 3.02(A)(a) and/or Section 8, the Borrower agrees to pay to the Administrative Agent, for the account of each Non-Defaulting Lender, pro rata on the basis of their respective Percentages, a fee in respect of each Letter of Credit (the “Letter of Credit Fee”) computed for each day at a per annum rate equal to the Applicable Eurodollar Margin for RF Loans on such day multiplied by the Stated Amount of all Letters of Credit outstanding on such day (less any amount thereof as to which Section 1A.01(c) Arrangements are in place).  Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter.

(d)           So long as any Letter of Credit is outstanding and has not been fully collateralized pursuant to Section 3.02(A)(a) and/or Section 8, the Borrower agrees to pay to the respective Letter of Credit Issuer a fee in respect of each Letter of Credit issued by it (the “Facing Fee”) computed for each day at the rate of 0.125% per annum on the Stated Amount of all such Letters of Credit outstanding on such day, provided that there will be a minimum Facing Fee per year for each Letter of Credit of $500 (which is not an additional fee).  Accrued Facing Fees shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter.

(e)           The Borrower agrees to pay directly to the respective Letter of Credit Issuer upon each issuance of, payment under, and/or amendment of, a Letter of Credit such amount, if any, as shall at the time of such issuance, payment or amendment be the administrative charge which such Letter of Credit Issuer is customarily charging for issuances of, payments under or amendments of, letters of credit issued by it.

(f)            The Borrower shall pay to (x) each Agent on the Initial Borrowing Date, for its own account and/or for distribution to the Lenders, such fees as heretofore agreed by the Borrower and the Agents and (y) the Administrative Agent, for its own account, such other fees as agreed to between the Borrower and the Administrative Agent, when and as due.

(g)           The Borrower shall pay to the Administrative Agent for distribution to each Incremental B Term Lender such fees and other amounts, if any, as are specified in the relevant Incremental B Term Commitment Agreement, with such fees and other amounts, if any, to be payable on the respective Incremental B Term Loan Borrowing Date.

(h)           All computations of Fees shall be made in accordance with Section 11.07(b).

2.02  Voluntary Reduction of Commitments.  (a)  Upon at least three Business Day’s prior written notice (or telephonic notice confirmed in writing) to the Administrative Agent at its Notice Office (which notice shall be deemed to be given on a certain day only if given before 2:00 P.M. (New York time) on such day and shall be promptly transmitted by the Administrative Agent to each of the Lenders), the Borrower shall have the right, without premium or penalty, to reduce, in whole or in part, the Total Unutilized Revolving Commitment or the Total Delayed-Draw Term Commitment, provided that (x) any such partial reduction shall apply to proportionately and permanently reduce the Revolving Commitments or Delayed-Draw Term Commitments, as the case may be, of each Lender with such a Commitment, (y) in the case

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of any reduction to the Total Unutilized Revolving Commitment, no such reduction shall reduce any Lender’s Revolving Commitment by an amount greater than the then Unutilized Revolving Commitment of such Lender and (z) any partial reduction pursuant to this Section 2.02(a) shall be in integral multiples of $1,000,000.

(b)           In the event of certain refusals by a Lender to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders as provided in Section 11.12(b), the Borrower shall have the right, subject to obtaining the consents required by Section 11.12(b), upon two Business Days’ prior written notice to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), to terminate the entire Delayed-Draw Term Commitment and/or Revolving Commitment of such Lender, so long as all Loans, together with accrued and unpaid interest, Fees and all other amounts, owing to such Lender (including all amounts, if any, owing pursuant to Section 1.11 but excluding amounts owing in respect of Loans of any Facility maintained by such Lender, if such Loans are not being repaid pursuant to Section 11.12(b)) are repaid concurrently with the effectiveness of such termination (at which time Annex I shall be deemed modified to reflect such changed amounts) and at such time, unless the respective Lender continues to have outstanding Commitments and/or Loans hereunder, such Lender shall no longer constitute a “Lender” for purposes of this Agreement, except with respect to indemnifications under this Agreement (including, without limitation, Sections 1.10, 1.11, 1A.06, 3.04, 11.01 and 11.06), which shall survive as to such repaid Lender.

2.03  Mandatory Adjustments of Commitments, etc.  (a)  Each of the Total Initial B Term Commitment, the Total Delayed-Draw Term Commitment and the Total Revolving Commitment (and the Initial B Term Commitment, Delayed-Draw Term Commitment and Revolving Commitment of each Lender with such a Commitment) shall terminate in its entirety on the Expiration Date unless the Initial Borrowing Date has occurred on or before such date.

(b)           The Total Initial B Term Commitment (and the Initial B Term Commitment of each Initial B Term Lender) shall terminate in its entirety on the Initial Borrowing Date (after giving effect to the making of Initial B Term Loans on such date).

(c)           The Total Delayed-Draw Term Commitment (and the Delayed-Draw Term Commitment of each Lender with such a Commitment) shall terminate in its entirety (to the extent not theretofore terminated) on the Delayed-Draw Term Commitment Termination Date (after giving effect to any incurrence of Delayed-Draw Term Loans on such date).

(d)           The Total Delayed-Draw Term Commitment shall (i) be reduced on each date on which Delayed-Draw Term Loans are incurred (after giving effect to the making of Delayed-Draw Term Loans on such date) in an amount equal to the aggregate principal amount of the Delayed-Draw Term Loans incurred on such date and (ii) prior to the termination of the Total Delayed-Draw Term Commitment as provided in Section 2.03(c) and preceding clause (i), be reduced on each date on which both (x) no Term Loans are outstanding (after giving effect to the application on or prior to such date of the provisions of Sections 3.02(A)) and (y) Term Loans, had there been any still outstanding, would have been required to be repaid pursuant to Sections 3.02(A)(b), (c), (d) or (e), by the amount, if any, by which the amount required to be

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applied pursuant to said Sections as a result of the events described therein (determined as if an unlimited amount of Term Loans were actually outstanding) exceeds the aggregate principal amount of Term Loans being repaid as a result of such events.

(e)           The Total Incremental B Term Commitment (and the Incremental B Term Commitment of each Incremental B Term Lender with such a Commitment) pursuant to an Incremental B Term Commitment Agreement shall terminate in its entirety on the related Incremental B Term Loan Borrowing Date therefor (after giving effect to the making of Incremental B Term Loans on such date).

(f)            The Total Revolving Commitment (to the extent outstanding) shall be reduced on each date on which both (x) no Term Loans are outstanding (after giving effect to the application on or prior to such date of the provisions of Sections 3.02(A)) and the Total Delayed-Draw Term Commitment has terminated (after giving effect to the application on or prior to such date of the provisions of Sections 2.03(c) and (d)) and (y) Term Loans, had there been any still outstanding, would have been required to be repaid pursuant to Sections 3.02(A)(b), (c), (d) or (e), by the amount, if any, by which the amount required to be applied pursuant to said Sections as a result of the events described therein (determined as if an unlimited amount of Term Loans were actually outstanding) exceeds the sum of the Delayed-Draw Term Commitments being terminated and the aggregate principal amount of Term Loans being repaid, in either case as a result of such events; provided, however, that in no event shall the Total Revolving Commitment be reduced below $50,000,000 as a result of the application of this Section 2.03(f).

(g)           The Total Revolving Commitment shall terminate in its entirety on the earlier of (x) the RF Maturity Date and (y) the date on which a Change of Control occurs.

(h)           Each partial reduction of the Commitments under a Facility pursuant to this Section 2.03 shall apply proportionately to reduce the Commitment of each Lender under such Facility.

SECTION 3.  Payments.

3.01  Voluntary Prepayments.  The Borrower shall have the right to prepay Loans, in whole or in part, without premium or penalty, from time to time on the following terms and conditions:  (i) the Borrower shall give the Administrative Agent at the Payment Office written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay the Loans, whether such Loans are B Term Loans, Delayed-Draw Term Loans, RF Loans or Swingline Loans, the amount of such prepayment and (in the case of Eurodollar Loans) the specific Borrowing(s) pursuant to which made, which notice shall be given by the Borrower prior to 12:00 Noon (New York time) at least one Business Day prior to the date of such prepayment with respect to Base Rate Loans (other than Swingline Loans, with respect to which notice shall be given by the Borrower on the date of prepayment) and at least three Business Days prior to the date of such prepayment with respect to Eurodollar Loans, and which notice (except in the case of a prepayment of Swingline Loans) shall promptly be transmitted by the Administrative Agent to each of the Lenders; (ii) each partial prepayment of any Borrowing shall be in an aggregate principal amount of at least $1,000,000 (or $100,000, in the case of a partial prepayment of any Borrowing of Swingline Loans), provided that no partial prepayment of

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Eurodollar Loans made pursuant to a Borrowing shall reduce the aggregate principal amount of the Loans outstanding pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto; (iii) except as provided in clause (vi) below, each prepayment in respect of any Loans of a given Facility made pursuant to a Borrowing shall be applied pro rata among such Loans, provided that at the Borrower’s election in connection with any prepayment of RF Loans pursuant to this Section 3.01, such prepayment shall not be applied to any RF Loans of a Defaulting Lender; (iv) at the time of any prepayment of Eurodollar Loans pursuant to this Section 3.01 on any date other than the last day of the Interest Period applicable thereto, the Borrower shall pay the amounts required pursuant to Section 1.11; (v) except as provided in clause (vi) below, each voluntary prepayment of Term Loans pursuant to this Section 3.01 shall be applied to the B Term Loans and the Delayed-Draw Term Loans on a pro rata basis (with the B TL Percentage of the aggregate amount of such prepayment to be applied as a prepayment of outstanding B Term Loans and the Delayed-Draw TL Percentage of the aggregate amount of such prepayment to be applied as a prepayment of outstanding Delayed-Draw Term Loans); and (vi) in the event of certain refusals by a Lender to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders as provided in Section 11.12(b), the Borrower may, upon two Business Days’ prior written notice to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), repay all Loans of such Lender (including all amounts, if any, owing pursuant to Section 1.11), together with accrued and unpaid interest, Fees and all other amounts then owing to such Lender (or owing to such Lender with respect to each Facility which gave rise to the need to obtain such Lender’s individual consent) in accordance with said Section 11.12(b), so long as (A) in the case of the repayment of RF Loans of any Lender pursuant to this clause (vi), the Revolving Commitment of such Lender is terminated concurrently with such repayment (at which time Annex I shall be deemed modified to reflect the changed Revolving Commitments), (B) in the case of the repayment of Delayed-Draw Term Loans of any Lender pursuant to this clause (vi), the Delayed-Draw Term Commitment of such Lender (if any) is terminated concurrently with such repayment (at which time Annex I shall be deemed modified to reflect the changed Delayed-Draw Term Commitments) and (C) the consents required by Section 11.12(b) in connection with the repayment pursuant to this clause (vi) shall have been obtained.

3.02  Mandatory Prepayments.

(A)          Requirements:

(a)           (i) If on any date (and after giving effect to all other repayments on such date) the sum of (I) the aggregate outstanding principal amount of RF Loans made by Non-Defaulting Lenders, (II) the aggregate outstanding principal amount of all Swingline Loans and (III) the Letter of Credit Outstandings (less any amount thereof as to which Section 1A.01(c) Arrangements are in place) exceeds the Adjusted Total Revolving Commitment as then in effect, the Borrower shall repay on such date the principal of outstanding Swingline Loans and, after all Swingline Loans have been repaid in full or if no Swingline Loans are outstanding, the principal of outstanding RF Loans of Non-Defaulting Lenders in an aggregate amount equal to such excess.  If, after giving effect to such repayment or repayments, the Letter of Credit Outstandings (less any amount thereof as to which Section 1A.01(c) Arrangements are in place) exceeds the Adjusted Total Revolving Commitment then in effect, the Borrower shall pay to the Collateral

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Agent an amount in cash and/or Cash Equivalents equal to such excess and the Collateral Agent shall hold such payment as security for the obligations of the Borrower in respect of Letters of Credit owing to Non-Defaulting Lenders pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Collateral Agent (which shall permit certain investments in Cash Equivalents reasonably satisfactory to the Collateral Agent, until all proceeds are applied to such secured obligations or until all Letters of Credit so secured expire undrawn, at which time such amount shall be returned to the Borrower).

(ii)           On any date on which the aggregate outstanding principal amount of the RF Loans made by any Defaulting Lender exceeds the Revolving Commitment of such Defaulting Lender, the Borrower shall prepay on such date principal of outstanding RF Loans of such Defaulting Lender in an amount equal to such excess.

(b)           On the fifth Business Day following the date of receipt thereof on or after the Effective Date by the Borrower and/or any of its Subsidiaries of the Net Cash Proceeds from any Asset Sale, an amount equal to 100% of the Net Cash Proceeds from such Asset Sale shall be applied as a mandatory repayment of principal of the then outstanding Term Loans, provided that up to 100% of the Net Cash Proceeds from Asset Sales shall not be required to be used to so repay Term Loans to the extent (i) the Borrower elects, as hereinafter provided, to cause such Net Cash Proceeds to be used within 270 days of such Asset Sale to finance Permitted Acquisitions (a “Reinvestment Election”) or (ii) in the case of Net Cash Proceeds from an Asset Sale constituting a Non-Core Asset Sale and so long as RF Loans in an aggregate principal amount equal to at least such amount of Net Cash Proceeds were incurred to finance Permitted Acquisitions within 120 days prior to the date of receipt of such Net Cash Proceeds, the Borrower applies all (and not less than all) of such Net Cash Proceeds to repay outstanding principal of RF Loans in accordance with Section 3.01 (a “Repayment Election”).  The Borrower may exercise (x) its Repayment Election with respect to a Non-Core Asset Sale as provided above if (A) no Default or Event of Default exists and (B) the Borrower delivers a written notice signed by an Authorized Officer to the Administrative Agent no later than five Business Days following the respective Non-Core Asset Sale stating that it has incurred RF Loans in an aggregate principal amount equal to or greater than the Net Cash Proceeds received from such Non-Core Asset Sale to finance a Permitted Acquisition within the time period specified in clause (ii) above and specifying the relevant Permitted Acquisition(s) consummated during such period and (y) its Reinvestment Election with respect to an Asset Sale if (A) no Default or Event of Default exists and (B) the Borrower delivers a Reinvestment Notice to the Administrative Agent no later than five Business Days following the date of the consummation of the respective Asset Sale, with such Reinvestment Election being effective with respect to the Net Cash Proceeds of such Asset Sale equal to the Anticipated Reinvestment Amount specified in such Reinvestment Notice.  Notwithstanding the foregoing provisions of this Section 3.02(A)(b), in no event shall the Borrower or any of its Subsidiaries use any proceeds from any Asset Sale to make any voluntary or mandatory repayment or prepayment of Permitted Senior Unsecured Notes or Permitted Junior Capital and, in each case, before any such obligation to use such proceeds to make such repayment shall arise, the Borrower or the respective Subsidiary shall reinvest the respective amounts pursuant to a Reinvestment Election as, and to the extent, permitted above in this Section 3.02(A)(b) or apply such proceeds as a mandatory prepayment and/or commitment reduction in accordance with the requirements of Section 3.02(B), 2.03(d) or 2.03(f), as applicable.

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(c)           On the Business Day following the receipt thereof by the Borrower, an amount equal to 100% of the Net Cash Proceeds from the issuance of Permitted Senior Unsecured Notes and Permitted Junior Capital shall be applied as a mandatory repayment of principal of the then outstanding Term Loans; provided that, notwithstanding the foregoing, the Net Cash Proceeds from any issuance of Permitted Junior Capital by the Borrower after the Initial Borrowing Date shall not be required to be applied to repay principal of outstanding Term Loans as otherwise required above, so long as (i) no Default or Event of Default then exists or would result from the respective issuance of such Permitted Junior Capital, (ii) calculations are made by the Borrower demonstrating compliance with the covenants contained in Sections 7.11 and 7.12 for the Calculation Period most recently ended prior to the date of such issuance of Permitted Junior Capital on a Pro Forma Basis (as if the respective Permitted Junior Capital had been issued on the first day of such Calculation Period), (iii) in the case of Permitted Junior Capital consisting of Permitted Senior Subordinated Notes or Disqualified Preferred Stock, calculations are made by the Borrower demonstrating compliance with a Senior Secured Leverage Ratio of less than 3.75:1.00 for the Calculation Period most recently ended prior to the date of such issuance of Permitted Junior Capital on a Pro Forma Basis (as if the respective Permitted Junior Capital had been issued on the first day of such Calculation Period), (iv) all of the Net Cash Proceeds from such issuance of Permitted Junior Capital shall have been used to effect a Permitted Acquisition in accordance with the requirements of Section 6.10 and/or concurrently utilized by the Borrower (x) to make a voluntary prepayment of RF Loans pursuant to, and in accordance with the requirements of, Section 3.01 in an aggregate principal amount equal to the aggregate principal amount of RF Loans actually incurred by the Borrower to finance a Permitted Acquisition and/or (y) to redeem and/or refinance Permitted Junior Capital in an amount equal to the principal amount or aggregate liquidation preference of or the Net Cash Proceeds from, as the case may be, the Permitted Junior Capital actually issued to finance Permitted Acquisition(s) or Permitted Acquisitions (and pay related accrued interest and dividends thereon, if any), in any such case within the 364-day period prior to such issuance of Permitted Junior Capital, and (v) the Borrower shall have furnished to the Administrative Agent a certificate from an Authorized Officer certifying as to compliance with the requirements of preceding clauses (i), (ii), (iii) and (iv) and containing the calculations required by preceding clauses (ii) and (iii).

(d)           On the Reinvestment Prepayment Date with respect to a Reinvestment Election, an amount equal to the Reinvestment Prepayment Amount, if any, for such Reinvestment Election shall be applied as a repayment of the principal amount of the then outstanding Term Loans.

(e)           On the date of delivery of each Quarterly Compliance Certificate pursuant to Section 6.01(e) demonstrating that the Leverage Ratio as at the last day of the fiscal quarter of the Borrower covered by such Quarterly Compliance Certificate is greater than 5.00:1.00 (or, if the Borrower shall have failed to deliver a Quarterly Compliance Certificate as required by Section 6.01(e) with respect to any fiscal quarter of the Borrower, on the date of the required delivery of a Quarterly Compliance Certificate for such fiscal quarter pursuant to said Section), an amount equal to 50% of the increase, if any, in Cumulative Distributable Cash during such fiscal quarter shall be applied as a mandatory repayment of principal of the then outstanding Term Loans; provided that, so long as (x) no Default or Event of Default exists at the time of the required mandatory repayment pursuant to this clause (e) and (y) no Dividend Suspension Period

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existed during the fiscal quarter of the Borrower ended immediately prior to such fiscal quarter, the Borrower shall not be so required to repay Term Loans as otherwise required by this clause (e); provided however, that if the Borrower is subsequently prohibited from paying Dividends on the Borrower Common Stock during the fiscal quarter of the Borrower immediately succeeding such fiscal quarter as a result of the existence of a Dividend Suspension Period, a Default or an Event of Default, a mandatory repayment of Term Loans shall be required within 60 days after the last day of such immediately succeeding fiscal quarter in the amount originally required by this clause (e) for the respective prior fiscal quarter (determined without regard to this and the immediately preceding proviso).

(f)            To the extent not theretofore repaid pursuant to the provisions of this Agreement, (i) all outstanding RF Loans and Swingline Loans shall be repaid in full upon the termination of the Total Revolving Commitment, (ii) all outstanding Term Loans and RF Loans shall be repaid in full on the relevant Maturity Date therefor, (iii) all outstanding Swingline Loans shall be repaid in full on the Swingline Expiry Date and (iv) all outstanding Term Loans shall be repaid in full on the date a Change of Control occurs.

(B)           Application:

(a)           Each mandatory repayment of Term Loans required to be made pursuant to Section 3.02(A)(b), (c), (d) or (e) shall be applied to then outstanding B Term Loans and Delayed-Draw Term Loans on a pro rata basis (with the B TL Percentage of the aggregate amount of such prepayment to be applied as a prepayment of the then outstanding B Term Loans and the Delayed-Draw TL Percentage of the aggregate amount of such prepayment to be applied as a prepayment of the then outstanding Delayed-Draw Term Loans).

(b)           With respect to each prepayment of Loans required by Section 3.02(A), the Borrower may designate the Types of Loans which are to be prepaid and the specific Borrowing(s) under the affected Facility pursuant to which made, provided that (i) if any prepayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount for such Borrowing, such Borrowing shall be immediately converted into Base Rate Loans; (ii) except for the differing treatments of Defaulting Lenders and Non-Defaulting Lenders as expressly provided in Section 3.02(A)(a), each prepayment of any Loans under a Facility made pursuant to a given Borrowing shall be applied pro rata among such Loans; (iii) repayments of Eurodollar Loans pursuant to this Section 3.02 may only be made on the last day of an Interest Period applicable thereto unless (x) all Eurodollar Loans of the respective Facility with Interest Periods ending on such date of required repayment and all Base Rate Loans of the respective Facility have been paid in full and/or (y) concurrently with such repayment, the Borrower pays all breakage costs and other amounts owing to each Lender pursuant to Section 1.11.  In the absence of a designation by the Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 1.11.  Notwithstanding the foregoing provisions of this Section 3.02, if at any time the mandatory repayment of Loans pursuant to this Section 3.02 would result, after giving effect to the procedures set forth in clause (iii) of the second preceding sentence, in the Borrower incurring breakage costs under Section 1.11 as a result of Eurodollar Loans being repaid other than on the last day of an Interest

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Period applicable thereto (any such Eurodollar Loans, “Affected Loans”), the Borrower may (in lieu of making such payment) elect, by written notice to the Administrative Agent, to have the provisions of the following sentence be applicable.  At the time any Affected Loans are otherwise required to be prepaid, the Borrower may elect to deposit 100% (or such lesser percentage elected by the Borrower as not being repaid) of the principal amounts that otherwise would have been paid in respect of the Affected Loans with the Administrative Agent to be held as security for the obligations of the Borrower hereunder pursuant to a cash collateral agreement to be entered into in form and substance satisfactory to the Administrative Agent, with such cash collateral to be released from such cash collateral account (and applied to repay the principal amount of such Eurodollar Loans) upon each occurrence thereafter of the last day of an Interest Period applicable to Eurodollar Loans (or such earlier date or dates as shall be requested by the Borrower), with the amount to be so released and applied on the last day of each Interest Period to be the amount of such Eurodollar Loans to which such Interest Period applies (or, if less, the amount remaining in such cash collateral account).

3.03  Method and Place of Payment.  Except as otherwise specifically provided herein, all payments under this Agreement shall be made to the Administrative Agent for the ratable account of the Lenders entitled thereto, not later than 1:00 P.M. (New York time) on the date when due and shall be made in immediately available funds and in Dollars at the Payment Office, it being understood that written notice by the Borrower to the Administrative Agent to make a payment from the funds in the Borrower’s account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account.  Any payments under this Agreement which are made later than 1:00 P.M. (New York time) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension.

3.04  Net Payments.  (a)  All payments made by the Borrower hereunder and/or under any Note will be made without setoff, counterclaim or other defense.  Except as provided in Section 3.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of a Lender pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as “Taxes”).  If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement and/or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or therein.  If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Lender, upon the written request of

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such Lender, for taxes imposed on or measured by the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located and for any withholding of taxes as such Lender shall determine are payable by, or withheld from, such Lender, in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence.  The Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrower.  The Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender.

(b)           Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes agrees to deliver to the Borrower and the Administrative Agent on or prior to the Effective Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.13 or 11.04 (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8ECI or W-8BEN (with respect to a complete exemption under an income tax treaty) (or successor form)) certifying to such Lender’s entitlement as of such date to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form W-8ECI or W-8BEN (with respect to a complete exemption under an income tax treaty) pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit C (any such certificate, a “Section 3.04 Certificate”) and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (with respect to the portfolio interest exemption) (or successor form) certifying to such Lender’s entitlement as of such date to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note.  In addition, each Lender agrees that from time to time after the Effective Date, when a lapse of time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form W-8ECI or W-8BEN (with respect to the benefits of any income tax treaty), or Form W-8BEN (with respect to the portfolio interest exemption) and a Section 3.04 Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Borrower and the Administrative Agent of its inability to deliver any such Form or Certificate, in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 3.04(b).  Notwithstanding anything to the contrary contained in Section 3.04(a), but subject to Section 11.04(b) and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein)

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from interest, Fees or other amounts payable by it hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Borrower U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 3.04(a) hereof to gross-up payments to be made by it to a Lender in respect of income or similar taxes imposed by the United States (I) if such Lender has not provided to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 3.04(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes.  Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 3.04 and except as set forth in Section 11.04(b), the Borrower agrees to pay any additional amounts and to indemnify each Lender in the manner set forth in Section 3.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such income or similar taxes.

(c)           If the Borrower pays any additional amount under this Section 3.04 to a Lender and such Lender determines in its sole discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax liabilities in or with respect to the taxable year in which the additional amount is paid, such Lender shall pay to the Borrower an amount that the Lender shall, in its sole discretion (but acting in good faith), determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such refund, reduction or credit.

SECTION 4.  Conditions Precedent.

4.01  Conditions Precedent to Initial Borrowing Date and the Initial Incurrence of Loans.  The obligation of the Lenders to make Loans hereunder and the obligation of each Letter of Credit Issuer to issue Letters of Credit hereunder, in each case on the Initial Borrowing Date, are subject to the satisfaction of each of the following conditions at such time:

(a)           Effectiveness; Notes.  (i)  The Effective Date shall have occurred as provided in Section 11.10 and (ii) there shall have been delivered to the Administrative Agent for the account of each Lender requesting same the appropriate Note or Notes executed by the Borrower, in each case, in the amount, maturity and as otherwise provided herein.

(b)           Opinions of Counsel.  The Administrative Agent shall have received (i) from Paul, Hastings, Janofsky & Walker LLP, special counsel to the Credit Parties, an opinion addressed to each Agent, the Collateral Agent and each of the Lenders and dated the Initial Borrowing Date substantially in the form of Exhibit D and (ii) from local and special FCC counsel to the Pledge Parties reasonably satisfactory to the Agents, such opinions as the Agents may reasonably request, which opinions shall (x) be addressed to each Agent, the Collateral Agent and each of the Lenders and be dated the Initial Borrowing Date, (y) cover such other

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matters incident to the transactions contemplated herein as the Agents may reasonably request and (z) be in form, scope and substance reasonably satisfactory to the Agents.

(c)           Company Proceedings.  (i)  The Administrative Agent shall have received a certificate, dated the Initial Borrowing Date, signed by an Authorized Officer in the form of Exhibit E with appropriate insertions and deletions, together with (x) copies of the certificate of incorporation, by-laws or other organizational documents of each Pledge Party and (y) the resolutions of each Pledge Party referred to in such certificate and all of the foregoing (including each such organizational document) shall be reasonably satisfactory to the Administrative Agent and (z) a statement that all of the applicable conditions set forth in Sections 4.01(e), (f), (g), (k), (l) and (n) and 4.02(b) have been satisfied as of such date.

(ii)           On the Initial Borrowing Date, all Company proceedings, all legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be reasonably satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received all information and copies of all certificates, documents and papers, including good standing certificates and any other records of Company proceedings and governmental approvals, if any, which the Agents may have reasonably requested in connection therewith, such documents and papers, where appropriate, to be certified by proper Company or governmental authorities.

(d)           Plans; etc.  On or prior to the Initial Borrowing Date, there shall have been made available to the Administrative Agent true and correct copies of the following documents, in each case as same will be in effect on the Initial Borrowing Date after the consummation of the Transaction:

(i)            all Plans (and for each Plan that is required to file an annual report on Internal Revenue Service Form 5500-series, a copy of the most recent such report (including, to the extent required, the related financial and actuarial statements and other supporting statements, certifications, schedules and information), and for each Plan that is a “single-employer plan,” as defined in Section 4001(a)(15) of ERISA, the most recently prepared actuarial valuation therefor) and any other “employee benefit plans,” as defined in Section 3(3) of ERISA, and any other material agreements, plans or arrangements, with or for the benefit of current or former employees of the Borrower or any of its Subsidiaries or any ERISA Affiliate (provided that the foregoing shall apply in the case of any multiemployer plan, as defined in 4001(a)(3) of ERISA, only to the extent that any document described herein is in the possession of the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate or reasonably available thereto from the sponsor or trustee of any such plan);

(ii)           any collective bargaining agreements or any other similar agreement or arrangements covering the employment arrangements of the employees of the Borrower or any of its Subsidiaries;

(iii)          all agreements entered into by the Borrower or any Subsidiary governing the terms and relative rights of its capital stock or other equity interests;

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(iv)          any material agreement with respect to the management of the Borrower or any of its Subsidiaries;

(v)           any material employment agreements entered into by the Borrower or any of its Subsidiaries; and

(vi)          any tax sharing, tax allocation and other similar agreements entered into by the Borrower and/or any of its Subsidiaries with any entity not a Pledge Party;

with all of the foregoing to be reasonably satisfactory to the Administrative Agent.

(e)           Adverse Change, etc.  Since December 31, 2003, nothing shall have occurred, and neither any Agent nor the Required Lenders shall have first become aware of any facts or conditions not previously known, in each case which any Agent or the Required Lenders shall reasonably determine has had, or is reasonably likely to have, a Material Adverse Effect.

(f)            Litigation.  There shall be no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened (a) with respect to this Agreement or any other Document or (b) which any Agent or the Required Lenders shall reasonably determine has had, or is reasonably likely to have, a Material Adverse Effect.

(g)           Approvals.  All necessary material governmental and third party approvals in connection with the Documents (including, without limitation, all necessary material approvals required by the FCC and the applicable PUCs) shall have been obtained and remain in effect.

(h)           Subsidiary Guaranty.  Each 1^st-Tier Subsidiary of the Borrower on the Initial Borrowing Date shall have duly authorized, executed and delivered a Subsidiary Guaranty in the form of Exhibit F hereto (as modified, amended, restated and/or supplemented from time to time in accordance with the terms hereof and thereof, the “Subsidiary Guaranty”), and the Subsidiary Guaranty shall be in full force and effect.

(i)            Pledge Agreement.  The Borrower, each 1^st-Tier Subsidiary of the Borrower on the Initial Borrowing Date and each Parent Company that is a Subsidiary on the Initial Borrowing Date shall have each duly authorized, executed and delivered a Pledge Agreement in the form of Exhibit G (as modified, amended, restated and/or supplemented from time to time in accordance with the terms thereof and hereof, the “Pledge Agreement”) and shall have delivered to the Collateral Agent, as pledgee thereunder:

(i)             all of the Collateral, if any, referred to therein and then owned by such Persons, (x) endorsed in blank in the case of promissory notes constituting Collateral and (y) together with executed and undated transfer powers in the case of certificated equity interests constituting Collateral;

(ii)           proper Financing Statements (Form UCC-1 or the equivalent) fully executed (where required) for filing under the UCC or other appropriate filing offices of each jurisdiction as may be necessary or, in the reasonable opinion of the Collateral

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Agent, desirable to perfect the security interests purported to be created by the Pledge Agreement;

(iii)          certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, each of a recent date, listing all effective financing statements that name any Pledge Party or any of its Subsidiaries as debtor and that are filed in the jurisdictions referred to in clause (ii) above, together with copies of such other financing statements that name any Pledge Party or any of its Subsidiaries as debtor (none of which shall cover any of the Collateral, except to the extent evidencing Permitted Liens or in respect of which the Collateral Agent shall have received termination statements (Form UCC-3) or such other termination statements as shall be required by local law fully executed (where required) for filing); and

(iv)          evidence that all other actions necessary or, in the reasonable opinion of the Collateral Agent, desirable to create, maintain, effect, perfect, preserve, maintain and protect the security interests purported to be created by the Pledge Agreement have been taken;

and the Pledge Agreement shall be in full force and effect.

(j)            Solvency.  The Borrower shall have delivered to the Administrative Agent a solvency certificate, dated the Initial Borrowing Date and in the form of Exhibit H hereto.

(k)           Initial Public Offering.  On the Initial Borrowing Date, the Borrower shall have (x) issued shares of Borrower Common Stock pursuant to an underwritten initial public generating gross cash proceeds (calculated before underwriting costs) of approximately $[475.0](1) million (the “IPO”) and (y) utilized the full amount of the cash proceeds described in preceding clause (x) to make payments owing in connection with the Transaction prior to the utilization by the Borrower of any proceeds of Loans for such purpose.  On the Initial Borrowing Date, (i) the IPO shall have been consummated in accordance with the terms and conditions of the IPO Documents and all applicable law, (ii) the Administrative Agent shall have received true and correct copies of all IPO Documents and (iii) all conditions precedent to the consummation of the IPO as set forth in the IPO Documents shall have been satisfied, and not waived unless consented to by each Agent and the Required Lenders, to the reasonable satisfaction of each Agent and the Required Lenders.

(l)            Refinancing.  (i)  Prior to the Initial Borrowing Date and the Credit Events then occurring, the Borrower shall have commenced tender offers and consent solicitations with

(1)           If the IPO prices in the mid-point of the contemplated pricing range, the IPO will generate $475.0 million of gross cash proceeds. The amount of gross cash proceeds from the IPO required hereby may be adjusted to as low as (but not below) $440.0 million, in which case the Existing Seller/Opco Notes in an aggregate principal amount equal to approximately $21.0 million will not be required to be refinanced (see Section 4.02(l)(vi)) and other adjustments to sources and uses will be made. All amounts will be finalized at least 3 days prior to the Initial Borrowing Date.

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respect to each issue of outstanding Existing Tender Offer Notes (the “Tender Offers and Consent Solicitations”) pursuant to which (I) the Borrower shall offer, subject to the Minimum Tender Offer Condition for each such Tender Offer and Consent Solicitation and the other terms and conditions contained therein, to purchase all of the outstanding Existing Tender Offer Notes at a cash price equal to $1000 per $1000 principal amount, plus accrued and unpaid interest thereon, (II) consents shall be solicited to proposed amendments (the “Existing Tender Offer Notes Indenture Amendments”) to each of the Existing Tender Offer Notes Indentures, which amendments shall, inter alia, provide for the substantial elimination of the covenants contained in each of the Existing Tender Offer Notes Indentures (including, without limitation, limitations on restricted payments, dividends, transactions with affiliates, indebtedness and guarantees by subsidiaries) and (III) the Borrower shall offer to pay to each holder of Existing Tender Offer Notes which validly consents to the relevant Existing Tender Offer Notes Indenture Amendment a consent fee in an amount not to exceed $20 for each $1,000 principal amount of such holder’s Existing Tender Offer Notes.  All terms and conditions of the Tender Offers and Consent Solicitations and the Existing Tender Offer Notes Indenture Amendments shall be reasonably satisfactory to the Agents, and in any event, the Tender Offers and Consent Solicitations shall provide that the period for tendering Existing Tender Offer Notes pursuant thereto shall terminate on or prior to the Initial Borrowing Date.

(ii)           On or prior to the Initial Borrowing Date, (x) holders of at least 75% (or, in the case of the Existing 2008 Senior Subordinated Notes, 51%) of the aggregate outstanding principal amount of each series of outstanding Existing Tender Offer Notes shall have validly tendered, and not withdrawn, their Existing Tender Offer Notes and provided their “Consent” pursuant to, and in accordance with the requirements of, the Tender Offer and Consent Solicitation therefor, and (y) the Borrower and the trustees under each of the Existing Tender Offer Notes Indentures shall have duly executed and delivered the Existing Tender Offer Notes Indenture Supplements and same shall have become effective in accordance with their terms and the terms of the relevant Existing Tender Offer Notes Indenture.

(iii)          On the Initial Borrowing Date (and concurrently with the Credit Events occurring on such Date), the Borrower shall have deposited into a segregated account (the “Segregated Account”) proceeds of Term Loans in an aggregate principal amount equal to the sum of (x) the aggregate principal amount of the Existing 2008 Senior Subordinated Notes not validly tendered (or validly tendered and subsequently withdrawn) pursuant to the Tender Offer and Consent Solicitation therefor plus (y) all unpaid interest accruing and applicable call premiums thereon through the 30^th day following the Initial Borrowing Date (the “Redemption Date”).

(iv) On the Initial Borrowing Date, the Borrower shall have delivered an irrevocable “notice of redemption” to the trustee under the Existing 2008 Senior Subordinated Notes Indenture pursuant to, and in accordance with the requirements of, the Existing 2008 Senior Subordinated Notes Indenture.

(v)           On or prior to the Initial Borrowing Date, the Borrower shall have redeemed or repurchased all of its outstanding shares of Series A Preferred Stock for an aggregate redemption price (including any and all accrued but unpaid dividends with respect to the Series A Preferred Stock) equal to approximately $131.0 million.

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(vi)          On the Initial Borrowing Date and concurrently with the incurrence of Loans on such date, approximately $[197.0] million of Indebtedness of the Borrower and its Subsidiaries consisting of, inter alia, all Indebtedness under the Existing Credit Agreement (other than Existing Letters of Credit) [and the Existing Seller/Opco Notes](2) shall have been repaid in full, together with all fees, accrued interest and other amounts owing thereon (collectively, the “Additional Refinanced Indebtedness”), all commitments under the documents evidencing Additional Refinanced Indebtedness shall have been terminated, all letters of credit issued pursuant to the documents evidencing the Additional Refinanced Indebtedness shall have been terminated or incorporated hereunder as Letters of Credit as contemplated by Section 1A.01(d) and all guaranties issued in support of such Additional Refinanced Indebtedness shall have been terminated.

(vii)         On the Initial Borrowing Date and concurrently with the incurrence of Loans on such date, all security interests in respect of, and Liens securing, the Additional Refinanced Indebtedness shall have been terminated and released, and the Administrative Agent shall have received all such releases as may have been reasonably requested by the Administrative Agent, which releases shall be in form and substance reasonably satisfactory to the Administrative Agent.  Without limiting the foregoing, there shall have been delivered to the Administrative Agent proper termination statements (Form UCC-3 or the appropriate equivalent) for filing under the UCC of each jurisdiction where a financing statement (Form UCC-1 or the appropriate equivalent) was filed with respect to the Borrower or any of its Subsidiaries in connection with the security interests created with respect to the Additional Refinanced Indebtedness and the documentation related thereto, all of which shall be in form and substance reasonably satisfactory to the Administrative Agent.

(viii)        On the Initial Borrowing Date and after giving effect to the consummation of the Transaction (including the Tender Offer and Consent Solicitation Consummation as if the same had occurred on such date but excluding the Existing 2008 Senior Subordinated Notes Redemption), the Borrower and its Subsidiaries shall have no outstanding preferred equity or Indebtedness, except for (i) Indebtedness pursuant to or in respect of the Credit Documents, (ii) Existing Tender Offer Notes not repurchased pursuant to the Tender Offer and Consent Solicitation Consummation in an aggregate outstanding principal amount not to exceed $[      ] million and (iii) such other existing Indebtedness of the Borrower and its Subsidiaries, if any, as shall be permitted by the Agents and Required Lenders to remain outstanding (all of which Indebtedness described in this subclause (iii) shall be required to be specifically listed as Scheduled Existing Indebtedness).  On and as of the Initial Borrowing Date, all Indebtedness described in the immediately preceding sentence shall remain outstanding after giving effect to the Transaction (other than the Existing 2008 Senior Subordinated Notes Redemption) and the other transactions contemplated hereby without any breach, required repayment, required offer to purchase, default, event of default or termination rights existing thereunder or arising as a result of the Transaction and the other transactions contemplated hereby.

(m)          Intercompany Subordination Agreement.  The Borrower and each of its Subsidiaries shall have duly authorized, executed and delivered a Subordination Agreement

(2)           See previous footnote.

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substantially in the form of Exhibit J hereto (as amended, restated, modified and/or supplemented from time to time in accordance with the terms hereof and thereof, the “Intercompany Subordination Agreement”), and the Intercompany Subordination Agreement shall be in full force and effect.

(n)           Fees.  The Borrower shall have paid to the Agents and the Lenders all Fees and expenses agreed upon by such parties to be paid on or prior to the Initial Borrowing Date (for which, in the case of legal fees and expenses, the Borrower shall have received in advance a written invoice in reasonable detail).

(o)           Projections.  On or prior to the Initial Borrowing Date, each of the Agents and the Lenders shall have received detailed projected consolidated financial statements of the Borrower and its Subsidiaries for the period from the Initial Borrowing Date through the Term Loan Maturity Date (“Projections”), which Projections shall (x) reflect the forecasted consolidated financial condition of the Borrower and its Subsidiaries after giving effect to the Transaction and (y) be reasonably satisfactory in form and substance to the Agents.

4.02  Conditions Precedent to All Loans (other than RF Loans and Delayed-Draw Term Loans Incurred to Finance an Optional Non-2008 Tender Offer Notes Redemption).  The obligation of each Lender to make Loans (including Loans made on the Initial Borrowing Date and on each Incremental B Term Loan Borrowing Date but excluding (x) RF Loans and Delayed-Draw Term Loans made to finance an Optional Non-2008 Tender Offer Notes Redemption and (y) Mandatory Borrowings made after the Initial Borrowing Date, which shall be made as provided in Section 1.01(e)), and of each Letter of Credit Issuer to issue Letters of Credit, is subject, at the time of the making of each such Loan and the issuance of each such Letter of Credit, to the satisfaction of the following conditions:

(a)           Notice of Borrowing.  The Administrative Agent shall have received a Notice of Borrowing meeting the requirements of Section 1.03 (or, in the case of a Swingline Loan, the notice referred to in Section 1.03(b)(i)) or a Letter of Credit Request meeting the requirements of Section 1A.03.

(b)           No Default; Representations and Warranties.  At the time of each making of Loans and each issuance of a Letter of Credit and also after giving effect thereto, (i) there shall exist no Default or Event of Default and (ii) all representations and warranties made by any Credit Party contained herein or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Loans or issuance of such Letter of Credit, except to the extent that such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date.

(c)           Regulation U.        If at any time any Margin Stock is pledged or required to be pledged pursuant to the Pledge Agreement, all actions required to be taken pursuant to Section 6.12 shall have been taken to the reasonable satisfaction of the Administrative Agent.

4.03  Special Condition Precedent to Incurrence of RF Loans and Delayed-Draw Term Loans Incurred to Finance an Optional Non-2008 Tender Offer Notes Redemption.  The

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obligation of each Lender to make RF Loans and Delayed-Draw Term Loans to finance any Optional Non-2008 Tender Offer Notes Redemption is subject to the absence, at the time of making such Loans and also after giving effect thereto, of any Default or Event of Default under Section 8.01 or 8.05.

The occurrence of the Initial Borrowing Date and the acceptance of the benefits or proceeds of each Credit Event shall constitute a representation and warranty by the Borrower to each Agent, each Letter of Credit Issuer and each of the Lenders that all the conditions specified in Section 4 and applicable to such Credit Event have been satisfied as of that time.  All of the certificates, legal opinions and other documents and papers referred to in Sections 4.01 and 4.02, unless otherwise specified, shall be delivered to the Administrative Agent for the benefit of each of the Lenders and, except for the Notes, in sufficient counterparts for each of the Lenders and shall be reasonably satisfactory in form and substance to the Agents.

SECTION 5.  Representations, Warranties and Agreements.  In order to induce the Lenders to enter into this Agreement, to make the Loans and to issue and/or participate in Letters of Credit, the Borrower makes the following representations and warranties to, and agreements with, the Lenders, all of which shall survive the execution and delivery of this Agreement, the making of the Loans and the issuance of the Letters of Credit:

5.01  Company Status.  Each of the Borrower and its Subsidiaries (i) is a duly organized and validly existing Company and is in good standing, in each case under the laws of the jurisdiction of its organization and has the Company power and authority to own its property and assets and to transact the business in which it is engaged and (ii) is duly qualified and is authorized to do business and, to the extent relevant, is in good standing in all jurisdictions where it is required to be so qualified except where the failure to be so qualified, authorized or in good standing would not be reasonably likely to have a Material Adverse Effect.

5.02  Company Power and Authority.  Each Credit Party has the Company power and authority to execute, deliver and carry out the terms and provisions of the Documents to which it is a party and has taken all necessary action to authorize the execution, delivery and performance of the Documents to which it is a party. Each Credit Party has duly executed and delivered each Document to which it is a party and each such Document constitutes the legal, valid and binding obligation of such Person enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and general equitable principles (regardless of whether enforcement is sought in equity or at law).

5.03  No Violation.  Neither the execution, delivery or performance by any Credit Party of the Documents to which it is a party nor compliance with the terms and provisions thereof, (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality, (ii) will violate, conflict or be inconsistent with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or (other than pursuant to the Pledge Agreement) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Borrower or any of its Subsidiaries pursuant to the terms of any

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indenture, mortgage, deed of trust or other material agreement or instrument to which the Borrower or any of its Subsidiaries is a party or by which it or any of its property or assets are bound or to which it may be subject or (iii) will violate any provision of the organizational documents (including by-laws) of the Borrower or any of its Subsidiaries.

5.04  Litigation.  There are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened (i) with respect to any Credit Document, (ii) with respect to the Transaction or any other Document or (iii) with respect to the Borrower or any of its Subsidiaries that have had, or that are reasonably likely to have, a Material Adverse Effect.  Additionally, there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the incurrence of any Credit Event.

5.05  Use of Proceeds; Margin Regulations.  (a)  The proceeds of all Initial B Term Loans shall be utilized solely (i) to finance, in part, the Refinancing (including to fund the Segregated Account and to finance the Existing 2008 Senior Subordinated Notes Redemption but excluding the Optional Non-2008 Tender Offer Notes Refinancing) and to pay certain fees and expenses relating to the Transaction and (ii) after the application for the purposes described in preceding clause (i), for working capital and general corporate requirements of the Borrower and its Subsidiaries; provided that not more than $[5.0](3) million of proceeds of Initial B Term Loans may be used for the purposes described in this clause (ii).

(b)           The proceeds of all Delayed-Draw Term Loans shall be utilized solely to finance the Optional Non-2008 Tender Offer Notes Refinancing.

(c)           The proceeds of all Incremental B Term Loans shall be utilized for general corporate and working capital purposes of the Borrower and its Subsidiaries (including, without limitation, to finance Permitted Acquisitions).

(d)           The proceeds of RF Loans may be used (x) on the Initial Borrowing Date to finance, in part, the Refinancing (other than the Existing 2008 Senior Subordinated Notes Redemption and the Optional Non-2008 Tender Offer Notes Refinancing) and to pay certain fees and expenses relating to the Transaction and (y) for working capital, general corporate and capital expenditure requirements of the Borrower and its Subsidiaries (including to finance Permitted Acquisitions and the Optional Non-2008 Tender Offer Notes Refinancing and, subject to the satisfaction of the Minimum Liquidity Condition, to pay dividends on Borrower Common Stock permitted to be paid pursuant to the terms of this Agreement); provided that no more than $[15.0](4) million of proceeds of RF Loans may be used for the purposes described in preceding clause (x).

(e)           The proceeds of Swingline Loans may be used for the general corporate and working capital purposes of the Borrower and its Subsidiaries; provided that no proceeds

(3)Subject to adjustment based upon the gross proceeds received from the IPO.

(4) See footnote 1.  May be reduced to not less than $10.0 million, depending on the gross proceeds actually generated by the IPO.

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from Swingline Loans may be used to finance the Refinancing or to pay fees and expenses incurred in connection with the Transaction.

(f)            Neither the making of any Loan hereunder, nor the use of the proceeds thereof, nor the occurrence of any other Credit Event, will violate the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System and no part of any Credit Event (or the proceeds thereof) will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock,provided that proceeds of RF Loans may be utilized to purchase Margin Stock (A) if such purchase (x) is pursuant to a Permitted Acquisition of the Person issuing such Margin Stock and (y) is effected pursuant to a friendly transaction (as determined by the Agents) not in violation of such Regulations T, U or X and (B) to the extent otherwise permitted by Sections 7.09(a)(ii), (iii) or (xvi).

(g)           The fair market value of all Margin Stock owned by the Borrower and its Subsidiaries (other than the capital stock of the Borrower held in treasury) does not exceed $500,000.  At the time of each Credit Event, not more than 25% of the value of the assets of the Borrower and its Subsidiaries taken as a whole (including all capital stock of the Borrower held in treasury) will constitute Margin Stock.

5.06  Governmental Approvals.  Except for such consents, approvals and filings as have been obtained or made on or prior to the Initial Borrowing Date and remain in full force and effect, no order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority (including, without limitation, the FCC and applicable PUCs), or any subdivision thereof, is required to authorize or is required in connection with (i) the execution, delivery and performance of any Document or (ii) the legality, validity, binding effect or enforceability of any Document.

5.07  Investment Company Act.  Neither the Borrower nor any of its Subsidiaries is an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

5.08  Public Utility Holding Company Act.  Neither the Borrower nor any of its Subsidiaries is a “holding company,” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company” within the meaning of the Public Utility Holding Company Act of 1935, as amended.

5.09  True and Complete Disclosure.  All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower in writing to the Lenders for purposes of or in connection with this Agreement or any transaction contemplated herein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of any Credit Party in writing to the Lenders hereunder will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided.  The projections and pro forma financial information contained in such materials are based on good faith estimates and assumptions believed by the Borrower to be reasonable at

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the time made (it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results and that such assumptions and estimates may prove to be inaccurate).

5.10  Financial Condition; Financial Statements.  (a)  On and as of the Initial Borrowing Date, on a pro forma basis after giving effect to the Transaction and all Indebtedness incurred, and to be incurred (including, without limitation, the Loans and the application of the proceeds thereof), and Liens created, and to be created, by each Credit Party in connection therewith, with respect to the Borrower (on a stand-alone basis) and the Borrower and its Subsidiaries (on a consolidated basis), (x) the fair valuation of all of the tangible and intangible assets of the Borrower (on a stand-alone basis) and the Borrower and its Subsidiaries (on a consolidated basis) will exceed its or their debts, (y) it has or they have not incurred nor intended to, nor believes or believe that it or they will, incur debts beyond its or their ability to pay such debts as such debts mature and (z) it or they will not have unreasonably small capital with which to conduct its or their business.  For purposes of this Section 5.10, “debt” means any liability on a claim, and “claim” means (i) the right to payment whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or (ii) the right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured.

(b)           (i)  The audited consolidated statements of financial condition of the Borrower and its Subsidiaries at December 31, 2001, December 31, 2002 and December 31, 2003 and the related consolidated statements of income and cash flows and changes in shareholders’ equity of the Borrower and its Subsidiaries for the fiscal years of the Borrower ended on such dates, in each case furnished to the Lenders prior to the Initial Borrowing Date, present fairly in all material respects the consolidated financial position of the Borrower and its Subsidiaries at the date of said financial statements and the results for the respective periods covered thereby and (ii) the unaudited statement of financial condition of the Borrower and its Subsidiaries at September 30, 2004 and the related consolidated statement of income and cash flows and change in shareholder’s equity of the Borrower and its Subsidiaries for nine-month period of the Borrower ended on such date, in each case furnished to the Lenders prior to the Initial Borrowing Date, present fairly in all material respects the consolidated financial position of the Borrower and its Subsidiaries at the date of said financial statements and the results for the period covered thereby, subject to normal year-end adjustments.  All such financial statements have been prepared in accordance with GAAP and practices consistently applied except to the extent provided in the notes to said financial statements and subject, in the case of unaudited financial statements, to normal year-end adjustments (all of which are of a recurring nature and none of which, individually or in the aggregate, would be material) and the absence of footnotes.  The pro forma consolidated balance sheet of the Borrower as at September 30, 2004, a copy of which has been included in the Form S-1, presents a good faith estimate of the consolidated pro forma financial condition of the Borrower (after giving effect to the Transaction and all Indebtedness incurred or to be incurred in connection therewith) as at the date thereof.  Nothing has occurred since December 31, 2003 that has had, or is reasonably likely to have, a Material Adverse Effect.

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(c)           Except as reflected in the financial statements described in Section 5.10(b) or in the footnotes thereto, there are as of the Initial Borrowing Date no liabilities or obligations with respect to the Borrower or any of its Subsidiaries of a nature (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, are reasonably likely to be material to the Borrower and its Subsidiaries taken as a whole, except as incurred in the ordinary course of business consistent with past practices.

(d)           On and as of the Initial Borrowing Date, the Projections have been prepared on a basis consistent with the financial statements referred to in Section 5.10(b) for the fiscal year of the Borrower ended December 31, 2003, and are based on good faith estimates and assumptions made by the management of the Borrower.  On the Initial Borrowing Date, such management believed that the Projections were reasonable and attainable (it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results).

5.11  Security Interests.  At any time on or after the Initial Borrowing Date, the Pledge Agreement creates, as security for the obligations purported to be secured thereby, a valid and enforceable Lien on all of the Collateral subject thereto at such time, superior to and prior to the rights of all third Persons and subject to no other Liens (except for Liens permitted under Section 7.03(a)), in favor of the Collateral Agent for the benefit of the Secured Creditors, which Lien has been perfected under applicable law.  No filings or recordings are required in order to perfect the Lien on the Collateral created under the Pledge Agreement, except for filings or recordings required in connection with the Pledge Agreement which shall have been made on or prior to the Initial Borrowing Date or as otherwise required in accordance with the terms of the Pledge Agreement.

5.12  Compliance With Statutes.  Each of the Borrower and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such non-compliance as has not had, and is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect.

5.13  Tax Returns and Payments.  Each of the Borrower and its Subsidiaries has filed all U.S. federal income tax returns and all other material tax returns, domestic and foreign, required to be filed by it and has paid all material taxes and assessments payable by it which have become due, except for those contested in good faith and adequately disclosed and fully provided for on the financial statements of the Borrower and its Subsidiaries if and to the extent required by GAAP.  Each of the Borrower and its Subsidiaries has at all times paid, or has provided adequate reserves (in the good faith judgment of the management of the Borrower) for the payment of, all U.S. federal, state and foreign income taxes applicable for all prior fiscal years which are still open for audit and for the current fiscal year to date.  There is no action, suit, proceeding, investigation, audit, or claim now pending or, to the knowledge of the Borrower, threatened by any authority regarding any taxes relating to the Borrower or any of its Subsidiaries which is reasonably likely to have a Material Adverse Effect.

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5.14  Compliance with ERISA.  (i)  Annex IV sets forth each Plan and Multiemployer Plan; (ii) except as set forth on Annex IV, each Plan (and each related trust, insurance contract or fund) is in substantial compliance with its terms and with all applicable laws, including without limitation ERISA and the Code; each Plan which is intended to be qualified under Section 401(a) of the Code has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Section 401(a) of the Code;  except as set forth on Annex IV, no Reportable Event has occurred with respect to a Plan; to the knowledge of the Borrower, no Multiemployer Plan is insolvent or in reorganization; except as set forth on Annex IV, no Plan has an Unfunded Current Liability which, when added to the aggregate amount of Unfunded Current Liabilities with respect to all other Plans, exceeds $3,000,000; no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated funding deficiency, within the meaning of such sections of the Code or ERISA, or has applied for or received a waiver of an accumulated funding deficiency or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA; all contributions required to be made with respect to a Plan or a Multiemployer Plan have been timely made; neither the Borrower nor any Subsidiary nor any ERISA Affiliate has incurred any material liability (including any indirect, contingent or secondary liability) to or on account of a Plan or a Multiemployer Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or reasonably expects to incur any such liability under any of the foregoing sections with respect to any Plan or any Multiemployer Plan; no condition exists which presents a material risk to the Borrower or any Subsidiary or any ERISA Affiliate of incurring a material liability to or on account of a Plan or, to the knowledge of the Borrower, of any Multiemployer Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan which is subject to Title IV of ERISA; except as would not result in any material liability, no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or the investment of assets of any Plan (other than routine claims for benefits) is pending, or to the best knowledge of the Borrower expected or threatened; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrower and its Subsidiaries and its ERISA Affiliates to all Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ended prior to the date of the most recent Loan incurrence, would not exceed $50,000; except as would not result in a material liability, each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered employees or former employees of the Borrower, any Subsidiary or any ERISA Affiliate has at all times been operated in compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no Lien imposed under the Code or ERISA on the assets of the Borrower or any Subsidiary or any ERISA Affiliate exists or is reasonably likely to arise on account of any Plan; and the Borrower and its Subsidiaries do not maintain or contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan the obligations with respect to which could reasonably be expected to have a material adverse effect on the ability of the Borrower to perform its obligations under this Agreement.

5.15  Subsidiaries.  On and as of the Initial Borrowing Date and after giving effect to the consummation of the Transaction, the Borrower has no Subsidiaries other than those

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Subsidiaries listed on Annex III, which correctly sets forth, as of the Initial Borrowing Date, the percentage ownership (direct and indirect) of the Borrower in each class of capital stock or other equity interests of each of its Subsidiaries and also identifies the direct owner thereof.  All outstanding shares of capital stock or other equity interests of each Subsidiary of the Borrower have been duly and validly issued, are fully paid and non-assessable and are free of preemptive rights.  No Subsidiary of the Borrower has outstanding any securities convertible into or exchangeable for its capital stock or other equity interests or outstanding any right to subscribe for or to purchase, or any options or warrants for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of or any calls, commitments or claims of any character relating to, its capital stock or other equity interests or any stock appreciation or similar rights.

5.16  Intellectual Property.  Each of the Borrower and its Subsidiaries owns or holds a valid transferable license to use all the patents, trademarks, service marks, trade names, domain names, technology, know-how, copyrights, licenses, franchises and formulas or rights with respect to the foregoing, that are used in the operation of the business of the Borrower or such Subsidiary as presently conducted and are material to such business where the failure to own or hold a valid license is reasonably likely to have a Material Adverse Effect.

5.17  Environmental Matters.  Each of the Borrower and its Subsidiaries is in material compliance with all applicable Environmental Laws governing its business for which failure to comply is reasonably likely to have a Material Adverse Effect, and neither the Borrower nor any of its Subsidiaries is liable for any material penalties, fines or forfeitures for failure to comply with any of the foregoing in the manner set forth above.  All licenses, permits, registrations or approvals required for the business of the Borrower and each of its Subsidiaries under any Environmental Law have been secured and each of the Borrower and its Subsidiaries is in substantial compliance therewith, except where the failure to secure or comply with such licenses, permits, registrations or approvals the failure to secure or to comply therewith is not reasonably likely to have a Material Adverse Effect.  There are no Environmental Claims pending or, to the knowledge of the Borrower threatened, against the Borrower or any of its Subsidiaries with respect to which any decision, ruling or finding is reasonably likely to have a Material Adverse Effect.

5.18  Labor Relations.  No Credit Party is engaged in any unfair labor practice that is reasonably likely to have a Material Adverse Effect.  There is (i) no unfair labor practice complaint pending against the Borrower or any of its Subsidiaries or, to the Borrower’s knowledge, threatened against any of them, before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Borrower or any of its Subsidiaries or, to the Borrower’s knowledge, threatened against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against the Borrower or any of its Subsidiaries or, to the Borrower’s knowledge, threatened against the Borrower or any of its Subsidiaries and (iii) no union representation question, to the Borrower’s knowledge, existing with respect to the employees of the Borrower or any of its Subsidiaries and no union organizing activities, to the Borrower’s knowledge, are taking place, except with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate, such as is not reasonably likely to have a Material Adverse Effect.

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5.19  Subordination.  The subordination provisions contained in the Existing 2008 Subordinated Notes Documents and the Existing 2010 Subordinated Notes Documents and, on and after the execution, delivery and/or incurrence thereof, any Permitted Senior Subordinated Notes Documents and any agreements or instruments relating to any Additional Permitted Subordinated Debt, and any Refinancing Indebtedness in respect of the foregoing, are enforceable against the Borrower, the Subsidiary Guarantors party thereto and the holders of such Indebtedness, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws generally affecting creditors’ rights and by equitable principles (regardless of whether enforcement is sought in equity or at law), and all Obligations hereunder and the obligations of the Borrower and each Subsidiary Guarantor under the other Credit Documents are within the definitions of “Senior Debt” (or relevant similar term) and “Designated Senior Debt” or “Designated Guarantor Senior Debt”, as applicable, included in such subordination provisions.

5.20  Capitalization.  On the Initial Borrowing Date, after giving effect to the Transaction, the authorized capital stock of the Borrower shall consist of [200,000,000] shares of common stock, $[.01] par value per share (such authorized shares of common stock, together with any subsequently authorized shares of such common stock, the “Borrower Common Stock”), of which [        ] shares are issued and outstanding.  All such outstanding shares have been duly and validly issued, are fully paid and nonassessable and are free of preemptive rights.  On the Initial Borrowing Date, the Borrower does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock or any stock appreciation or similar rights.

SECTION 6.  Affirmative Covenants.  The Borrower hereby covenants and agrees that until the Commitments have terminated, no Notes or Letters of Credit are outstanding and the Loans, together with interest, Fees and all other Obligations (other than any indemnities described in Section 11.13 which are not then owing) incurred hereunder, are paid in full:

6.01  Information Covenants.  The Borrower will furnish to each Lender:

(a)           Annual Financial Statements.  As soon as available and in any event within 75 days after the close of each fiscal year of the Borrower, the consolidated and consolidating balance sheet of the Borrower and the Intermediary Holding Companies, as at the end of such fiscal year and the related consolidated and consolidating statements of operations and of cash flows for such fiscal year, and in each case setting forth comparative consolidated and consolidating figures for the preceding fiscal year, and (x) in the case of consolidated statements, examined by independent certified public accountants of recognized national standing whose opinion shall not be qualified as to the scope of audit and as to the status of the Borrower as a going concern or (y) in the case of consolidating statements, certified by the chief financial officer of the Borrower, together with a certificate of such accounting firm stating that in the course of its regular audit of the business of the Borrower and the Intermediary Holding Companies, which audit was conducted in accordance with generally accepted auditing standards, no Default or Event of Default which has occurred and is continuing has come to their attention or, if such a Default or Event of Default has come to their attention a statement as to the

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nature thereof.  If the Borrower has designated any Unrestricted Subsidiaries hereunder, then the annual financial information required by this Section 6.01(a) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of the Borrower and its Subsidiaries excluding the financial condition and results of operations of the Unrestricted Subsidiaries of the Borrower (although such separate presentation of financial information excluding the effects of Unrestricted Subsidiaries need not be audited).

(b)           Quarterly Financial Statements.  As soon as available and in any event within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year of the Borrower, the consolidated and consolidating balance sheet of the Borrower and the Intermediary Holding Companies, as at the end of such quarterly period and the related consolidated and consolidating statements of operations and of cash flows for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and in each case setting forth comparative consolidated and consolidating figures for the related periods in the prior fiscal year, all of which shall be in reasonable detail and certified by the chief financial officer or controller of the Borrower, subject to changes resulting from audit and normal year-end audit adjustments.  If the Borrower has designated any Unrestricted Subsidiaries hereunder, then the quarterly financial information required by this Section 6.01(b) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of the Borrower and its Subsidiaries excluding the financial condition and results of operations of the Unrestricted Subsidiaries of the Borrower.

(c)           Budgets; etc.  Not more than 30 days after the commencement of each fiscal year of the Borrower ending after the Initial Borrowing Date, consolidated and consolidating budgets of the Borrower and its Subsidiaries in reasonable detail for each of the twelve months of such fiscal year as customarily prepared by management for its internal use setting forth, with appropriate discussion, the principal assumptions upon which such budgets are based.

(d)           Officer’s Certificates.  At the time of the delivery of the financial statements provided for in Sections 6.01(a) and (b), a certificate of the chief financial officer or other Authorized Officer of the Borrower to the effect that no Default or Event of Default exists or, if any Default or Event of Default does exist, specifying the nature and extent thereof, which certificate (i) if delivered with the financial statements required by Sections 6.01(a) and (b), shall set forth the calculations required to establish (I) the Interest Coverage Ratio, the Leverage Ratio and Senior Secured Leverage Ratio as at the last day of the fiscal year or fiscal quarter, as the case may be, covered by such financial statements and (II) whether the Borrower and its Subsidiaries were in compliance with the provisions of Sections 7.11 and 7.12 as at the end of such fiscal period, and (ii) if delivered with the financial statements required by Section 6.01(b), shall set forth Available Cash and Cumulative Distributable Cash, in each case determined as at the last day of the fiscal quarter of the Borrower covered by such financial statements.

(e)           Quarterly Compliance Certificate. Within 60 days following the end of each fiscal quarter of the Borrower (commencing with the first full fiscal quarter of the Borrower ending after the Initial Borrowing Date), a certificate (each, a “Quarterly Compliance Certificate”) from an Authorized Officer, which certificate shall set forth (i) the calculations

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required to establish (I) the Interest Coverage Ratio and the Leverage Ratio as of the last day of the Test Period then last ended and (II) the Available Cash and Cumulative Distributable Cash, in each case determined as at the last day of the Test Period then last ended, and (ii) the amount of Dividends, if any, that the Borrower intends to pay on the immediately succeeding date on which the Borrower’s dividend policy provides for Dividends to be paid by the Borrower on the Borrower Common Stock.

(f)            Notice of Default or Litigation.  Promptly, and in any event within five Business Days after any officer of the Borrower obtains knowledge thereof, notice of (x) the occurrence of any event which constitutes a Default or Event of Default, which notice shall specify the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto, (y) the commencement of, or any significant adverse development in, any litigation or governmental proceeding pending against the Borrower or any of its Subsidiaries or their assets or business (i) with respect to any Document or (ii) which has had, or is reasonably likely to have, a Material Adverse Effect and (iii) any other event which has had, or is reasonably likely to have, a Material Adverse Effect.

(g)           Other Information.  Promptly upon transmission thereof, copies of any filings and registrations with, and reports to, the Securities and Exchange Commission or any successor thereto (the “SEC”) or holders (or any trustee, agent or other representative therefor) of any Permitted Senior Unsecured Notes or Permitted Junior Capital by the Borrower or any of its Subsidiaries, and with reasonable promptness, such other information or documents (financial or otherwise) as the Administrative Agent on its own behalf or on behalf of any Lender may reasonably request from time to time.

6.02  Books, Records and Inspections.  The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with, and as required by, GAAP and all material requirements of law shall be made of all dealings and transactions in relation to such Person’s business and activities.  The Borrower will, and will cause its Subsidiaries to, permit, upon reasonable notice to the chief financial officer, controller or any other Authorized Officer of the Borrower, officers and designated representatives of the Administrative Agent or the Required Lenders to visit and inspect any of the properties or assets of the Borrower and any of its Subsidiaries in their possession and to examine the books of account of the Borrower and any of its Subsidiaries and discuss the affairs, finances and accounts of the Borrower and of any of its Subsidiaries with, and be advised as to the same by, its and their officers and independent accountants, all at such reasonable times and intervals during normal business hours (with reasonable notice) and to such reasonable extent as the Administrative Agent or the Required Lenders may desire.

6.03  Insurance.  The Borrower will, and will cause each of its Subsidiaries to, at all times maintain in full force and effect insurance with reputable and solvent insurers in such amounts, covering such risks and liabilities and with such deductibles or self-insured retentions as are in accordance with normal industry practice.  The Borrower will, and will cause each of its Subsidiaries to, furnish to the Administrative Agent on the Initial Borrowing Date and thereafter annually, upon request of the Administrative Agent, a summary of the insurance carried.

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6.04  Payment of Taxes.  The Borrower will pay and discharge, and will cause each of its Subsidiaries to pay and discharge, all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, would become a Lien or charge upon any material properties of the Borrower or any of its Subsidiaries, provided that neither the Borrower nor any Subsidiary shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves (in the good faith judgment of the management of the Borrower) with respect thereto in accordance with GAAP.

6.05  Company Franchises.  The Borrower will do, and will cause each Subsidiary to do, or cause to be done, all things reasonably necessary to preserve and keep in full force and effect its existence and to preserve its material rights and franchises, other than those the failure to preserve which could not reasonably be expected to have a Material Adverse Effect, provided that any transaction permitted by Section 7.02 will not constitute a breach of this Section 6.05.

6.06  Compliance with Statutes, etc.  The Borrower will, and will cause each Subsidiary to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign (including all Environmental Laws), in respect of the conduct of its business and the ownership of its property other than those the non-compliance with which is not reasonably likely to have a Material Adverse Effect.

6.07  ERISA.  As soon as possible and, in any event, within 10 days after the Borrower knows or has reason to know of the occurrence of any of the following, the Borrower will deliver to each of the Lenders a certificate of the chief financial officer of the Borrower setting forth the full details as to such occurrence and the action, if any, that the Borrower, any Subsidiary or any ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Borrower, any Subsidiary, any ERISA Affiliate, the PBGC, a Plan or Multiemployer Plan participant or the Plan administrator with respect thereto:  that a Reportable Event has occurred (except to the extent that the Borrower has previously delivered to the Lender a certificate and notices (if any) concerning such event pursuant to the next clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to occur with respect to such Plan within the following 30 days; that an accumulated funding deficiency, within the meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or an application may reasonably be expected to be or has been made for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan; that any contribution required to be made with respect to a Plan or Multiemployer Plan has not been timely made; that a Plan or Multiemployer Plan has been or may reasonably be expected to be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability which, when added to the aggregate amount of Unfunded Current Liabilities with respect to all other Plans, exceeds the aggregate amount of such Unfunded Current Liabilities

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that existed on the Initial Borrowing Date by $500,000; that proceedings may reasonably be expected to be or have been instituted to terminate or appoint a trustee to administer a Plan which is subject to Title IV of ERISA; that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Multiemployer Plan; that the Borrower, any Subsidiary or any ERISA Affiliate will or may reasonably be expected to incur any material liability (including any indirect, contingent, or secondary liability) to or on account of the termination of or withdrawal from a Plan or Multiemployer Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that the Borrower or any Subsidiary may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan in addition to the liability that existed on the Initial Borrowing Date pursuant to any such plan or plans.  Upon request by any Lender, the Borrower will deliver to such Lender a complete copy of the annual report (on Internal Revenue Service Form 5500-series) of each Plan (including, to the extent required, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information) required to be filed with the Internal Revenue Service.  In addition to any certificates or notices delivered to the Lenders pursuant to the first sentence hereof, copies of any records, documents or other information required to be furnished to the PBGC (other than any PBGC Form 1), and any material notices received by the Borrower, any Subsidiary or any ERISA Affiliate with respect to any Plan or Multiemployer Plan shall be delivered to the Lender no later than 10 days after the date such records, documents and/or information has been furnished to the PBGC or such notice has been received by the Borrower, the Subsidiary or the ERISA Affiliate, as applicable.

6.08  Good Repair.  The Borrower will, and will cause each of its Subsidiaries to, ensure that its material properties and equipment used or useful in its business are kept in good repair, working order and condition, normal wear and tear excepted, and, subject to Section 7.05, that from time to time there are made in such properties and equipment all needful and proper repairs, renewals, replacements, extensions, additions, betterments and improvements thereto, to the extent and in the manner useful or customary for companies in similar businesses.

6.09  End of Fiscal Years; Fiscal Quarters; Etc.The Borrower will, for financial reporting purposes, cause (i) each of its, and each of its Subsidiaries’, fiscal years and fourth fiscal quarters to end on December 31 of each year and (ii) each of its, and each of its Subsidiaries’, first three fiscal quarters to end on the last day of March, June and September of each year.

6.10  Permitted Acquisitions.  (a)  Subject to the provisions of this Section 6.10 and the requirements contained in the definition of Permitted Acquisition, the Borrower, any of its Wholly-Owned Domestic Subsidiaries and any Qualified Pledged Subsidiary may from time to time effect Permitted Acquisitions, so long as (except to the extent the Required Lenders otherwise specifically agree in writing in the case of a specific Permitted Acquisition): (i) no Default or Event of Default shall be in existence at the time of the consummation of the proposed Permitted Acquisition or immediately after giving effect thereto; (ii) the Borrower shall have

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given the Administrative Agent and the Lenders at least 5 Business Days’ prior written notice of any Permitted Acquisition; (iii) the Borrower provides to the Administrative Agent and the Lenders as soon as available but not later than 5 Business Days after the execution thereof, a copy of any executed purchase agreement or similar agreement with respect to such Permitted Acquisition; (iv) calculations are made by the Borrower of compliance with the covenants contained in Sections 7.11 and 7.12 for the Calculation Period most recently ended prior to the date of such Permitted Acquisition, on a Pro Forma Basis as if the respective Permitted Acquisition (as well as all other Permitted Acquisitions and Significant Asset Sales theretofore consummated after the first day of such Calculation Period) had occurred on the first day of such Calculation Period, and such calculations shall show that such financial covenants would have been complied with if the Permitted Acquisition had occurred on the first day of such Calculation Period (for this purpose, if the first day of the respective Calculation Period occurs prior to the Initial Borrowing Date, calculated as if the covenants contained in said Sections 7.11 and 7.12 had been applicable from the first day of the Calculation Period); (v) based on good faith projections prepared by the Borrower for the period from the date of the consummation of the Permitted Acquisition to the date which is one year thereafter, the level of financial performance measured by the covenants set forth in Sections 7.11 and 7.12 shall be better than or equal to such level as would be required to provide that no Default or Event of Default would exist under the financial covenants contained in Sections 7.11 and 7.12 through the date which is one year from the date of the consummation of the respective Permitted Acquisition (it being understood that projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results); (vi) all representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Permitted Acquisition (both before and after giving effect thereto), unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date; (vii) after giving effect to such proposed Permitted Acquisition and the payment of all amounts (including fees and expenses) owing in connection therewith, the sum of the Total Unutilized Revolving Commitment then in effect plus the aggregate amount of all Unrestricted cash and Cash Equivalents of the Borrower and the Subsidiary Guarantors at such time shall equal or exceed the sum of (I) $10,000,000 plus (II) an amount equal to the aggregate amount reasonably likely to be payable in respect of all post-closing purchase price adjustments, earn-out payments, non-compete payments and/or deferred purchase payments (or similar payments), in each case required or which will be required in connection with such Permitted Acquisition (and all other Permitted Acquisitions for which such purchase price adjustments and other payments may be required to be made) as determined by the Borrower in good faith and (III) all capital expenditures (and the financing thereof) reasonably anticipated by the Borrower to be made in the business acquired pursuant to such Permitted Acquisition within the 90-day period (such period for any Permitted Acquisition, a “Post-Closing Period”) following such Permitted Acquisition (and in the businesses acquired pursuant to all other Permitted Acquisitions with Post-Closing Periods ended during the Post-Closing Period of such Permitted Acquisition); (viii) in the case of a proposed Permitted Acquisition by a Qualified Pledged Subsidiary, the Pro Forma EBITDA Test is satisfied and (ix) the Borrower shall have delivered to the Administrative Agent an officer’s certificate executed by an Authorized Officer, certifying to the best of his knowledge, compliance with the

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requirements of preceding clauses (i) through (vii), inclusive, and containing the calculations required by the preceding clauses (iv), (v), (vii) and (viii).

(b)           The Borrower will use reasonable best efforts to obtain as promptly as practicable after the consummation of any Permitted Acquisition, any approvals not obtained on or prior to the date of the consummation of such Permitted Acquisition, provided that (x) it shall not be a default under this Section 6.10 if the Borrower fails to obtain any such approval, after having used commercially reasonable efforts to obtain same and (y) the Borrower may cease to seek to obtain any such approvals if it has been advised by counsel or the applicable governmental agency that it will not, or is not reasonably likely to, obtain such approval, provided, further, that, in the event the Borrower is able to obtain any approval required to be obtained in accordance with the terms of this Section 6.10, the Borrower shall use commercially reasonable efforts to obtain as promptly as practicable after receipt of such approval, an opinion of local counsel reasonably satisfactory to the Administrative Agent covering the regulatory aspects, if any, of the respective Permitted Acquisition, which opinion shall be in form and substance reasonably satisfactory to the Administrative Agent.

(c)           At the time of each Permitted Acquisition involving the creation or acquisition of a Subsidiary, or the acquisition of capital stock or other equity interests of any Person, the capital stock or other equity interests thereof created or acquired in connection with such Permitted Acquisition shall be pledged for the benefit of the Secured Creditors pursuant to the Pledge Agreement as, and to the extent required by, Section 7.07.

(d)           The Borrower shall cause each Subsidiary which is formed to effect, or is acquired pursuant to, a Permitted Acquisition to comply with, and to execute and deliver, all of the documentation (if any) required by, Section 7.07, to the reasonable satisfaction of the Administrative Agent.

(e)           The consummation of each Permitted Acquisition shall be deemed to be a representation and warranty by the Borrower that the certifications by the Borrower (or by one or more of its Authorized Officers) pursuant to Section 6.10(a) are true and correct and that all conditions thereto have been satisfied and that same is permitted in accordance with the terms of this Agreement, which representation and warranty shall be deemed to be a representation and warranty for all purposes hereunder, including, without limitation, Sections 4 and 8.

6.11  CoBank Capital.  The Borrower will purchase such participation certificates in CoBank as CoBank may require from time to time in accordance with its bylaws.  The Borrower hereby consents and agrees that the amount of any distributions with respect to its patronage with CoBank that are made in qualified written notices of allocation (as defined in 26 U.S.C. 1388) and that are received by the Borrower from CoBank, will be taken into account by the Borrower at their stated Dollar amounts whether the distribution be evidenced by a participation certificate or other form of written notice that such distribution has been made and recorded in the name of the Borrower on the records of CoBank.

6.12  Margin Stock.  The Borrower will take all actions so that at all times the fair market value of all Margin Stock owned by the Borrower and its Subsidiaries (other than capital stock of the Borrower held in treasury) shall not exceed $500,000.  So long as the covenant

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contained in the immediately preceding sentence is complied with, all Margin Stock at any time owned by the Borrower and its Subsidiaries will not constitute Collateral and no security interest shall be granted therein pursuant to any Credit Document.  Without excusing any violation of the first sentence of this Section 6.12, if at any time the fair market value of all Margin Stock owned by the Borrower and its Subsidiaries (other than capital stock of the Borrower held in treasury) exceeds $500,000, then (x) all Margin Stock owned by the Pledge Parties (other than capital stock of the Borrower held in treasury) shall be pledged, and delivered for pledge, pursuant to the Pledge Agreement and (y) the Borrower will execute and deliver to the Lenders appropriate completed forms (including, without limitation, Forms G-3 and U-1, as appropriate) establishing compliance with Regulations T, U and X of the Board of Governors of the Federal Reserve System.  If at any time any Margin Stock is required to be pledged as a result of the provisions of the immediately preceding sentence, repayments of outstanding Obligations shall be required, and subsequent Credit Events shall be permitted, only in compliance with the applicable provisions of Regulations T, U and X of the Board of Governors of the Federal Reserve System.

6.13  Post-Closing Refinancing.  (a) No later than the third Business Day following the Initial Borrowing Date, the Borrower shall have (i) purchased for cash all Existing Tender Offer Notes validly tendered on the Initial Borrowing Date pursuant to the Tender Offers and Consent Solicitations and (ii) paid to each holder of Existing Tender Offer Notes tendering the same pursuant to the Tender Offers and Consent Solicitations the consent fee referred to in Section 4.01(l)(i)(III).

(b)           On the Redemption Date, the Borrower shall (x) redeem all of the then outstanding Existing 2008 Senior Subordinated Notes and (y) pay all related call premiums (not to exceed $[    ] million) and all accrued and unpaid interest thereon, in each case pursuant to, and in accordance with the terms of, the Existing 2008 Senior Subordinated Notes Indenture (collectively, the “Existing 2008 Senior Subordinated Notes Redemption”).

6.14  Special Covenant Regarding Cash Management Policy.  The Borrower shall, and shall cause its Subsidiaries to, at all times comply with the cash management policy of the Borrower and its Subsidiaries delivered to the Administrative Agent on the Initial Borrowing Date, without giving effect to any changes thereto, except to the extent such changes are not adverse to the interests of the Lenders or are otherwise required to ensure compliance with applicable law or regulation.

6.15  PIK Requirements.  On and after the date of the initial issuance of any Additional Permitted Subordinated Debt, the Borrower shall pay interest owing on any outstanding Additional Permitted Subordinated Debt solely through (x) the accretion of the principal amount thereof or (y) the issuance of additional notes evidencing Additional Permitted Subordinated Debt, rather than in cash.

6.16  Interest Rate Protection.  No later than the 90th day after the Initial Borrowing Date, the Borrower shall enter into, and for a minimum period of two years thereafter maintain, Interest Rate Agreements establishing a fixed or maximum interest rate acceptable to the Administrative Agent for an aggregate notional amount equal to at least 50% of the initial aggregate principal amount of the Initial B Term Loans incurred on the Initial Borrowing Date.

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6.17  Maintenance of Company Separateness.  (a)  The Borrower will, and will cause each of its Subsidiaries and Unrestricted Subsidiaries to, satisfy customary Company formalities, including, as applicable, the holding of regular board of directors’ and shareholders’ meetings or action by directors or shareholders without a meeting and the maintenance of Company offices and records. Neither the Borrower nor any of its Subsidiaries shall make any payment to a creditor of any Unrestricted Subsidiary in respect of any liability of any Unrestricted Subsidiary, and no bank account of any Unrestricted Subsidiary shall be commingled with any bank account of the Borrower or any of its Subsidiaries. Any financial statements distributed to any creditors of any Unrestricted Subsidiary shall clearly establish or indicate the Company separateness of such Unrestricted Subsidiary from the Borrower and its Subsidiaries.

(b)           The Borrower shall not permit any cash of any Non-Pledge Party Subsidiary, on the one hand, and any Pledge Party, on the other hand, to be commingled in any bank account.

SECTION 7.  Negative Covenants.  The Borrower hereby covenants and agrees that until the Commitments have terminated, no Notes or Letters of Credit are outstanding and the Loans, together with interest, Fees and all other Obligations (other than any indemnities described in Section 11.13 which are not then owing) incurred hereunder, are paid in full:

7.01  Changes in Business.  (a)  The Borrower will not permit at any time the business activities taken as a whole conducted by the Borrower, its Subsidiaries and its Unrestricted Subsidiaries to be materially different from the business activities taken as a whole (including incidental activities) conducted by the Borrower and its Subsidiaries on the Initial Borrowing Date and businesses reasonably related thereto (the “Business”).

(b)           Notwithstanding the foregoing, no 2d-Tier Holdco will engage in any business or own any significant assets (other than its ownership of (x) equity interests of Subsidiaries existing on the date hereof or permitted to be created, established or acquired pursuant to the terms of this Agreement and (y) intercompany obligations owed to it and permitted to be extended by it pursuant to Section 7.06(c)) or have any liabilities (other than (x) those liabilities for which it is responsible under this Agreement and the other Credit Documents to which it is a party and (y) intercompany debt permitted to be incurred by it pursuant to Section 7.06(c)); provided that any 2d-Tier Holdco may engage in those activities and incur related liabilities that are incidental to (x) the maintenance of its corporate existence in compliance with applicable law, (y) legal, tax and accounting matters in connection with any of the foregoing activities and (z) the entering into, and performing its obligations under, this Agreement and the other Credit Documents to which it is a party.

7.02  Consolidation, Merger, Sale or Purchase of Assets, etc.  The Borrower will not, and will not permit any Subsidiary to, wind up, liquidate or dissolve its affairs, or enter into any transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of all or any part of its property or assets (other than inventory or obsolete equipment or excess equipment no longer needed in the conduct of its business in the ordinary course of business) or purchase, lease or otherwise acquire all or any part of the property or assets of any Person (other than purchases or other acquisitions of inventory, leases, materials and equipment in the ordinary

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course of business) or agree to do any of the foregoing at any future time without a contingency relating to obtaining any required approval hereunder, except that the following shall be permitted:

(a)           (i)  any Subsidiary may be merged or consolidated with or into, or be liquidated into, the Borrower or a Subsidiary Guarantor (so long as the Borrower or such Subsidiary Guarantor is the surviving corporation), or all or any part of its business, properties and assets may be conveyed, sold or transferred to the Borrower or any Subsidiary Guarantor, and (ii) any Subsidiary that is not a Subsidiary Guarantor may be merged or consolidated with or into, or convey, sell or transfer its assets to, another Subsidiary that is not a Subsidiary Guarantor, provided that if the stock or other equity interests of either such Person were pledged pursuant to the Pledge Agreement the stock or other equity interests of the surviving entity or the transferee entity, as the case may be, shall also be pledged pursuant to the Pledge Agreement; provided, further, that no such merger or consolidation otherwise permitted by this clause (a) between a Pledged Subsidiary and Non-Pledged Subsidiary, and no such conveyance, sale or transfer by a Pledged Subsidiary to a Non-Pledged Subsidiary, shall be permitted unless, after giving effect thereto, the Pro Forma EBITDA Test is satisfied;

(b)           capital expenditures to the extent within the limitations set forth in Section 7.05;

(c)           the investments, acquisitions and transfers or dispositions of properties, shares and assets permitted pursuant to Section 7.06;

(d)           each of the Borrower and any Subsidiary may lease (as lessee) real or personal property in the ordinary course of business (so long as such lease does not create a Capitalized Lease Obligation not otherwise permitted by Section 7.04(c));

(e)           licenses or sublicenses by the Borrower and its Subsidiaries of intellectual property in the ordinary course of business, provided, that such licenses or sublicenses shall not interfere with the business of the Borrower or any Subsidiary;

(f)            (i)            Excluded Asset Sales and (ii) additional sales or dispositions of assets to the extent that the aggregate Net Cash Proceeds received from all such sales and dispositions permitted by this clause (f)(ii) after the Initial Borrowing Date shall not exceed $4,000,000 in any fiscal year of the Borrower, provided that (x) each such sale or disposition pursuant to this clause (f) shall be in an amount at least equal to the fair market value thereof and for proceeds consisting of at least 85% cash and (y) the Net Cash Proceeds of any such sale are reinvested and/or applied as a mandatory repayment or commitment reduction to the extent required by Section 3.02(A)(b) or Section 2.03(d) or (f), as the case may be, provided, further, that the sale or disposition of the capital stock or other equity interests of any Subsidiary of the Borrower pursuant to this clause (f) shall be prohibited unless it is for all of the outstanding capital stock or other equity interests of such Subsidiary owned by the Borrower and its Subsidiaries;

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(g)           Permitted Acquisitions may be consummated in accordance with the requirements of Section 6.10;

(h)           leases and subleases permitted under Section 7.03(d) and (g); and

(i)            Permitted Swap Transactions.

7.03  Liens.  The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets of any kind (real or personal, tangible or intangible) of the Borrower or any such Subsidiary whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable or notes with recourse to the Borrower or any of its Subsidiaries) or assign any right to receive income, except:

(a)           Liens for taxes not yet delinquent or Liens for taxes being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Borrower) have been established in accordance with GAAP;

(b)           Liens in respect of property or assets of the Borrower or any of its Subsidiaries imposed by law which were incurred in the ordinary course of business, such as carriers’, warehousemen’s and  mechanics’ Liens, statutory landlord’s Liens, and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Borrower or any of its Subsidiaries or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to such Lien;

(c)           Liens created by or pursuant to this Agreement or the other Credit Documents;

(d)           Liens created pursuant to (x) Capital Leases in respect of Capitalized Lease Obligations permitted by Section 7.04(c) and (y) Capital Leases securing Permitted MJD Capital Debt;

(e)           Liens arising from judgments, decrees or attachments and Liens securing appeal bonds arising from judgments, in each case in circumstances not constituting an Event of Default under Section 8.09;

(f)            Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of  business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money);

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(g)           leases or subleases granted to others not interfering in any material respect with the business of the Borrower or any of its Subsidiaries;

(h)           easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Borrower or any of its Subsidiaries;

(i)            Liens arising from precautionary UCC financing statement filings regarding operating leases entered into by the Borrower or any of its Subsidiaries in the ordinary course of business and statutory and common law landlords’ liens under leases to which the Borrower or any of its Subsidiaries is a party;

(j)            purchase money Liens securing payables arising from the purchase by the Borrower or any Subsidiary Guarantor of any equipment or goods in the normal course of business, provided that such payables shall not constitute Indebtedness;

(k)           any interest or title of a lessor under any lease permitted by this Agreement;

(l)            Liens in existence on, and which are to continue in effect after, the Effective Date which are listed, and the property subject thereto described in, Annex V, plus extensions and renewals of such Liens, provided that (x) the aggregate principal amount of the Indebtedness, if any, secured by such Liens does not increase from that amount outstanding at the time of any such extension or renewal and (y) any such extension or renewal does not encumber any additional assets or properties of the Borrower or any of its Subsidiaries;

(m)          Liens arising pursuant to purchase money mortgages or security interests securing Indebtedness representing the purchase price (or financing of the purchase price within 90 days after the respective purchase) of assets acquired by the Borrower or any Subsidiary after the Initial Borrowing Date, provided that (i) any such Liens attach only to the assets so acquired, (ii) the Indebtedness secured by any such Lien does not exceed 100%, nor is less than 70%, of the lesser of the fair market value or purchase price of the property being purchased at the time of the incurrence of such Indebtedness and (iii) the Indebtedness secured by such Liens is permitted by Section 7.04(e);

(n)           Liens on property or assets acquired pursuant to a Permitted Acquisition, or on property or assets of a Person in existence at the time such Person is acquired pursuant to a Permitted Acquisition, in each case securing Permitted Acquired Debt, provided that (i) such Liens do not attach to the capital stock or other equity interests of any Subsidiary of the Borrower and (ii) such Liens existed prior to, and were not incurred in contemplation of, such Permitted Acquisition and do not attach to any other asset of the Borrower or any of its Subsidiaries; and

(o)           Liens on property or assets of a Person in existence at the time such Person is acquired pursuant to an Investment permitted under Section 7.06(l), in each case securing Indebtedness permitted under Section 7.04, provided that (i) such Liens do not attach to the capital stock or other equity interests of any Subsidiary of the Borrower

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(other than any capital stock or other equity interests not held by the Borrower or any of its Subsidiaries) and (ii) such Liens existed prior to, and were not incurred in contemplation of, such Investment and do not attach to any other asset of the Borrower or any of its Subsidiaries.

7.04  Indebtedness.  The Borrower will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except:

(a)           Indebtedness incurred pursuant to this Agreement and the other Credit Documents;

(b)           intercompany Indebtedness permitted by Section 7.06(c);

(c)           Capitalized Lease Obligations initially incurred after the Initial Borrowing Date, provided that the aggregate Capitalized Lease Obligations (exclusive of Permitted MJD Capital Debt) outstanding at any time under all Capital Leases incurred in reliance on this clause (c) after Initial Borrowing Date, when added to the aggregate outstanding amount of Indebtedness incurred in reliance on Section 7.04(e), shall not exceed $30,000,000 at any time;

(d)           Indebtedness of the Borrower under Interest Rate Agreements entered into to protect it against fluctuations in interest rates in respect of Indebtedness otherwise permitted under this Agreement, so long as the entering into of such Interest Rate Agreements are bona fide hedging activities and are not for speculative purposes;

(e)           Indebtedness incurred pursuant to purchase money mortgages permitted by Section 7.03(m); provided that the aggregate outstanding amount of Indebtedness incurred in reliance on this clause (e), when added to the aggregate outstanding amount of all Capitalized Lease Obligations incurred in reliance on Section 7.04(c), shall not exceed $30,000,000 at any time;

(f)            (i) unsecured Indebtedness of the Borrower incurred under the Existing 2010 Senior Subordinated Notes and the Existing 2010 Senior Subordinated Notes Indenture, and of the Subsidiary Guarantors under subordinated guarantees of the obligations of the Borrower under the Existing 2010 Senior Subordinated Notes Documents, in an aggregate principal amount not to exceed $[        ] (less the amount of any repayments of principal thereof after the Initial Borrowing Date), (ii) unsecured Indebtedness of the Borrower incurred under the Existing 2010 Senior Notes and the Existing 2010 Senior Notes Indenture, and of the Subsidiary Guarantors under guarantees of the obligations of the Borrower under the Existing 2010 Senior Notes Documents, in an aggregate principal amount not to exceed $[        ] (less the amount of any repayments of principal thereof after the Initial Borrowing Date) and (iii) at any time prior to the Redemption Date, unsecured Indebtedness of the Borrower incurred under the Existing 2008 Senior Subordinated Notes and the Existing 2008 Senior Subordinated Notes Indenture, in an aggregate principal amount not to exceed $[        ] (less the amount of any repayments of principal thereof after the Initial Borrowing Date);

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(g)           Indebtedness (the “Scheduled Existing Indebtedness”) in existence on, and which is to continue in effect after, the Effective Date (excluding Intercompany Debt) and which is listed on Annex VI hereto, without giving effect to any subsequent extension, renewal or refinancing thereof, except as permitted pursuant to Section 7.04(l);

(h)           Indebtedness of the Borrower or any of its Subsidiaries which may be deemed to exist in connection with agreements providing for indemnification, purchase price adjustments and similar obligations in connection with Permitted Acquisitions or sales of assets permitted by this Agreement (so long as any such obligations are those of the Person making the respective acquisition or sale, and are not guaranteed by any other Person);

(i)            Permitted Acquired Debt;

(j)            unsecured subordinated Indebtedness of the Borrower, and subordinated guarantees thereof by the Subsidiary Guarantors (so long as same remain Subsidiary Guarantors), under the Permitted Senior Subordinated Notes and the other Permitted Senior Subordinated Notes Documents, so long as (i) all such Indebtedness is incurred in accordance with the requirements of the definition of Permitted Senior Subordinated Notes, (ii) no Default or Event of Default then exists or would result therefrom, (iii) 100% of the Net Cash Proceeds therefrom are (x) applied as a mandatory repayment and/or commitment reduction in accordance with the requirements of Section 3.02(A)(c), 2.03(d) or 2.03(f), as the case may be, (y) used to effect a Permitted Acquisition in accordance with the requirements of Section 6.10 and/or (z) concurrently used by the Borrower (I) to make a voluntary prepayment of RF Loans pursuant to, and in accordance with the requirements of, Section 3.01 and/or (II) to redeem and/or refinance Permitted Junior Capital, in each case in an aggregate principal amount or with an aggregate liquidation preference, as applicable, equal to the aggregate principal amount or liquidation preference, as applicable, of RF Loans and/or Permitted Junior Capital, as the case may be, actually incurred or issued by the Borrower to finance a Permitted Acquisition or Permitted Acquisitions (and pay related accrued interest and dividends thereon, if any) in the 364-day period prior to such issuance of Permitted Senior Subordinated Notes, (iv) calculations are made by the Borrower demonstrating compliance, on a Pro Forma Basis, with the covenants contained in Sections 7.11 and 7.12 for the Calculation Period most recently ended prior to the date of the respective issuance of Permitted Senior Subordinated Notes, and (v) the Borrower shall have furnished to the Administrative Agent a certificate from an Authorized Officer certifying as to compliance with the requirements of preceding clauses (i), (ii), (iii) and (iv) and containing the calculations required by preceding clause (iv);

(k)           Permitted MJD Capital Debt;

(l)            Permitted Refinancing Indebtedness, so long as no Default or Event of Default is in existence at the time of the incurrence thereof and immediately after giving effect thereto;

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(m)          Indebtedness of the Borrower consisting of Permitted Letters of Credit and reimbursement obligations with respect thereto, so long as the aggregate outstanding stated amounts of all such letters of credit and reimbursement obligations do not exceed $7,500,000 at any time;

(n)           unsecured Indebtedness of the Borrower incurred under the Permitted Senior Unsecured Notes and the other Permitted Senior Unsecured Notes Documents, and of the Subsidiary Guarantors under guarantees of the obligations of the Borrower under the Permitted Senior Unsecured Notes Documents, so long as (i) all such Indebtedness is incurred in accordance with the requirements of the definition of Permitted Senior Unsecured Notes, (ii) no Default or Event of Default then exists or would result therefrom, (iii) 100% of the Net Cash Proceeds therefrom are applied as a mandatory repayment and/or commitment reduction in accordance with the requirements of Section 3.02(A)(c), 2.03(d) or 2.03(f), as the case may be, (iv) calculations are made by the Borrower demonstrating compliance, on a Pro Forma Basis, with the covenants contained in Sections 7.11 and 7.12 for the Calculation Period most recently ended prior to the date of the respective issuance of Permitted Senior Unsecured Notes, and (v) the Borrower shall have furnished to the Administrative Agent a certificate from an Authorized Officer certifying as to compliance with the requirements of preceding clauses (i), (ii), (iii) and (iv) and containing the calculations required by preceding clause (iv);

(o)           Additional Permitted Subordinated Debt, so long as (i) no Default or Event of Default then exists or would result from the incurrence or issuance thereof, (ii) 100% of the Net Cash Proceeds therefrom are (x) applied as a mandatory repayment and/or commitment reduction in accordance with the requirements of Section 3.02(A)(c), 2.03(d) or 2.03(f), as the case may be, (y) used to effect a Permitted Acquisition in accordance with the requirements of Section 6.10 and/or (z) concurrently used by the Borrower (I) to make a voluntary prepayment of RF Loans pursuant to, and in accordance with the requirements of, Section 3.01 and/or (II) to redeem and/or refinance Permitted Junior Capital, in each case in an aggregate principal amount or with an aggregate liquidation preference, as applicable, equal to the aggregate principal amount or liquidation preference, as applicable, of RF Loans and/or Permitted Junior Capital, as the case may be, actually incurred or issued by the Borrower to finance a Permitted Acquisition or Permitted Acquisitions (and pay related accrued interest and dividends thereon, if any) in the 364-day period prior to such issuance of Additional Permitted Subordinated Debt, (iii) calculations are made by the Borrower demonstrating compliance, on a Pro Forma Basis, with the covenants contained in Sections 7.11 and 7.12 for the Calculation Period most recently ended prior to the date of such incurrence or issuance of Additional Permitted Subordinated Debt, and (iv) the Borrower shall have furnished to the Administrative Agent a certificate from an Authorized Officer certifying as to compliance with the requirements of preceding clauses (i), (ii) and (iii) and containing the calculations required by preceding clause (iii) ; provided however, that Additional Permitted Subordinated Debt issued as in kind regularly scheduled interest payments on theretofore outstanding Additional Permitted Subordinated Debt shall not be subject to the requirements specified in preceding clauses (i) through (iv); and

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(p)           additional unsecured Indebtedness of the Borrower and the Subsidiary Guarantors not to exceed an aggregate outstanding principal amount of $10.0 million at any time.

7.05  Capital Expenditures.

(a)           The Borrower will not, and will not permit any of its Subsidiaries to, incur Consolidated Capital Expenditures, provided that the Borrower and its Subsidiaries may make Consolidated Capital Expenditures not to exceed in the aggregate in any fiscal year of the Borrower an amount equal to 37.5% of Adjusted Consolidated EBITDA for such fiscal year.

(b)           In the event that the maximum amount which is permitted to be expended in respect of Consolidated Capital Expenditures during any fiscal year of the Borrower pursuant to Section 7.05(a) is not fully expended during such fiscal year, the maximum amount which may be expended during the immediately succeeding fiscal year of the Borrower pursuant to Section 7.05(a) shall be increased by such unutilized amount.

7.06  Advances, Investments and Loans.  The Borrower will not, and will not permit any of its Subsidiaries to, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to any Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract (each of the foregoing an “Investment” and, collectively, “Investments”), except:

(a)           the Borrower or any Subsidiary may invest in cash and Cash Equivalents;

(b)           the Borrower and any Subsidiary may acquire and hold receivables owing to them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms and/or reasonable extensions thereof;

(c)           the Borrower, its Wholly-Owned Domestic Subsidiaries and Qualified Pledged Subsidiaries may make intercompany loans and advances between and among one another (collectively, “Intercompany Loans”), provided that (i) each such Intercompany Loan shall be evidenced by an Intercompany Note which, if held by a Pledge Party, shall be pledged to the Collateral Agent as, and to the extent required by, the Pledge Agreement, (ii) each Intercompany Loan made pursuant to this clause (c) shall be subject to subordination as, and to the extent required by, the Intercompany Subordination Agreement (giving effect to exceptions required by applicable law or regulation as contemplated thereby) and (iii) any Intercompany Loan made pursuant to this clause (c) shall cease to be permitted hereunder if the obligor or obligee thereunder ceases to be the Borrower, a Wholly-Owned Domestic Subsidiary of the Borrower or a Qualified Pledged Subsidiary as contemplated above;

(d)           loans and advances to officers, directors and employees in the ordinary course of business (x) for relocation purposes and/or the purchase from the Borrower of the capital stock (or options or warrants relating thereto) of the Borrower and

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(y) otherwise in an aggregate principal amount not to exceed $1.0 million at any time outstanding shall be permitted;

(e)           the Borrower and each Subsidiary may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and  customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business;

(f)            Interest Rate Agreements entered in compliance with Section 7.04(d) shall be permitted;

(g)           Investments in existence on the Effective Date and listed on Annex VII (excluding Intercompany Debt), without giving effect to any additions thereto or replacements thereof, shall be permitted;

(h)           the Borrower, each Wholly-Owned Domestic Subsidiary and each Qualified Pledged Subsidiary may make capital contributions (i) to any of their respective Subsidiaries, to the extent a Subsidiary Guarantor and (ii) to any Wholly-Owned Domestic Subsidiary or Qualified Pledged Subsidiary that is not a Subsidiary Guarantor, so long as, in the case of this subclause (ii), no Default or Event of Default has occurred and is continuing at the time of the respective contribution;

(i)            Subsidiaries may be established or created in accordance with the provisions of Section 7.07;

(j)            Permitted Acquisitions may be consummated in accordance with the requirements of Section 6.10;

(k)           the Borrower and its Subsidiaries may acquire and hold investments consisting of non-cash consideration received from sales of assets effected in accordance with the requirements of Section 7.02(f);

(l)            so long as no Default or Event of Default exists or would exist immediately after giving effect to the respective Investment, the Borrower, its Wholly-Owned Domestic Subsidiaries and its Qualified Pledged Subsidiaries shall be permitted to make Investments in (x) any Joint Venture on any date in an amount (in the case of a non-cash Investment, taking the fair market value of the asset so invested (as determined in good faith by senior management of the Borrower)) not to exceed the Available Basket Amount on such date (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Investment) and (y) any Unrestricted Subsidiary on any date in an amount (in the case of a non-cash Investment, taking the fair market value of the asset so invested (as determined in good faith by senior management of the Borrower)) not to exceed the Available Basket Sub-Limit on such date (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Investment), provided that in no event shall the aggregate amount of Investments made in Joint Ventures and Unrestricted Subsidiaries in reliance on this Section 7.06(l) the equity interests of which are not pledged pursuant to the Pledge Agreement (for such purpose, determined without giving effect to any write-downs or write-offs thereof and, in the case

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of a non-cash Investment, taking the fair market value of the asset so invested (as determined in good faith by senior management of the Borrower)) exceed $45,000,000.

(m)          the Borrower and its Subsidiaries may from time to time make additional Investments in an amount (in the case of a non-cash Investment, taking the fair market value of the asset so invested (as determined in good faith by the Board of Directors of the Borrower)) not to exceed the amount of Cumulative Distributable Cash at such time (determined as of the date of the making of such Investment, after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Investment), so long as (i) no Default or Event of Default is then in existence or would exist immediately after giving effect thereto, (ii) no Dividend Suspension Period is then in effect, (iii) the Minimum Liquidity Condition is satisfied at such time (before and after giving effect to the respective Investment) and (iv) the Borrower shall have delivered an officer’s certificate on the date of the proposed Investment certifying that the Cumulative Distributable Cash on such date (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Investment) exceeds the aggregate amount of the proposed Investment; and

(n)           the Borrower and its Subsidiaries may make Investments not otherwise permitted by clauses (a) through (m) of this Section 7.06 in an aggregate amount not to exceed $15,000,000 (determined without regard to any write-downs or write-offs thereof), net of cash payments of principal in the case of loans and cash equity returns (whether as a distribution, dividend or redemption) or a return in the form of an asset distribution (based on the fair market value of the distributed asset as determined in good faith by senior management of the Borrower) in the case of equity investments.

7.07  Limitation on Creation of Subsidiaries.  (a)  Except as otherwise specifically provided in immediately succeeding clause (b), the Borrower will not, and will not permit any Subsidiary to, establish, create or acquire any Subsidiary; provided that the Borrower and its Subsidiaries shall be permitted to establish, create or acquire Wholly-Owned Subsidiaries (or 90%-Owned Subsidiaries in the case of Telcos or Carrier Services Companies), so long as (i) 100% of the capital stock or other equity interests of such new Subsidiary (if a Parent Company) or at least 90% of the capital stock or other equity interests of such new Subsidiary (if a Telco or a Carrier Services Company) is pledged pursuant to the Pledge Agreement (provided that the stock or other equity interests of any new Telco or Carrier Services Company acquired or created pursuant to a Permitted Acquisition shall not have to be pledged if, after giving effect to the acquisition or creation thereof, the Pro Forma EBITDA Test is satisfied) and the certificates representing such stock or other equity interests, together with transfer powers duly executed in blank, are delivered to the Collateral Agent, (ii) such new Subsidiary executes a counterpart of the Intercompany Subordination Agreement, the Subsidiary Guaranty (in the case of a new 1^st-Tier Subsidiary) and the Pledge Agreement (in the case of a new Parent Company), in each case on the same basis (and to the same extent) as such Subsidiary would have executed such Credit Documents if it were a Credit Party on the Initial Borrowing Date, and (iii) such new Subsidiary takes all action in connection therewith as would otherwise have been required to be taken pursuant to Section 4 if such new Subsidiary had been a Credit Party on the Initial Borrowing Date.

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(b)           In addition to Subsidiaries of the  Borrower created pursuant to preceding clause (a), the Borrower and its Subsidiaries may establish, acquire or create, and make Investments in, Non-Wholly Owned Subsidiaries after the Initial Borrowing Date as a result of Permitted Acquisitions (subject to the limitations contained in the definition thereof) and Investments expressly permitted to be made pursuant to Section 7.06, provided that (i) all of the capital stock or other equity interests of each such Non-Wholly Owned Subsidiary shall be pledged by any Pledge Party which owns same as, and to the extent, required by the Pledge Agreement and (ii) such new Subsidiary executes a counterpart of the Intercompany Subordination Agreement.

7.08  Modifications.  The Borrower will not, and will not permit any of its Subsidiaries to:

(a)           amend or modify (or permit the amendment or modification of) any provisions of any Permitted Acquired Debt, any Scheduled Existing Indebtedness, any Existing 2008 Senior Subordinated Notes Document, any Existing 2010 Senior Subordinated Notes Document, any Existing 2010 Senior Notes Document and, on and after the execution, delivery and/or incurrence thereof, any Permitted Senior Unsecured Notes Document, any Permitted Senior Subordinated Notes Document and any agreements or instruments relating to any other Permitted Junior Capital or any other Permitted Refinancing Indebtedness, in any such case other than amendments or modifications that are not in any way adverse to the interests of the Lenders; provided that in no event shall any amendment to the foregoing (i) increase the applicable interest rate, (ii) shorten the maturity date from that theretofore in effect, (iii) modify or change any subordination provisions contained therein or (iv) make any covenant more restrictive than previously existed thereunder; and/or

(b)           amend, modify or change in any manner adverse to the interests of the Lenders the organizational documents (including by-laws) of any Pledge Party (including, without limitation, by the filing or modification of any certificate or articles of designation, other than any certificate of designation relating to Disqualified Preferred Stock or Qualified Preferred Stock issued as permitted herein), any agreement entered into by the Borrower with respect to its capital stock, or enter into any new agreement in any manner adverse to the interests of the Lenders with respect to the capital stock of the Borrower (in each case other than an agreement governing Disqualified Preferred Stock or Qualified Preferred Stock issued as permitted herein).

7.09  Restricted Payments, Etc.  (a)  The Borrower will not, and will not permit any of its Subsidiaries to, make any Restricted Payment, except that:

(i)            (x) any Subsidiary of the Borrower may pay Dividends to the Borrower or any Wholly-Owned Subsidiary of the Borrower and (y) any Non-Wholly-Owned Subsidiary of the Borrower may pay cash Dividends to its shareholders generally, so long as the Borrower or its respective Subsidiary which owns the equity interest in the Subsidiary paying such Dividends receives at least its proportionate share thereof (based upon its relative holding of the equity interests in the Subsidiary paying such Dividends

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and taking into account the relative preferences, if any, of the various classes of equity interests of such Subsidiary);

(ii)           the Borrower may redeem or repurchase shares of Borrower Common Stock (or options, warrants and/or appreciation rights in respect thereof) from shareholders, officers, employees, consultants and directors (or their estates) upon the death, permanent disability, retirement or termination of employment of any such Person or otherwise in accordance with any shareholder agreement, stock option plan or any employee stock ownership plan, provided that (x) no Default or Event of Default is then in existence or would arise therefrom and (y) the aggregate amount of all cash paid in respect of all such shares, options, warrants and rights so redeemed or repurchased in any calendar year, does not exceed $2,000,000;

(iii)          the Borrower may declare and pay Dividends to the holders of Borrower Common Stock (including by way of the repurchase of outstanding shares of Borrower Common Stock) in an amount not to exceed the amount of Cumulative Distributable Cash at such time (determined as of the date of the payment of such Dividends); provided that no such Dividend shall be made (w) if a Default or Event of Default is then in existence or would exist immediately after giving effect thereto, (x) if a Dividend Suspension Period is then in effect, (y) if the Minimum Liquidity Condition is not satisfied at such time (before and after giving effect to the respective Dividend) and (z) the Borrower shall have delivered an officer’s certificate on the date of the proposed Dividend certifying that the Cumulative Distributable Cash on such date (after giving effect to all prior and contemporaneous adjustments thereto, except as a result of such Dividend) exceeds the aggregate amount of the proposed Dividend;

(iv)          subject to the subordination provisions of the respective indenture governing the respective issuance of Permitted Senior Subordinated Notes and so long as no Default or Event of Default then exists or would result therefrom, the Borrower may pay regularly scheduled interest on each issuance of Permitted Senior Subordinated Notes as and when due in accordance with the terms of the Permitted Senior Subordinated Notes Documents;

(v)             subject to the subordination provisions of the respective agreements governing the respective issuance of Additional Permitted Subordinated Debt and so long as no Default or Event of Default then exists or would result therefrom, the Borrower may pay regularly scheduled interest on each issuance of Additional Permitted Subordinated Debt through the issuance of Additional Permitted Subordinated Debt (but not in cash) as and when due in accordance with the terms of the instruments and agreements governing the respective Additional Permitted Subordinated Debt;

(vi)          the Existing 2008 Senior Subordinated Notes Redemption may be consummated as contemplated by Section 6.13(b);

(vii)         Existing 2010 Senior Notes and Existing 2010 Senior Subordinated Notes not repurchased in connection with the Tender Offer and Consent Solicitation therefor may from time to time be redeemed in accordance with the terms of the respective

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indenture therefor and/or repurchased on the open-market, so long as (I) the aggregate amount of cash expended by the Borrower to effect such repurchases or redemptions shall not exceed the sum of (A) the principal amount of the Indebtedness so repurchased or redeemed plus (B) the amount of accrued but unpaid interest on the Indebtedness so repurchased or redeemed through the respective date of repurchase or redemption plus (C) any required premium payable in connection with such repurchase or redemption, (II) no Default or Event of Default then exists or would result therefrom (or, in the case of any redemption of Existing 2010 Senior Notes and/or Existing 2010 Senior Subordinated Notes pursuant to the respective indenture therefor, no Default or Event of Default under Section 8.01 or 8.05 then exists or would result therefrom), (III) all such Existing 2010 Senior Notes and/or any Existing 2010 Senior Subordinated Notes, as the case may be, so repurchased or redeemed are promptly cancelled by the purchaser thereof and (IV) at the time of any delivery of an irrevocable notice of redemption pursuant to the indenture governing the Existing 2010 Senior Notes or the Existing 2010 Senior Subordinated Notes, no Default or Event of Default then exists;

(viii)        Indebtedness may be refinanced with the proceeds of Permitted Refinancing Indebtedness in accordance with the requirements of the definition thereof, so long as no Default or Event of Default is in existence at the time of the incurrence of such Permitted Refinancing Indebtedness and immediately after giving effect thereto;

(ix)           the Permitted Senior Subordinated Notes may be exchanged for Permitted Exchange Senior Subordinated Notes in accordance with the requirements of the respective definitions thereof and the relevant provisions of this Agreement;

(x)            the Permitted Senior Unsecured Notes may be exchanged for Permitted Exchange Senior Unsecured Notes in accordance with the requirements of the respective definitions thereof and the relevant provisions of this Agreement;

(xi)           the Transaction shall be permitted to be consummated in accordance with the relevant requirements of this Agreement;

(xii)          the Borrower and its Subsidiaries may make payments with respect to Intercompany Debt, so long as the respective payment is permitted to be made in accordance with the terms of the Intercompany Subordination Agreement (giving effect to the exceptions required by applicable regulatory law as contemplated thereby);

(xiii)         so long as no Default or Event of Default exists or would result therefrom, the Borrower may pay regularly accruing Dividends on its Disqualified Preferred Stock issued pursuant to Section 7.13(d) in cash and/or through the issuance of additional shares of Disqualified Preferred Stock in accordance with the terms of the documentation governing the same;

(xiv)        the Borrower may pay regularly accruing Dividends with respect to Qualified Preferred Stock through the issuance of additional shares of Qualified Preferred Stock (but not in cash) in accordance with the terms of the documentation governing the same;

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(xv)         the Borrower may redeem shares of Qualified Preferred Stock or  Disqualified Preferred Stock or repurchase or refinance any Permitted Senior Subordinated Notes or Additional Permitted Subordinated Debt with the proceeds of any issuance of Permitted Junior Capital not required to be applied to repay Term Loans as a result of the application of clause (iv) of the proviso in Section 3.02(A)(c);

(xvi)        so long as (x) no Default or Event of Default then exists or would exist immediately after giving effect thereto and (y) the Minimum Liquidity Condition is satisfied at such time, the Borrower may make a one-time payment of cash Dividends on the Borrower Common Stock within 70 days following the last day of the first fiscal quarter of the Borrower ended after the Initial Borrowing Date in an aggregate amount equal to approximately $[      ] million;

(xvii)       the Borrower may redeem or repurchase shares of Sunflower Telephone Company, Inc. held by third-party investors, so long as (x) no Default or Event of Default then exists or would exist immediately after giving effect thereto and (y) the aggregate amount of all cash paid in respect of all redemptions and/or repurchases pursuant to this clause (xvii) does not exceed $250,000; and

(xviii)      the Borrower may redeem or repurchase warrants to purchase shares of STE held by third-party investors, so long as (x) no Default or Event of Default then exists or would exist immediately after giving effect thereto and (y) the aggregate amount of all cash paid in respect of all such redemptions and/or repurchases pursuant to this clause (xviii) does not exceed $250,000.

(b)           The Borrower will not, and will not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist (other than as a result of a requirement of law) any encumbrance or restriction which prohibits or otherwise restricts (A) the ability of any Subsidiary to (a) pay dividends or make other distributions or pay any Indebtedness owed to the Borrower or any Subsidiary, (b) make loans or advances to the Borrower or any Subsidiary, (c) transfer any of its properties or assets to the Borrower or any Subsidiary or (B) the ability of any Subsidiary to create, incur, assume or suffer to exist any Lien upon its property or assets to secure the Obligations, other than (for purposes of clauses (A) and (B)) prohibitions or restrictions existing under or by reason of:  (i) this Agreement and the other Credit Documents; (ii) applicable law; (iii) customary non-assignment provisions entered into in the ordinary course of business and consistent with past practices; (iv) any restriction or encumbrance with respect to a Subsidiary imposed pursuant to an agreement which has been entered into for the sale or disposition of all or substantially all of the capital stock or assets of such Subsidiary, so long as such sale or disposition is permitted under this Agreement; (v) Liens permitted under Sections 7.03(d), (m) and/or (n) and any documents or instruments governing the terms of any Indebtedness or other obligations secured by any such Liens, provided that such prohibitions or restrictions apply only to the assets subject to such Liens; (vi) any agreement or instrument governing Permitted Acquired Debt, to the extent such restriction or encumbrance (x) is not applicable to any Person or the properties or assets of any Person (other than the Person or the properties or assets of the Person acquired pursuant to the respective Permitted Acquisition) and (y) was not created (or made more restrictive) in connection with or in anticipation of the respective Permitted Acquisition; (vii) restrictions applicable to any Non-Wholly Owned

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 Subsidiary existing at the time of the acquisition thereof as a result of an Investment pursuant to Section 7.06 or a Permitted Acquisition effected in accordance with Section 6.10; provided that the restrictions applicable to such joint venture are not made more burdensome, from the perspective of the Borrower and its Subsidiaries, than those as in effect immediately before giving effect to the consummation of the respective Investment or Permitted Acquisition; (viii) on and after the execution and delivery thereof, the Permitted Senior Unsecured Notes Documents; (ix) on and after the execution and delivery thereof, the Permitted Senior Subordinated Notes Documents; and (x) on and after the execution and delivery thereof, any agreements or instruments relating to any Additional Permitted Subordinated Debt.

7.10  Transactions with Affiliates.  The Borrower will not, and will not permit any Subsidiary to, enter into any transaction or series of transactions after the Effective Date whether or not in the ordinary course of business, with any of its Affiliates or Unrestricted Subsidiaries other than on terms and conditions substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arm’s-length transaction with a Person other than an Affiliate, provided that the foregoing restrictions shall not apply to (i) transactions solely among Pledge Parties and their 90%-Owned Subsidiaries, (ii) employment arrangements entered into in the ordinary course of business with officers of the Borrower and its Subsidiaries, (iii) customary fees paid to members of the Board of Directors of the Borrower and of its Subsidiaries, (iv) arrangements with directors, officers and employees not otherwise prohibited by this Agreement, (v) payment of customary legal fees and expenses to Paul, Hastings, Janofsky & Walker LLP, (vi) Restricted Payments made by the Borrower to the extent permitted by Section 7.09, (vii) the Transaction and (viii) the transactions set forth on Annex VIII hereto.

7.11  Interest Coverage Ratio.  The Borrower will not permit the Interest Coverage Ratio for any Test Period ending on the last day of any fiscal quarter of the Borrower to be less than 3.00:1.00 (or, at any time on and after the issuance of any Permitted Senior Subordinated Notes pursuant to Section 7.04(j), 2.50:1.00).

7.12  Leverage Ratio.  The Borrower will not permit the Leverage Ratio determined as at the end of any fiscal quarter of the Borrower to exceed 5.25:1.00.

7.13  Limitation On Issuance of Equity Interests.  (a)  The Borrower will not, and will not permit any of its Subsidiaries to, issue (i) any Preferred Stock or any options, warrants or rights to purchase Preferred Stock (other than Preferred Stock issued in accordance with Section 7.13(c) or (d) below) or (ii) any redeemable common equity interests unless, in either case, the issuance thereof is, and all terms thereof are, satisfactory to the Required Lenders in their sole discretion.

(b)           The Borrower will not permit any of its Subsidiaries, directly or indirectly, to issue any shares of such Subsidiary’s capital stock, securities or other equity interests (or warrants, rights or options to acquire shares or other equity interests), except (i) for replacements of then outstanding shares of capital stock or other equity interests, (ii) for stock splits, stock dividends and similar issuances which do not decrease the percentage ownership of the Borrower and its Subsidiaries taken as a whole in any class of the capital stock or other equity interests of such Subsidiary, (iii) Subsidiaries formed after the Effective Date pursuant to Section 7.07 may

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issue capital stock or other equity interests in accordance with the requirements of Section 7.07 and (iv) to qualify directors to the extent required by applicable law.

(c)           The Borrower may issue Qualified Preferred Stock (x) in payment of regularly accruing dividends on theretofore outstanding shares of Qualified Preferred Stock as contemplated by Section 7.09(a)(xiv) and (y) with respect to each other issue of Qualified Preferred Stock, so long as the Borrower receives reasonably equivalent consideration therefor (as determined in good faith by the Borrower).

(d)           The Borrower may issue Disqualified Preferred Stock, so long as (i) no Default or Event of Default then exists or would result from the issuance thereof, (ii) 100% of the Net Cash Proceeds therefrom are (x) applied as a mandatory repayment and/or commitment reduction in accordance with the requirements of Section 3.02(A)(c), 2.03(d) or 2.03(f), as the case may be, (y) used to effect a Permitted Acquisition in accordance with the requirements of Section 6.10 and/or (z) concurrently used by the Borrower (I) to make a voluntary prepayment of RF Loans pursuant to, and in accordance with the requirements of, Section 3.01 and/or (II) to redeem and/or refinance Permitted Junior Capital, in each case in an aggregate principal amount or liquidation preference, as applicable, equal to the aggregate principal amount or liquidation preference, as applicable, of RF Loans and/or Permitted Junior Capital, as the case may be, actually incurred or issued by the Borrower to finance a Permitted Acquisition or Permitted Acquisitions (and pay related accrued interest and dividends thereon, if any) in the 364-day period prior to such issuance of Disqualified Preferred Stock, (iii) calculations are made by the Borrower demonstrating compliance, on a Pro Forma Basis, with the covenants contained in Sections 7.11 and 7.12 for the Calculation Period most recently ended prior to the date of such issuance of Disqualified Preferred Stock and (iv) the Borrower shall have furnished to the Administrative Agent a certificate from an Authorized Officer certifying as to compliance with the requirements of preceding clauses (i), (ii) and (iii) and containing the calculations required by preceding clause (iii).

7.14  Designated Senior Debt.  The Borrower shall not designate any Indebtedness (other than the Obligations) as “Designated Senior Debt” or “Designated Guarantor Senior Debt” for purposes of any Existing 2008 Subordinated Notes Document, any Existing 2010 Subordinated Notes Document and, on and after the execution, delivery and/or incurrence thereof, any Permitted Senior Subordinated Notes Document and any agreements or instruments relating to any Additional Permitted Subordinated Debt or any Permitted Refinancing Indebtedness in respect thereof.

SECTION 8.  Events of Default.  Upon the occurrence of any of the following specified events (each, an “Event of Default”):

8.01  Payments.  The Borrower shall (i) default in the payment when due of any principal of the Loans or (ii) default, and such default shall continue for five or more Business Days, in the payment when due of any interest on the Loans or any Fees or any other amounts owing hereunder or under any other Credit Document; or

8.02  Representations, etc.  Any representation, warranty or statement made by any Credit Party herein or in any other Credit Document or in any statement or certificate

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delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or

8.03  Covenants.  Any Credit Party shall (a) default in the due performance or observance by it of any term, covenant or agreement contained in Section 6.09, 6.10, 6.13, 6.14 or 7, or (b) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 8.01, 8.02 or clause (a) of this Section 8.03) contained in this Agreement and such default shall continue unremedied for a period of at least 30 days after written notice to the Borrower by the Administrative Agent or the Required Lenders; or

8.04  Default Under Other Agreements.  (a)  The Borrower or any of its Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) beyond the period of grace, if any, applicable thereto or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, any such Indebtedness to become due prior to its stated maturity; or (b) any such Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable (or shall be required to be prepaid as a result of a default thereunder or of an event of the type that constitutes an Event of Default) prior to the stated maturity thereof, provided that it shall not constitute an Event of Default pursuant to this Section 8.04 unless the aggregate principal amount of all Indebtedness referred to in clauses (a) and (b) above (without duplication) exceeds $7,500,000 in the aggregate at any one time; or

8.05  Bankruptcy, etc.  The Borrower or any Material Subsidiary shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled “Bankruptcy,” as now or hereafter in effect, or any successor thereto (the “Bankruptcy Code”); or an involuntary case is commenced against the Borrower or any of its Material Subsidiaries and the petition is not controverted within 20 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of its Material Subsidiaries; or the Borrower or any of its Material Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any of its Material Subsidiaries; or there is commenced against the Borrower or any of its Material Subsidiaries any such proceeding which remains undismissed for a period of 60 days; or the Borrower or any of its Material Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of its Material Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Borrower or any of its Material Subsidiaries makes a general assignment for the benefit of creditors; or any Company action is taken by the Borrower or any of its Material Subsidiaries for the purpose of effecting any of the foregoing; or

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8.06  ERISA.  (a)  Any Plan or Multiemployer Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following 30 days, any Plan which is subject to Title IV of ERISA shall have had or is likely to have a trustee appointed to administer such Plan, any Plan or Multiemployer Plan which is subject to Title IV of ERISA is, shall have been or is likely to be terminated or to be the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made with respect to a Plan or Multiemployer Plan has not been timely made, the Borrower or any Subsidiary or any ERISA Affiliate has incurred or is likely to incur any liability to or on account of a Plan or Multiemployer Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or the Borrower or any Subsidiary has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or Plans; (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (c) such lien, security interest or liability, individually, or in the aggregate, in the opinion of the Required Lenders, has had, or is reasonably likely to have, a Material Adverse Effect; or

8.07  Pledge Agreement.  (a)  Except in each case to the extent resulting from the negligent or willful failure of the Collateral Agent to continue to hold certificated Collateral under the Pledge Agreement, the Pledge Agreement shall cease to be, in any material respect, in full force and effect, or shall cease, in any material respect, to give the Collateral Agent the Liens, powers and privileges purported to be created thereby in favor of the Collateral Agent, or (b) any Pledge Party shall default in the due performance or observance of any material term, covenant or agreement on its part to be performed or observed pursuant to the Pledge Agreement and such default shall continue for 15 or more days after written notice to the respective Pledge Party by the Administrative Agent; or

8.08  Subsidiary Guaranty.  The Subsidiary Guaranty of any Subsidiary Guarantor or any material provision thereof shall cease to be in full force and effect, or any Subsidiary Guarantor or any Person acting by or on behalf of such Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor’s obligations under the Subsidiary Guaranty; or

8.09  Judgments.  One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving a liability (to the extent not paid or covered by insurance) in excess of $7,500,000 in the aggregate for all such judgments and decrees for the Borrower and its Subsidiaries and all such judgments and decrees in excess of such amount shall

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not have been vacated, discharged or stayed or bonded pending appeal within 60 days from the entry thereof;

then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent shall, upon the written request of the Required Lenders, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Administrative Agent, any Letter of Credit Issuer, the Swingline Lender or any Lender to enforce its claims against any Credit Party, except as otherwise specifically provided for in this Agreement (provided that, if an Event of Default specified in Section 8.05 shall occur with respect to the Borrower, the result which would occur upon the giving of written notice by the Administrative Agent as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice):  (i) declare the Total Commitment terminated, whereupon the Commitment of each Lender shall forthwith terminate immediately and any Fees shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and all Obligations owing hereunder (including Unpaid Drawings) to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; (iii) enforce, as Collateral Agent (or direct the Collateral Agent to enforce), any and all of the Liens and rights created pursuant the Pledge Agreement; (iv) terminate any Letter of Credit which may be terminated in accordance with its terms; (v) direct the Borrower to pay (and the Borrower hereby agrees upon receipt of such notice, or upon the occurrence of any Event of Default specified in Section 8.05 in respect of the Borrower, it will pay) to the Collateral Agent at the Payment Office such additional amounts of cash and/or Cash Equivalents, to be held in a cash collateral account as security for the Borrower’s reimbursement obligations in respect of Letters of Credit then outstanding equal to the aggregate Stated Amount of all Letters of Credit then outstanding (less any amount thereof as to which Section 1A.01(c) Arrangements are in place); and (vi) apply any cash collateral held by the Administrative Agent as provided in Section 3.02(A)(a) to the repayment of the Obligations.

SECTION 9.  Definitions.  As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires.  Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular:

“Acquired Person” shall have the meaning provided in the definition of “Permitted Acquisition.”

“Additional Permitted Subordinated Debt” shall mean any pay-in-kind subordinated Indebtedness of the Borrower, so long as (i) such Indebtedness has a final maturity no earlier than the date that falls one year and one day after the date on which all Obligations are repaid in full and all Commitments hereunder have terminated or expired, and no required amortizations prior to such date, (ii) such Indebtedness does not provide for guarantors or security, (iii) such Indebtedness provides for a complete suspension of remedies prior to the earliest to occur of (x) the repayment in full in cash of all Obligations then owing and related senior obligations, (y) the acceleration of any Indebtedness incurred pursuant to this Agreement and the other Credit Documents or of Indebtedness under any Permitted Senior Subordinated Notes Document or any Permitted Senior Unsecured Notes Document and (z) the occurrence of any event with respect to the Borrower described in Section 8.05) and (iv) the terms and

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conditions of, and documentation governing, such Indebtedness is otherwise reasonably satisfactory to the Agents.

“Additional Refinanced Indebtedness” shall have the meaning provided in Section 4.01(l).

   “Adjusted Consolidated EBITDA” shall mean, for any period, Consolidated Net Income for such period adjusted by (A) adding thereto (in each case (other than for purposes of clauses (v) and (vi) below), to the extent deducted in determining Consolidated Net Income for such period), without duplication, the sum of the amounts for such period of (i) provisions for taxes based on income, (ii) Consolidated Interest Expense, (iii) amortization and depreciation expense (including any amortization or write-off related to the write-up of any assets as a result of purchase accounting and the write-off of deferred financing costs), (iv) losses on sales of assets (excluding sales in the ordinary course of business) and other extraordinary losses, (v) non-core income relating to Non-Core Assets, to the extent not included in any determination of Consolidated Net Income for such period, (vi) dividends paid by CoBank to the Borrower on common stock of CoBank held by the Borrower, to the extent not included in any determination of Consolidated Net Income, (vii) the non-cash portion of any retirement or pension plan expense incurred by the Borrower or any of its Subsidiaries, (viii) all one-time costs and expenses paid during such period in respect of the Transaction, (ix) one-time costs and expenses actually paid during such period in respect of the Borrower’s proposed “IDS” transaction, so long as the aggregate amount of costs and expenses added back pursuant to this clause (ix) does not exceed $6.0 million and (x) any other non-cash charges (including non-cash costs arising from implementation of SFAS 106 and SFAS 109) accrued by the Borrower and its Subsidiaries during such period (except to the extent any such charge will require a cash payment in a future period) and (B) subtracting therefrom (to the extent included in arriving at Consolidated Net Income for such period), without duplication, the sum of the amounts for such period of (i) gains on sales of assets (excluding sales in the ordinary course of business) and other extraordinary gains and (ii) all non-cash gains and non-cash income, all as determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.  Notwithstanding the foregoing, for purposes of determining the Leverage Ratio, Adjusted Consolidated EBITDA shall be determined on a Pro Forma Basis.

 “Administrative Agent” shall have the meaning provided in the first paragraph of this Agreement and shall include any successor to the Administrative Agent appointed pursuant to Section 10.10.

“Affected Loans” shall have the meaning provided in Section 3.02(B).

“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person.  A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power (i) to vote 10% or more of the securities having ordinary voting power for the election of directors (or equivalent governing body) of such Person or (ii) to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.

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“Agents” shall have the meaning provided in the first paragraph of this Agreement.

“Agreement” shall mean this Credit Agreement, as modified, amended, restated and/or supplemented.

“Anticipated Reinvestment Amount” shall mean, with respect to any Reinvestment Election, the amount specified in the Reinvestment Notice delivered by the Borrower in connection therewith as the amount of the Net Cash Proceeds from the related Asset Sale that the Borrower intends to use to finance one or more Permitted Acquisitions within 270 days.

“Applicable Base Rate Margin” shall mean (i) in the case of Term Loans, [      ]%, (ii) in the case of RF Loans, [      ]% and (iii) in the case of Swingline Loans, [      ]%.

“Applicable Eurodollar Margin” shall mean (i) in the case of Term Loans, [      ]%, and (ii) in the case of RF Loans, [      ]%.

“Approved Bank” shall have the meaning provided in the definition of “Cash Equivalents.”

“Asset Sale” shall mean and include (x) the sale, transfer or other disposition by the Borrower or any Subsidiary to any Person (other than the Borrower or any Wholly-Owned Domestic Subsidiary of the Borrower) of any asset of the Borrower or such Subsidiary (other than sales, transfers or other dispositions in the ordinary course of business of inventory and/or obsolete or excess equipment) and/or (y) the receipt by the Borrower or any Subsidiary of any insurance, condemnation or similar proceeds in connection with a casualty or taking of any of its assets in excess of the costs incurred by the Borrower and its Subsidiaries in respect of such event and of repairing or replacing the assets so damaged, destroyed or taken but in all cases only to the extent that the aggregate Net Cash Proceeds of all such sales, transfers, dispositions and receipts in any fiscal year of the Borrower are in excess of $2,000,000; provided that so long as no Default or Event of Default exists at the time of a proposed Excluded Asset Sale, such Excluded Asset Sale shall not constitute an “Asset Sale”.

“Assignment Agreement” shall mean the Assignment Agreement in the form of Exhibit I (appropriately completed).

“Authorized Officer” shall mean, with respect to (i) delivering Notices of Borrowing, Notices of Conversion/Continuation, Letter of Credit Requests and similar notices, any officer or officers of the Borrower that has or have been authorized by the board of directors of the Borrower to deliver such notices pursuant to this Agreement and that has or have appropriate signature cards on file with the Administrative Agent; (ii) delivering financial information and officer’s certificates pursuant to this Agreement, the chief executive officer, the president, any vice president, the chief financial officer, any treasurer or any controller of the Borrower; and (iii) any other matter in connection with this Agreement or any other Credit Document, any officer (or a person or persons so designated by any two officers) of the Borrower.

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“Available Basket Amount” shall mean, on any date of determination, an amount equal to the sum of (i) $50,000,000 minus (ii) the aggregate amount of Investments made (including for such purpose the fair market value of any assets contributed (at the time contributed) to any Joint Venture or Unrestricted Subsidiary (as determined in good faith by senior management of the Borrower), net of Indebtedness outstanding at the time of determination assigned to, and assumed by, the respective Joint Venture or Unrestricted Subsidiary in connection therewith) pursuant to Section 7.06(1) after the Effective Date (determined without giving effect to any write-downs or write-offs thereof) minus (iii) without duplication of any Indebtedness netted out pursuant to preceding subclause (ii), the aggregate amount of then outstanding Indebtedness or other obligations (whether absolute, accrued, contingent or otherwise and whether or not due) of any Joint Venture or Unrestricted Subsidiary for which the Borrower or any of its Subsidiaries (other than the respective Joint Venture or Unrestricted Subsidiary) is liable, minus (iv) all payments made by the Borrower or any of its Subsidiaries (other than the respective Joint Venture or Unrestricted Subsidiary) in respect of Indebtedness or other obligations of the respective Joint Venture or Unrestricted Subsidiary (including, without limitation, payments in respect of obligations described in preceding clause (iii)) after the Effective Date, plus (v) the aggregate amount of all cash returns received by the Borrower, any Wholly-Owned Domestic Subsidiary or any Qualified Pledged Subsidiary from the respective Joint Venture or Unrestricted Subsidiary in respect of Investments previously made pursuant to Section 7.06(l) (which cash return may be made by way of repayment of principal in the case of loans and cash equity returns (whether as a distribution, dividend or redemption) in the case of equity investments) and all non-cash returns in the form of an asset distribution from the respective Joint Venture or Unrestricted Subsidiary of any asset previously contributed pursuant to Section 7.06(l) (taking the fair market value of such distributed asset (as determined in good faith by senior management of the Borrower)), in any such case as such aggregate amount has been then last certified by an Authorized Officer by delivery of an officers’ certificate to the Administrative Agent, provided that the aggregate amount of increases to the “Available Basket Amount” resulting from the application of this clause (v) shall not exceed the value of the returned investments (in the case of a non-cash return on investment, taking the fair market value of the distributed asset (as determined in good faith by senior management of the Borrower)) and, in no event, shall the amount of the increases made to “Available Basket Amount” in respect of any Investment exceed the amount of the respective Investment previously made pursuant to Section 7.06(l) (in the case of a non-cash Investment, taking the fair market value of the Investment at the time of the initial investment (as determined in good faith by senior management of the Borrower)).

“Available Basket Sub-Limit” shall mean, on any date of determination, an amount equal to the sum of (i) $35,000,000 minus (ii) the aggregate amount of Investments made (including for such purpose the fair market value of any asset contributed (at the time contributed) to any Unrestricted Subsidiary (as determined in good faith by senior management of the Borrower), net of Indebtedness outstanding at the time of determination assigned to, and assumed by, the respective Unrestricted Subsidiary in connection therewith) in Unrestricted Subsidiaries pursuant to Section 7.06(l) after the Effective Date (determined without giving effect to any write-downs or write-offs thereof), minus (iii) without duplication of any Indebtedness netted out pursuant to preceding subclause (ii), the aggregate amount of all then outstanding Indebtedness or other obligations (whether absolute, accrued, contingent or otherwise and whether or not due) of any Unrestricted Subsidiary for which the Borrower or any

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of its Subsidiaries is liable, minus (iv) all payments made by the Borrower or any of its Subsidiaries in respect of Indebtedness or other obligations of the respective Unrestricted Subsidiary (including, without limitation, payments in respect of obligations described in preceding clause (iii)) after the Effective Date, plus (v) the aggregate amount of all cash returns received by the Borrower, any Wholly-Owned Domestic Subsidiary or any Qualified Pledged Subsidiary from the respective Unrestricted Subsidiary in respect of Investments previously made pursuant to Section 7.06(l) (which cash return may be made by way of repayment of principal in the case of loans and cash equity returns (whether as a distribution, dividend or redemption) in the case of equity investments) and all returns in the form of an asset distribution from the respective Unrestricted Subsidiary of any asset previously contributed pursuant to Section 7.06(l) (taking the fair market value of such distributed asset (as determined in good faith by senior management of the Borrower), in any such case as such aggregate amount has been then last certified by an Authorized Officer by delivery of an officers’ certificate to the Administrative Agent, provided that the aggregate amount of increases to the “Available Basket Sub-Limit” resulting from the application of this clause (v) shall not exceed the value of the returned investments (in the case of a non-cash return on investment, taking the fair market value of the distributed asset (as determined in good faith by senior management of the Borrower)) and, in no event, shall the amount of the increases made to “Available Basket Sub-Limit” in respect of any Investment in an Unrestricted Subsidiary exceed the amount of the respective Investment previously made in such Unrestricted Subsidiary pursuant to Section 7.06(l) (in the case of a non-cash Investment, taking the fair market value of the Investment at the time of the initial investment (as determined in good faith by senior management of the Borrower)); provided further that the Available Basket Sub-Limit shall not exceed at any time the Available Basket Amount as then in effect.

“Available Cash” shall mean, for any Reference Period, for the Borrower and its Subsidiaries determined on a consolidated basis for such Reference Period, an amount of cash equal to the sum (which may be negative) of (without duplication) (I) Adjusted Consolidated EBITDA for such Reference Period minus (II) the sum of (i) Consolidated Interest Expense during such Reference Period, to the extent included in determining such Adjusted Consolidated EBITDA, (ii) all scheduled, mandatory and voluntary principal repayments in respect of Indebtedness of the Borrower and its Subsidiaries made during such Reference Period (other than (x) repayments made during such Reference Period with the proceeds of Indebtedness, equity issuances, asset sales or insurance recovery events, (y) repayments of RF Loans or Swingline Loans during such Reference Period, except to the extent resulting in a corresponding reduction of the Total Revolving Commitment in an amount equal to such repayment) and (z) prepayments of Term Loans during such Reference Period pursuant to Section 3.02(A)(e)), (iii) Consolidated Capital Expenditures made in cash during such Reference Period (other than Consolidated Capital Expenditures financed with the proceeds of Indebtedness (other than RF Loans or Swingline Loans), equity issuances, assets sales and insurance recovery events), (iv) Consolidated Tax Payments paid in cash during such Reference Period, (v) cash consideration paid during such Reference Period for acquisitions of equity interests and/or assets comprising a business or product line (whether pursuant to a Permitted Acquisition or otherwise), except to the extent financed with the proceeds of Indebtedness or issuances of equity, (vi) Investments (other than Excluded Investments) made during such Reference Period, (vii) the cash cost of any extraordinary losses and of any losses on sales of assets (other than in the ordinary course of business) during such Reference Period, in any such case to the extent included in determining

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Adjusted Consolidated EBITDA for such Reference Period and (viii) cash payments made during such Reference Period on account of non-cash losses or non-cash charges accrued or expensed during or prior to such Reference Period, plus (III) the sum of (i) the cash amount of any extraordinary gains, and the cash amount realized on gains on asset sales other than in the ordinary course of business, during such Reference Period, in any such case to the extent deducted in determining Adjusted Consolidated EBITDA for such Reference Period, and (ii) cash received during such Reference Period on account of non-cash gains or non-cash income excluded from Adjusted Consolidated EBITDA during or prior to such Reference Period.

“B Term Loan” shall mean, collectively, each Initial B Term Loan and each Incremental B Term Loan.

“B Term Note” shall have the meaning provided in Section 1.05(a).

“B TL Percentage” shall mean, at any time, a fraction (expressed as a percentage) the numerator of which is equal to the aggregate principal amount of all B Term Loans outstanding at such time and the denominator of which is equal to [the sum of (x) the aggregate principal amount of all Term Loans outstanding at such time plus (y) the Total Delayed-Draw Term Commitment in effect at such time].(5)

“Bankruptcy Code” shall have the meaning provided in Section 8.05.

“BAS” shall mean Banc of America Securities LLC in its individual capacity and any successor thereto by merger, consolidation or otherwise.

“Base Rate” at any time shall mean the higher of (i) the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate and (ii) the Prime Lending Rate.

“Base Rate Loan” shall mean each Loan bearing interest at the rates provided in Section 1.08(a).

“Borrower” shall have the meaning provided in the first paragraph of this Agreement.

“Borrower Common Stock” shall have the meaning provided in Section 5.20.

“Borrowing” shall mean the incurrence of (i) Swingline Loans by the Borrower from the Swingline Lender on a given date or (ii) Base Rate Loans or Eurodollar Loans pursuant to a single Facility by the Borrower from the Lenders having Commitments (and/or outstanding Loans) with respect to such Facility on a pro rata basis on a given date (or resulting from conversions on a given date), having in the case of Eurodollar Loans the same Interest Period; provided that (x) Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of any related Borrowing of Eurodollar Loans and (y) any Incremental B Term Loans incurred pursuant to Section 1.01(f) shall be considered part of the related Borrowing of the then outstanding Initial B Term Loans to which such Incremental B Term Loans are added pursuant to Section 1.14; it

(5)   Subject to finalization.

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being understood and agreed, however, that for purposes of Section 1.08, the incurrence of Incremental B Term Loans on a given Incremental B Term Loan Borrowing Date shall be deemed to be a “Borrowing” of such Loans.

“Business” shall have the meaning provided in Section 7.01.

“Business Day” shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the interbank Eurodollar market.

“Calculation Period” shall mean, with respect to any Permitted Acquisition, any Significant Asset Sale or any other event expressly required to be calculated on a Pro Forma Basis pursuant to the terms of this Agreement, the Test Period most recently ended prior to the date of such Permitted Acquisition, Significant Asset Sale or other event.

“Capital Lease” as applied to any Person shall mean any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person.

“Capitalized Lease Obligations” shall mean all obligations under Capital Leases of the Borrower or any of its Subsidiaries in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP.

“Carrier Services” shall mean the resale of long distance services.

“Carrier Services Company” shall mean any Subsidiary of the Borrower that is an operating company engaged in the Carrier Services business.

“Cash Equivalents” shall mean [(a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, bankers acceptances, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by Standard & Poor’s Ratings Services, a division of McGraw-Hill, Inc. (“S&P”) or P-2 by Moody’s Investors Service, Inc. (“Moody’s”), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within 270 days from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities (including tax-exempt debt obligations) with maturities of one year or less from the date of acquisition issued or fully

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guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A2 by Moody’s (or publicly traded or open-ended bond funds that invest exclusively in such securities); (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; (g) Dollar denominated debt obligations of corporations maturing within 12 months from the date of the acquisition rated at least A by S&P or A2 by Moody’s; (h) shares of bond funds rated at least A by S&P or A2 by Moody’s having weighted average maturities of 12 months or less; (i) auction rate securities rated at least AAA by S&P or Aaa by Moody’s; (j) debt obligations of corporations maturing within 12 months from the date of acquisition rated at least A by S&P or A2 by Moody’s; and (k) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (j) of this definition.](6)

“Cash Proceeds” shall mean, with respect to any Asset Sale, the aggregate cash payments (including any cash received by way of deferred payment pursuant to a note receivable issued in connection with such Asset Sale, other than the portion of such deferred payment constituting interest, but only as and when so received) received by the Borrower and/or any Subsidiary from such Asset Sale.

“CERCLA” shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq.

“Change of Control” shall mean at any time and for any reason (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the “beneficial owner” (as defined in clause (a) above) on a fully diluted basis of more than 25% of the total voting interest in the capital stock of the Borrower or (ii) during any period of two consecutive years individuals who at the beginning of such period constituted the Board of Directors of the Borrower (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Borrower was approved by a vote of a majority of the directors of the Borrower then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower then in office or (b) a “change of control” or similar event shall occur as provided in the Existing 2008 Subordinated Notes Indenture, the Existing 2010 Subordinated Notes Indenture, the Existing 2010 Senior Notes Indenture and, on and after the execution, delivery and/or incurrence thereof, any Permitted Senior Subordinated Notes Document, any Permitted Senior Unsecured Notes Document, any agreements or instruments relating to any other Permitted Junior Capital or any Permitted Refinancing Indebtedness in respect of the foregoing or any other agreement governing or evidencing any other material Indebtedness of the Borrower.

(6)           Subject to finalization.

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“Co-Documentation Agent” shall have the meaning provided in the first paragraph of this Agreement.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.  Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor.

“Collateral” shall mean all of the “Collateral” as defined in the Pledge Agreement.

“Collateral Agent” shall mean the Administrative Agent acting as collateral agent for the Lenders.

“Commitment” shall mean, with respect to each Lender, such Lender’s Initial B Term Commitment, Delayed-Draw Term Commitment, Incremental B Term Commitment and/or Revolving Commitment.

“Commitment Commission” shall have the meaning provided in Section 2.01(b).

“Company” shall mean any corporation, limited liability company, partnership or other business entity (or the adjectival form thereof, where appropriate).

“Consolidated Capital Expenditures” shall mean, for any period, the aggregate of all cash expenditures (including in all events all amounts expended under Capital Leases (other than Capital Leases evidencing Permitted MJD Capital Debt) but excluding any amount representing capitalized interest) by the Borrower and its Subsidiaries during that period that, in conformity with GAAP, are or are required to be included in the property, plant or equipment reflected in the consolidated balance sheet of the Borrower and its Subsidiaries, provided that Consolidated Capital Expenditures shall in any event (x) exclude the purchase price paid in cash in connection with the acquisition of any Person (including through the purchase of all of the capital stock or other ownership interests of such Person or through merger or consolidation) pursuant to a Permitted Acquisition, whether or not allocable to property, plant and equipment and (y) exclude amounts expended with insurance proceeds.

“Consolidated Debt” shall mean, as of any date of determination, without duplication, the sum of (i) the aggregate stated balance sheet amount of all Indebtedness of the Borrower and its Subsidiaries on a consolidated basis as determined in accordance with GAAP plus (ii) any Indebtedness for borrowed money of any other Person as to which the Borrower and/or any of its Subsidiaries has created a guarantee or other Contingent Obligation (but only to the extent of such guarantee or other Contingent Obligation) less (iii) the remainder (if positive) of (A) the aggregate amount of Unrestricted cash and Cash Equivalents held by the Borrower and its Subsidiaries on such date minus (B) all overdue accounts payable of the Borrower and its Subsidiaries on such date not paid in accordance with past practices as in effect on the Effective Date; provided that, for purposes of this definition (and notwithstanding any contrary treatment by GAAP), any Disqualified Preferred Stock that is issued and outstanding shall be treated as “Indebtedness”, with an amount equal to the greater of the liquidation preference or the

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maximum mandatory fixed repurchase price of any such Disqualified Preferred Stock deemed to be a component of “Consolidated Debt”.

“Consolidated Interest Expense” shall mean, for any period, the sum of (i) total interest expense (including the portion that is attributable to Capital Leases in accordance with GAAP) of the Borrower and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries (including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and without duplication net costs and/or net benefits under Interest Rate Agreements, but excluding, however, all non-cash interest expense to the extent included in total interest expense and the amortization of deferred financing costs) plus (ii) the product of (x) the amount of all cash Dividend requirements (whether or not declared or paid) on Disqualified Preferred Stock paid, accrued or scheduled to be paid or accrued during such period multiplied by (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated Federal, state, local and foreign tax rate of the Borrower as reflected in the audited consolidated financial statements of the Borrower for its most recently completed fiscal year, which amounts described in this clause (ii) shall be treated as interest expense of the Borrower and its Subsidiaries for purposes of this definition regardless of the treatment of such amounts under GAAP; provided that, for purposes of any determination of Consolidated Interest Expense for any Test Period ending on or prior to December 31, 2005 (other than for purposes of the definition of “Available Cash”), Consolidated Interest Expense for such Test Period shall be Consolidated Interest Expense for that portion of such Test Period occurring on and after the Initial Borrowing Date multiplied by a fraction the numerator of which is 365 and the denominator of which is the number of days elapsed from the Initial Borrowing Date to the last day of such Test Period (in each case taken as one accounting period).

“Consolidated Net Income” shall mean, for any period, the net income (or loss) of the Borrower and its Subsidiaries on a consolidated basis for such period (taken as a single accounting period) determined in conformity with GAAP (after any deduction for minority interests), provided that there shall be excluded from the calculation thereof (without duplication) (i) the income (or loss) of any Person (other than Subsidiaries of the Borrower) in which any other Person (other than the Borrower or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any of its Subsidiaries by such Person during such period, (ii) except for determinations expressly required to be made on a Pro Forma Basis, the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries or that Person’s assets are acquired by the Borrower or any of its Subsidiaries and (iii) the income of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary.

“Consolidated Tangible Assets” shall mean, at any time, the total consolidated assets of the Borrower and its Subsidiaries as same would be shown on a consolidated balance sheet of the Borrower prepared in accordance with GAAP, provided that all intangible assets (including goodwill) shall be excluded in making such determination.

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“Consolidated Tax Payments” shall mean, for any period, the sum of (a) the provision for taxes based on income or profits which was deducted from gross income in the computation of “Consolidated Net Income”, plus (b) without duplication, the cash amount of any taxes actually paid in excess of the corresponding provisions, minus (c) cash tax refunds actually received by the Borrower and its Subsidiaries during such period.

“Contingent Obligations” shall mean as to any Person any obligation of such Person guaranteeing or intending to guarantee any Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof, provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business.  The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated maximum of the Contingent Obligation or, if none, the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if there is no stated or determinable amount of the primary obligation, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.

“Credit Documents” shall mean this Agreement, the Notes, the Intercompany Subordination Agreement, the Pledge Agreement, the Subsidiary Guaranty and each Incremental B Term Commitment Agreement.

“Credit Event” shall mean the making of a Loan or the issuance of a Letter of Credit.

“Credit Party” shall mean the Borrower and each Subsidiary of the Borrower party to a Credit Document.

“Cumulative Distributable Cash” shall mean, as at any date of determination, an amount equal to the remainder of (i) Available Cash for the Reference Period most recently ended prior to such date less (ii) the aggregate amount of Dividends paid by the Borrower on the Borrower Common Stock during such Reference Period (other than Dividends paid pursuant to Section 7.09(xvi)) less (iii) the aggregate amount of Investments made by the Borrower and its Subsidiaries during such Reference Period in reliance on Section 7.06(m) (determined at the time of the making of the Investment and without regard to any write-downs or write-offs thereof and, in the case of any Investment in the form of a contribution of a non-cash asset, taking the fair market value of the asset so contributed (as determined in good faith by the Board of Directors of the Borrower) plus (iv) the aggregate amount of all cash returns on Investments previously made pursuant to Section 7.06(m) (which cash return may be made by way of repayment of principal

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in the case of loans and cash equity returns (whether as a distribution, dividend or redemption) in the case of equity investments) and all non-cash returns in the form of an asset distribution on Investments previously made pursuant to Section 7.06(m) (taking the fair market value of such distributed asset (as determined in good faith by the Board of Directors of the Borrower)), in any such case as such aggregate amount has been then last certified by an Authorized Officer by delivery of an officers’ certificate to the Administrative Agent, provided that the aggregate amount of increases to “Cumulative Distributable Cash” resulting from the application of this clause (iv) shall not exceed the value of the returned investments (in the case of a non-cash return on investment, taking the fair market value of the distributed asset (as determined in good faith by the Board of Directors of the Borrower)) and, in no event, shall the amount of the increases made to “Cumulative Distributable Cash” in respect of any Investment exceed the amount of the respective Investment previously made pursuant to Section 7.06(m) at the time of the making thereof (in the case of a non-cash Investment, taking the fair market value of the Investment (as determined in good faith by the Board of Directors of the Borrower)).

“DBSI” shall mean Deutsche Bank Securities, Inc. in its individual capacity and any successor thereto by merger, consolidation or otherwise.

“DBTCA” shall mean Deutsche Bank Trust Company Americas in its individual capacity, and any successor thereto by merger, consolidation or otherwise.

“DDTF Commitment Commission” shall have the meaning provided in Section 2.01(b).

“Default” shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.

“Defaulting Lender” shall mean any Lender with respect to which a Lender Default is in effect.

“Delayed-Draw Term Commitment” shall mean, with respect to each Delayed-Draw Term Lender, the amount set forth opposite such Lender’s name on Annex I hereto directly below the column entitled “Delayed-Draw Term Commitment”, as the same may be (x) reduced or terminated pursuant to Sections 2.02, 2.03 and/or 8 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Sections 1.13 and/or 11.04(b).

“Delayed-Draw Term Commitment Termination Date” shall mean the earlier to occur of (x) the date occurring one year after the Initial Borrowing Date and (y) the date on which a Change of Control occurs.

“Delayed-Draw Term Facility” shall mean the Facility evidenced by the Total Delayed-Draw Term Commitment and/or Delayed-Draw Term Loans.

“Delayed-Draw Term Lender” shall mean at any time each Lender with a Delayed-Draw Term Commitment and/or with outstanding Delayed-Draw Term Loans.

“Delayed-Draw Term Loan” shall have the meaning provided in Section 1.01(b).

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“Delayed-Draw TL Percentage” shall mean, at any time, a fraction (expressed as a percentage) the numerator of which is equal to the aggregate principal amount of all Delayed-Draw Term Loans outstanding at such time and the denominator of which is equal to [the sum of (x) the aggregate principal amount of all Term Loans outstanding at such time plus (y) the Total Delayed-Draw Term Commitment in effect at such time].

“Disqualified Preferred Stock” shall mean any Preferred Stock of the Borrower (other than Qualified Preferred Stock), all terms and conditions of which (including covenants, defaults, remedies, redemption provisions, maturity, voting provisions, dividend rate and cash-pay limitations), and the documentation therefor, are on market terms for a placement of preferred equity securities and are otherwise reasonably satisfactory to the Administrative Agent and the Required Lenders (it being understood that, after the Administrative Agent has approved the relevant documentation with respect to any Disqualified Preferred Stock, such documentation shall be distributed to the Lenders and, if a given Lender has not objected to the terms of the relevant documentation within 5 Business Days after delivery thereof, such terms, conditions and documentation shall be deemed satisfactory to such Lender); provided, that in any event, unless the Required Lenders otherwise expressly consent in writing prior to the issuance thereof, the terms of any such Preferred Stock shall not contain any mandatory redemption, repayment, sinking fund or similar provision prior to the date occurring one year following the Term Loan Maturity Date (except upon the occurrence of a “change of control” or similar event (including Asset Sales), in each case so long as the provisions relating to a “change of control” or similar event included in the documentation and agreements governing the Disqualified Preferred Stock provide that either (I) the consent of the Required Lenders shall have been obtained or (II) the Obligations shall have been paid in full in cash, in either case prior to the satisfaction of such provisions).

“Dividend” shall mean, as to any Person, the declaration or payment of any dividends (other than dividends payable solely in capital stock or other equity interests of such Person) or return of any capital to, its stockholders, members and/or other owners or the authorization or the making of any other distribution, payment or delivery of property or cash to its stockholders, members and/or other owners as such, or the redemption, retirement, purchase or other acquisition, directly or indirectly, for a consideration, of any shares of any class of its capital stock or other ownership interests now or hereafter outstanding (or any warrants for or options or stock appreciation rights in respect of any of such shares), or the setting aside of any funds for any of the foregoing purposes, or the purchase or other acquisition by any Subsidiary of such Person for consideration of any shares of any class of the capital stock or other ownership interests of the Borrower or any other Subsidiary, as the case may be, now or hereafter outstanding (or any options or warrants or stock appreciation rights issued by such Person with respect to its capital stock or other ownership interests).

“Dividend Suspension Period” means any period (i) commencing on the date of delivery of a Quarterly Compliance Certificate showing that the Leverage Ratio determined as of the last day of the then most recently ended Test Period is greater than 5.00 to 1.00 (or, on the date upon which the Borrower shall have failed to deliver a Quarterly Compliance Certificate within the time period required by Section 6.01(e)) and (ii) ending on the date of delivery of a Quarterly Compliance Certificate showing that the Leverage Ratio determined as of the last day of the then most recently Test Period is equal to or less than 5.00 to 1.00.

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“Documents” shall mean and include (i) the Credit Documents, (ii) the IPO Documents, (iii) the Refinancing Documents, (iv) on and after the execution and delivery thereof, the Permitted Senior Unsecured Notes Documents, (v) on and after the execution and delivery thereof, the Permitted Senior Subordinated Notes Documents and (vi) on and after the execution and delivery thereof, all documentation, agreements and instruments governing or relating to any other Permitted Junior Capital; provided that the term “Documents” shall not include the IPO Documents for purposes of Sections 5.02 and 5.03.

“Dollars” and the sign “$” shall each mean freely transferable lawful money of the United States.

“Domestic Subsidiary” of any Person shall mean any Subsidiary of such Person incorporated or organized in the U.S.

“Effective Date” shall have the meaning provided in Section 11.10.

“Eligible Transferee” shall mean and include a commercial bank, a financial institution, a fund that regularly invests in bank loans or any other institutional “accredited investor” as defined in SEC Regulation D.

“Environmental Claims” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations (other than internal reports prepared by the Borrower or any of its Subsidiaries solely in the ordinary course of such Person’s business and not in response to any third party action or request of any kind) or proceedings relating to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter, “Claims”), including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials arising from alleged injury or threat of injury to health, safety or the environment.

“Environmental Law” means any applicable federal, state, foreign or local statute, law, rule, regulation, ordinance, code and rule of common law now or hereafter in effect and in each case as amended, and any binding judicial or administrative interpretation thereof, including any binding judicial or administrative order, consent decree or judgment, relating to the environment or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, as amended, 33 U.S.C. § 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. § 7401 et seq.; the Clean Air Act, 42 U.S.C. § 2601 et seq.; the Safe Drinking Water Act, 42 U.S.C. § 300F et seq.; the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq.; and any applicable state and local or foreign counterparts or equivalents.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.  Section references to ERISA are to ERISA, as in effect at the date of this Agreement

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and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.

“ERISA Affiliate” shall mean each person (as defined in Section 3(9) of ERISA) which together with the Borrower or a Subsidiary would be deemed to be a “single employer” within the meaning of Section 414(b) or (c) of the Code and with respect to Sections 412 and 4971 of the Code and Section 302 of ERISA, Section 414(b), (c), (m) or (o) of the Code.

“Eurodollar Loans” shall mean each Loan bearing interest at the rates provided in Section 1.08(b).

“Eurodollar Rate” shall mean with respect to each Interest Period for a Eurodollar Loan, (i) the offered quotation to first-class banks in the interbank Eurodollar market by the Administrative Agent for dollar deposits of amounts in same day funds comparable to the outstanding principal amount of the Eurodollar Loans for which an interest rate is then being determined with maturities comparable to the Interest Period to be applicable to such Eurodollar Loans, determined as of 10:00 A.M. (New York time) on the date which is two Business Days prior to the commencement of such Interest Period divided (and rounded upward to the next whole multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in  Regulation D (or any successor category of liabilities under Regulation D).

“Event of Default” shall have the meaning provided in Section 8.

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

“Excluded Asset Sale” shall mean any sale or other disposition of Non-Core Assets made after the Initial Borrowing Date and identified as an “Excluded Asset Sale” by written notice to the Administrative Agent, so long as the Net Cash Proceeds of such sale or disposition, when combined with the aggregate Net Cash Proceeds of all other sales and dispositions identified as “Excluded Asset Sales” after the Initial Borrowing Date, does not exceed $40,000,000.

“Excluded Investments” shall mean (i) any Investment made pursuant to clause (a), (b), (e), (f), (g), (j), (k) or (m) of Section 7.06 and (ii) any Investment made pursuant to clause (c), (h) or (i) of Section 7.06 in any Wholly-Owned Domestic Subsidiary or any Qualified Pledged Subsidiary of the Borrower.

“Existing Credit Agreement” shall mean the Credit Agreement, dated as of March 30, 1998, and amended and restated as of March 6, 2003, among the Borrower, the lenders from time to time party thereto, Bank of America, N.A., as syndication agent, Wachovia Bank, N.A., as documentation agent, and Deutsche Bank Trust Company Americas, as administrative agent, as in effect on the Initial Borrowing Date (immediately prior to giving effect thereto).

“Existing Letter of Credit” shall have the meaning provided in Section 1A.01(d).

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“Existing Seller/Opco Notes” shall mean notes payable by Taconic Telephone Corp., Comerco, Inc., Maine Telephone Company and the Borrower previously identified to the Administrative Agent in an aggregate principal amount equal to approximately $21.0 million.

“Existing Tender Offer Notes” shall mean and include the Existing 2008 Senior Subordinated Notes, the Existing 2010 Senior Notes and the Existing 2010 Senior Subordinated Notes.

“Existing Tender Offer Notes Indenture Amendments” shall have the meaning provided in Section 4.01(l).

“Existing Tender Offer Notes Indenture Supplements” shall mean the Supplemental Indentures to the Existing Tender Offer Notes Indentures in form and substance satisfactory to the Agents and entered into by the Borrower and the respective trustees under the Existing Tender Offer Notes Indentures in connection with the Tender Offers and Consent Solicitations to effect the Existing Tender Offer Notes Indenture Amendments.

“Existing Tender Offer Notes Indentures” shall mean and include the Existing 2008 Senior Subordinated Notes Indenture, the Existing 2010 Senior Notes Indenture and the Existing 2010 Senior Subordinated Notes Indenture.

“Existing 2008 Senior Subordinated Notes” shall mean, collectively, the Borrower’s 9-½% Senior Subordinated Notes due 2008 and the Borrower’s Senior Subordinated Floating Rate Notes due 2008, in each case issued pursuant to the Existing 2008 Senior Subordinated Notes Indenture, as in effect on the Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

“Existing 2008 Senior Subordinated Notes Documents” shall mean the Existing 2008 Senior Subordinated Notes, the Existing 2008 Senior Subordinated Notes Indenture and all other documents executed and delivered with respect to the Existing 2008 Senior Subordinated Notes or Existing 2008 Senior Subordinated Notes Indenture, as in effect on the Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

“Existing 2008 Senior Subordinated Notes Indenture” shall mean the Indenture, dated as of May 5, 1998, among the Borrower, as issuer, certain of its Subsidiaries, as guarantors, and the trustee therefor, as in effect on the Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

“Existing 2008 Senior Subordinated Notes Redemption” shall have the meaning provided in Section 6.13(b).

“Existing 2010 Senior Notes” shall mean the Borrower’s 11-7/8% Senior Notes due 2010, issued pursuant to the Existing 2010 Senior Notes Indenture, as in effect on the Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

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“Existing 2010 Senior Notes Documents” shall mean the Existing 2010 Senior Notes, the Existing 2010 Senior Notes Indenture and all other documents executed and delivered with respect to the Existing 2010 Senior Notes or Existing 2010 Senior Notes Indenture, as in effect on the Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

“Existing 2010 Senior Notes Indenture” shall mean the Indenture, dated as of March 6, 2003, among the Borrower, as issuer, certain of its Subsidiaries, as guarantors, and the trustee therefor, as in effect on the Effective Date and as thereafter amended, modified or supplemented from time to time in accordance with the requirements hereof and thereof.

“Existing 2010 Senior Subordinated Notes” shall mean the Borrower’s 12-1/2% Senior Subordinated Notes due 2010, issued pursuant to the Existing 2010 Senior Subordinated Notes Indenture, as in effect on the Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

“Existing 2010 Senior Subordinated Notes Documents” shall mean the Existing 2010 Senior Subordinated Notes, the Existing 2010 Senior Subordinated Notes Indenture and all other documents executed and delivered with respect to the Existing 2010 Senior Subordinated Notes or Existing 2010 Senior Subordinated Notes Indenture, as in effect on the Effective Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

“Existing 2010 Senior Subordinated Notes Indenture” shall mean the Indenture, dated as of May 24, 2000, among the Borrower, as issuer, certain of its Subsidiaries, as guarantors, and the trustee therefor, as in effect on the Effective Date and as thereafter amended, modified or supplemented from time to time in accordance with the requirements hereof and thereof.

“Expiration Date” shall mean April 8, 2005.

“Facility” shall mean any of the credit facilities established under this Agreement, i.e., the Initial B Term Facility, the Delayed-Draw Term Facility, the Incremental B Term Facility or the Revolving Facility; provided that for purposes of Sections 1.06 and 11.12(a)(t) and (u) and the definitions of “Borrowing” and “Majority Lenders”, the Initial B Term Facility and the Incremental B Term Facility shall be deemed to be a single “Facility”.

“Facing Fee” shall have the meaning provided in Section 2.01(d).

“FairPoint Carrier Services” shall mean FairPoint Carrier Services, Inc. (formerly known as FairPoint Communications Solutions, Inc.), a Wholly-Owned Subsidiary of the Borrower.

“FCC” shall mean the Federal Communications Commission and any successor regulatory body.

“Federal Funds Effective Rate” shall mean for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight

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Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent.

“Fees” shall mean all amounts payable pursuant to, or referred to in, Section 2.01.

“1st-Tier Subsidiary” shall mean FairPoint Broadband, Inc., MJD Ventures, Inc., MJD Services Corp., STE, FairPoint Carrier Services and any other Subsidiary first acquired or created after the Initial Borrowing Date that is a direct Subsidiary of the Borrower.

“Form S-1” shall mean the Form S-1 registration statement of the Borrower filed with the SEC on [                       ], 2005, as in effect on the Effective Date.

“GAAP” shall mean generally accepted accounting principles in the United States of America as in effect on the date of this Agreement; it being understood and agreed that determinations in accordance with GAAP for purposes of Section 7, including defined terms as used therein, are subject (to the extent provided therein) to Section 11.07(a).

“Hazardous Materials” shall mean (a) petroleum or petroleum products, radioactive materials, asbestos in any form that is friable, urea formaldehyde foam insulation, and radon gas; (b) any chemicals, materials or substance defined as or included in the definition of “hazardous substances,” “hazardous waste,” “hazardous materials,” “extremely hazardous substances,” restricted hazardous waste,” “toxic substances,” “toxic pollutants,” “contaminants,” or “pollutants,” or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, the release of which is prohibited, limited or regulated by any governmental authority.

“Incremental B Term Commitment” shall mean, with respect to each Incremental B Term Lender, the commitment of such Lender to make Incremental B Term Loans pursuant to Section 1.01(f) on a given Incremental B Term Loan Borrowing Date, as such commitment is set forth in the respective Incremental B Term Commitment Agreement delivered pursuant to Section 1.14(b) and as same may be terminated pursuant to Sections 2.02, 2.03 and/or 8.

“Incremental B Term Commitment Agreement” shall have the meaning provided in Section 1.14(b).

“Incremental B Term Facility” shall mean the Facility evidenced by the Total Incremental B Term Commitment.

“Incremental B Term Lender” shall have the meaning provided in Section 1.14(b).

“Incremental B Term Loan” shall have the meaning provided in Section 1.01(f).

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“Incremental B Term Loan Borrowing Date” shall mean each date on which the Borrower incurs Incremental B Term Loans pursuant to Section 1.01(f), which date shall be the date of the effectiveness of the Incremental B Term Commitment Agreement pursuant to which such Incremental B Term Loans are to be made.

“Indebtedness” of any Person shall mean, without duplication, (i) all indebtedness of such Person for borrowed money, (ii) the deferred purchase price of assets or services which in accordance with GAAP would be shown on the liability side of the balance sheet of such Person, (iii) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder, (iv) all indebtedness of a second Person secured by any Lien on any property owned by such first Person, whether or not such indebtedness has been assumed (to the extent of the fair market value of such property), (v) all Capitalized Lease Obligations of such Person, (vi) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vii) all net obligations of such Person under Interest Rate Agreements and (viii) all Contingent Obligations of such Person (other than Contingent Obligations arising from the guaranty by such Person of the obligations of the Borrower and/or its Subsidiaries to the extent such guaranteed obligations do not constitute Indebtedness and are otherwise permitted hereunder), provided that Indebtedness shall not include trade payables, accrued expenses and receipt of progress and advance payments, in each case arising in the ordinary course of business.

“Indemnified Person” shall have the meaning provided in Section 11.01(a).

“Initial B Term Commitment” shall mean, with respect to each Initial B Term Lender, the amount set forth opposite such Lender’s name on Annex I hereto directly below the column entitled “Initial B Term Commitment”, as the same may be (x) reduced or terminated pursuant to Sections 2.02, 2.03, 3.02(A) and/or 8 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Sections 1.13 and/or 11.04(b).

“Initial B Term Facility” shall mean the Facility evidenced by the Total Initial B Term Commitment and/or Initial B Term Loans.

“Initial B Term Lender” shall mean at any time each Lender with an Initial B Term Commitment and/or with outstanding Initial B Term Loans.

“Initial B Term Loan” shall have the meaning provided in Section 1.01(a).

“Initial Borrowing Date” shall mean the date of the Refinancing and the incurrence of the Initial B Term Loans hereunder.

“Intercompany Debt” shall mean any Indebtedness, payables or other obligations, whether now existing or hereafter incurred, owed by the Borrower or any Subsidiary of the Borrower to the Borrower or any other Subsidiary of the Borrower.

“Intercompany Loans” shall have the meaning provided in Section 7.06(c).

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“Intercompany Note” shall mean a promissory note evidencing Intercompany Loans, in each case duly executed and delivered substantially in the form of Exhibit K, with blanks completed in conformity therewith (or such other form as may be approved by the Administrative Agent or the Required Lenders).

“Intercompany Subordination Agreement” shall have the meaning provided in Section 4.01(m).

“Interest Coverage Ratio” for any period shall mean the ratio of (x) Adjusted Consolidated EBITDA for such period to (y) Consolidated Interest Expense for such period.

“Interest Period” with respect to any Loan shall mean the interest period applicable thereto, as determined pursuant to Section 1.09.

“Interest Rate Agreement” shall mean any interest rate swap agreement, any interest rate cap agreement, any interest rate collar agreement or other similar agreement or arrangement designed to protect the Borrower or any Subsidiary against fluctuations in interest rates.

“Intermediary Holding Company” shall mean each 1^st-Tier Subsidiary and any other Subsidiary first acquired or created after the Initial Borrowing Date that is (i) not an operating company (but that owns directly or indirectly one or more operating companies) and (ii) not subject to regulatory restrictions on borrowings or issuances of guaranties of indebtedness for borrowed money.

“Investment” shall have the meaning provided in the preamble to Section 7.06.

“IPO” shall have the meaning provided in Section 4.01(k).

“IPO Documents” shall mean the Form S-1, the Underwriting Agreement, dated as of February [    ], 2005, between the Borrower, the underwriters named therein and the selling shareholders named therein, and all other documents executed and delivered with respect to the IPO, as in effect on the Initial Borrowing Date and as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof.

“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance.)

“Joint Book Running Managers” shall mean DBSI, BAS, Morgan Stanley Senior Funding Inc. and Goldman Sachs Credit Partners L.P., each in its capacity as a “Joint Book Running Manager.”

“Joint Lead Arrangers” shall mean DBSI and BAS, each in its capacity as “Joint Lead Arranger.”

“Joint Venture” shall mean any Person, other than an individual or a Wholly-Owned Subsidiary of the Borrower, (i) in which the Borrower or a Subsidiary of the

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Borrower holds or acquires an ownership interest (whether by way of capital stock, partnership or limited liability company interest, or other evidence of ownership) and (ii) which is engaged in the Business.

“Kelso” shall mean Kelso Investment Associates V, L.P., a Delaware limited partnership, Kelso Equity Partners V, L.P., a Delaware limited partnership, and their respective Affiliates.

“Lender” shall mean each financial institution listed on Annex I, as well as any Person that becomes a “Lender” hereunder pursuant to Section 1.13, 1.14 or 11.04(b).

“Lender Default” shall mean (i) the wrongful refusal (which has not been retracted) or failure of a Lender to make available its portion of any incurrence of Loans or a reimbursement of an Unpaid Drawing or (ii) a Lender having notified the Administrative Agent and/or the Borrower that it does not intend to comply with the obligations under Section 1.01 or 1A.05, in circumstances where such non-compliance will constitute a breach of such Lender’s obligations under the respective Section.

“Lender Register” shall have the meaning provided in Section 11.16.

“Letter of Credit” shall have the meaning provided in Section 1A.01(a).

“Letter of Credit Fee” shall have the meaning provided in Section 2.01(c).

“Letter of Credit Issuer” shall mean (i) DBTCA, any affiliate of DBTCA and any RF Lender (or affiliate of any RF Lender) which at the request of the Borrower and with the consent of the Administrative Agent agrees, in such RF Lender’s (or RF Lender affiliate’s) sole discretion, to become a Letter of Credit Issuer for the purpose of issuing Letters of Credit pursuant to Section 1A, and (ii) with respect to the Existing Letters of Credit, the Lender designated as the issuer thereof on Annex IX shall be the Letter of Credit Issuer thereof.

“Letter of Credit Outstandings” shall mean, at any time, the sum of, without duplication, (i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings in respect of all Letters of Credit.

“Letter of Credit Request” shall have the meaning provided in Section 1A.03(a).

“Leverage Ratio” shall mean, at any date of determination, the ratio of (x) Consolidated Debt on such date to (y) Adjusted Consolidated EBITDA for theTest Period then or last ended.  All calculations of the Leverage Ratio shall be made on a Pro Forma Basis.

“Lien” shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof).

“Loan” shall have the meaning provided in Section 1.01.

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“Majority Lenders” of any Facility shall mean those Non-Defaulting Lenders which would constitute the Required Lenders under, and as defined in, this Agreement if all outstanding Obligations of the other Facilities under this Agreement were repaid in full and all Commitments with respect thereto were terminated.

“Management Affiliate” shall mean Messrs. Duda, Leach, Johnson and Bergstein.

“Mandatory Borrowing” shall have the meaning provided in Section 1.01(e).

“Margin Stock” shall have the meaning provided in Regulation U.

“Material Adverse Effect” shall mean a material adverse effect on (x) the business, property, assets, liabilities or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole after giving effect to the Transaction, (y) the rights or remedies of the Agents or the Lenders under any Credit Document or (z) the ability of the Pledge Parties taken as a whole to perform their obligations under the Credit Documents.

“Material Subsidiary” shall mean, at any time, any Subsidiary having gross assets at such time with a value of at least 5% of consolidated gross assets of the Borrower and its Subsidiaries at such time and/or gross revenues for the Test Period then last ended of at least 5% of the consolidated gross revenues of the Borrower and its Subsidiaries for such Test Period.

“Maturity Date” shall mean (i) with respect to Term Loans, the Term Loan Maturity Date, (ii) with respect to RF Loans, the RF Maturity Date and (iii) with respect to Swingline Loans, the Swingline Expiry Date.

“Maximum Swingline Amount” shall mean $5,000,000.

“Minimum Borrowing Amount” shall mean (i) in the case of Term Loans, $1,000,000, (ii) in the case of RF Loans (x) maintained as Base Rate Loans, $500,000 and (y) maintained as Eurodollar Loans, $1,000,000 and (iii) in the case of Swingline Loans, $100,000.

“Minimum Liquidity Condition” shall mean, as of any date on which a Dividend is to be paid on the Borrower Common Stock, the condition existing on such date if (but only if) the sum of (i) Total Unutilized Revolving Commitment on such date (determined on a pro forma basis after giving effect to any incurrence of RF Loans and Swingline Loans on such date to make such Dividend) plus (ii) the amount of Unrestricted cash and Cash Equivalents of the Borrower and its Subsidiaries, is equal to or greater than $10,000,000.

“Minimum Tender Offer Condition” shall mean, with respect to any issue of Existing Tender Offer Notes, that at least 75% (or, in the case of the 2008 Senior Subordinated Notes only, that at least 51%) of the aggregate principal amount of such issue of Existing Tender Offer Notes shall have been validly tendered, and not withdrawn, pursuant to the Tender Offer and Consent Solicitation therefor.

“MJD Capital” shall mean MJD Capital Corp., a South Dakota corporation.

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“Moody’s” shall have the meaning provided in the definition of “Cash Equivalents”.

“Multiemployer Plan” shall mean any multiemployer plan as defined in section 4001(a)(3) of ERISA which is contributed to by (or to which there is an obligation to contribute of) the Borrower or any of its Subsidiaries or an ERISA Affiliate and each such plan for the five year period immediately following the latest date on which the Borrower, any such Subsidiary or ERISA Affiliate contributed to or had an obligation to contribute to such plan.

“Net Cash Proceeds” shall mean (i) with respect to any Asset Sale, the Cash Proceeds resulting therefrom net (without duplication) of expenses of sale (including payment of principal, premium and interest of Indebtedness secured by the assets the subject of the Asset Sale and required to be, and which is, repaid under the terms thereof as a result of such Asset Sale), and incremental taxes paid or payable as a result thereof and (ii) with respect to any issuance of Preferred Stock or Indebtedness, the cash proceeds received by the Borrower from such issuance net (without duplication) of underwriting discounts and commissions, private placement and/or initial purchaser fees and other reasonable fees and expenses associated therewith.

“90%-Owned Subsidiary” shall mean (i) any Subsidiary to the extent at least 90% of the capital stock or other ownership interests in such Subsidiary is owned directly or indirectly by the Borrower and (ii) STE, to the extent at least 87.5% of the capital stock of STE is owned directly or indirectly by the Borrower.

“Non-Core Asset Sale” shall mean an Asset Sale constituting a sale of Non-Core Assets.

“Non-Core Assets” shall mean (i) assets of the Borrower and its Subsidiaries not used in their core business of providing local exchange carrier voice telephony services (e.g., assets used in the operation of the cable television business, cellular telephone business and radio stations) and (ii) the stock and/or other equity interests in any Subsidiary not primarily engaged in the core business of providing local exchange carrier services, in the case of either clause (i) or (ii) to the extent such assets are certified as non-core assets by an Authorized Officer in an officer’s certificate delivered to the Administrative Agent.

“Non-Defaulting Lender” shall mean a Lender that is not a Defaulting Lender.

“Non-Pledge Party Subsidiary” shall mean each Subsidiary of the Borrower which is not a Pledge Party.

“Non-Pledged Subsidiary” shall mean any Subsidiary that is not a Pledged Subsidiary.

“Non-Wholly Owned Entity” shall have the meaning provided in the definition of “Permitted Acquisition”.

“Non-Wholly Owned Subsidiary” shall mean, as to any Person, each Subsidiary of such Person which is not a Wholly-Owned Subsidiary of such Person.

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“Note” shall mean and include each B Term Note, each Delayed-Draw Term Note, each RF Note and the Swingline Note.

“Notice of Borrowing” shall have the meaning provided in Section 1.03.

“Notice of Conversion/Continuation” shall have the meaning provided in Section 1.06.

“Notice Office” shall mean the office of the Administrative Agent at 60 Wall Street, New York, New York 10005 or such other office as the Administrative Agent may designate to the Borrower in writing from time to time.

“Obligations” shall mean all amounts, direct or indirect, contingent or absolute, of every type or description, and at any time existing, owing to any Agent, any Letter of Credit Issuer, the Collateral Agent, the Swingline Lender or any Lender pursuant to the terms of this Agreement or any other Credit Document.

“Optional Non-2008 Tender Offer Notes Redemption” shall mean, collectively, any redemption of Existing 2010 Senior Notes and/or Existing 2010 Senior Subordinated Notes pursuant to, and in accordance with the terms of, the respective indenture therefor, all as contemplated by Section 7.09(vii).

“Optional Non-2008 Tender Offer Notes Refinancing” shall mean, collectively, any repurchase and/or redemption of Existing 2010 Senior Notes and/or Existing 2010 Senior Subordinated Notes as contemplated by Section 7.09(vii).

“Parent Company” shall mean at any time each Intermediary Holding Company and each other Subsidiary of the Borrower that, in either such case, owns, directly or indirectly, the capital stock or other equity interests of any Subsidiary that is a Telco or a Carrier Services Company.

“Participant” shall have the meaning provided in Section 1A.05(a).

“Patriot Act” shall mean the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)).

“Payment Office” shall mean the office of the Administrative Agent at 60 Wall Street, New York, New York 10005 or such other office as the Administrative Agent may designate to the Borrower and the Lenders in writing from time to time.

“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.

“Percentage” shall mean at any time for each RF Lender, the percentage obtained by dividing such Lender’s Revolving Commitment by the Total Revolving Commitment, provided that if the Total Revolving Commitment has been terminated, the Percentage of each RF Lender shall be determined by dividing such RF Lender’s Revolving Commitment

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immediately prior to such termination by the Total Revolving Commitment immediately prior to such termination.

“Permitted Acquired Debt” shall mean Indebtedness of a Subsidiary acquired after the Effective Date pursuant to a Permitted Acquisition, to the extent such Indebtedness was outstanding prior to the consummation of the Permitted Acquisition and remains outstanding as Indebtedness of the respective Subsidiary after giving effect thereto, provided that (i) such Indebtedness was not incurred in connection with or in anticipation of such Permitted Acquisition or the respective Person becoming Subsidiary of the Borrower, (ii) such Indebtedness does not constitute Indebtedness of the Borrower or any of its Subsidiaries other than the respective Subsidiary acquired pursuant to the respective Permitted Acquisition and shall not be secured by any assets of any Person other than assets of the Subsidiary so acquired serving as security therefor at the time of the respective Permitted Acquisition, (iii) no Person (other than the respective Subsidiary or a direct parent or a Subsidiary of the respective Subsidiary to the extent such parent or Subsidiary is acquired in connection with such Permitted Acquisition) shall have any liability (contingent or otherwise) with respect to any Permitted Acquired Debt and (iv) the aggregate principal amount of all such Indebtedness shall not exceed at any time outstanding more than 10% of the Senior Consolidated Debt at such time.

“Permitted Acquisition” shall mean the acquisition by the Borrower, any of its Wholly-Owned Domestic Subsidiaries or any of its Qualified Pledged Subsidiaries of assets constituting a business, division or product line of any Person not already a Subsidiary of the Borrower, any of its Wholly-Owned Subsidiaries or any of its Qualified Pledged Subsidiaries or of 100% of the capital stock or other equity interests of any such Person, provided that (A) the consideration paid by the Borrower, such Wholly-Owned Domestic Subsidiary or such Qualified Pledged Subsidiary consists solely of cash (including proceeds of RF Loans), the issuance of Borrower Common Stock, the issuance of Indebtedness otherwise permitted in Section 7.04 and the assumption/acquisition of any Permitted Acquired Debt relating to such business, division, product line or Person which is permitted to remain outstanding in accordance with the requirements of Section 7.04, (B) those acquisitions that are structured as equity acquisitions shall be effected through a purchase of 100% of the capital stock or other equity interests of such Person by the Borrower, such Wholly-Owned Domestic Subsidiary or such Qualified Pledged Subsidiary or through a merger between such Person and a Wholly-Owned Domestic Subsidiary or a Qualified Pledged Subsidiary of the Borrower, so that after giving effect to such merger, 100% of the capital stock or other equity interests of the surviving entity of such merger is owned by the Borrower or a Wholly-Owned Domestic Subsidiary (or, in the case of a merger with a Qualified Pledged Subsidiary, the surviving entity of such merger continues to constitute a Qualified Pledged Subsidiary of the Borrower), (C) in the case of the acquisition of 100% of the capital stock or other equity interests of any Person, such Person (the “Acquired Person”) shall own no capital stock or other equity interests of any other Person unless either (x) the Acquired Person owns 100% of the capital stock or other equity interests of such other Person or (y) if the Acquired Person owns capital stock or equity interests in any other Person which is not a Wholly-Owned Subsidiary of the Acquired Person (a “Non-Wholly Owned Entity” ), (1) the Acquired Person shall not have been created or established in contemplation of, or for purposes of, the respective Permitted Acquisition, (2) any Non-Wholly Owned Entity of the Acquired Person shall have been non-wholly-owned prior to the date of the respective Permitted Acquisition and not created or established in contemplation thereof and (3) such Acquired

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Person and/or its Wholly-Owned Subsidiaries own at least 80% of the consolidated assets of such Acquired Person and its Subsidiaries taken as a whole, (D) substantially all of the business, division or product line acquired pursuant to the respective Permitted Acquisition, or the business of the Acquired Person and its Subsidiaries taken as a whole, is in the U.S., (E) the assets acquired, or the business of the Acquired Person and its Subsidiaries, shall be in the Business, and (F) all requirements of Section 7.02 applicable to Permitted Acquisitions are satisfied.  Notwithstanding anything to the contrary contained in the immediately preceding sentence, an acquisition which does not otherwise meet the requirements set forth above in the definition of “Permitted Acquisition” shall constitute a Permitted Acquisition if, and to the extent, the Required Lenders agree in writing that such acquisition shall constitute a Permitted Acquisition for purposes of this Agreement.

“Permitted Exchange Senior Subordinated Notes” shall mean senior subordinated notes issued in exchange for Permitted Senior Subordinated Notes pursuant to the relevant Permitted Senior Subordinated Notes Indenture therefor, which Permitted Exchange Senior Subordinated Notes are substantially identical securities to the originally issued Permitted Senior Subordinated Notes and shall be issued pursuant to a registered exchange offer or private exchange offer for such Permitted Senior Subordinated Notes on market terms reasonably satisfactory to the Administrative Agent; provided that in no event will the issuance of any Permitted Exchange Senior Subordinated Notes increase the aggregate principal amount of the Permitted Senior Subordinated Notes theretofore outstanding and subject to such exchange or otherwise result in an increase in the interest rate applicable to the Permitted Senior Subordinated Notes theretofore outstanding and subject to such exchange.

“Permitted Exchange Senior Unsecured Notes” shall mean senior unsecured notes issued in exchange for Permitted Senior Unsecured Notes pursuant to the relevant Permitted Senior Unsecured Notes Indenture therefor, which Permitted Exchange Senior Unsecured Notes are substantially identical securities to the originally issued Permitted Senior Unsecured Notes and shall be issued pursuant to a registered exchange offer or private exchange offer for such Permitted Senior Unsecured Notes on market terms satisfactory to the Administrative Agent; provided that in no event will the issuance of any Permitted Exchange Senior Unsecured Notes increase the aggregate principal amount of Permitted Senior Unsecured Notes theretofore outstanding and subject to such exchange or otherwise result in an increase in the interest rate applicable to the Permitted Senior Unsecured Notes theretofore outstanding and subject to such exchange.

“Permitted Holders” shall mean Kelso, THL and each Management Affiliate.

“Permitted Junior Capital” shall mean and include (i) any Additional Permitted Subordinated Debt, (ii) any Permitted Senior Subordinated Notes, (iii) any Qualified Preferred Stock and (iv) any Disqualified Preferred Stock.

“Permitted Letters of Credit” shall mean (i) each standby letter of credit issued by a financial institution acceptable to the Administrative Agent for the account of the Borrower or any of its Subsidiaries in support of obligations arising in the ordinary course of business of the Borrower or such Subsidiary and (ii) each trade letter of credit issued by a financial institution acceptable to the Administrative Agent for the account of the Borrower or any of its Subsidiaries

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and for the benefit of sellers of goods to the Borrower or such Subsidiary in support of commercial transactions of the Borrower or such Subsidiary in the ordinary course of business.

“Permitted Liens” shall mean Liens described in clauses (a) through (o), inclusive, of Section 7.03.

“Permitted MJD Capital Debt” shall mean Indebtedness of MJD Capital under Capital Leases and purchase money mortgages in respect of equipment acquired by MJD Capital to lease or sublease to subsidiaries of the Borrower, provided that the maximum amount of such Indebtedness incurred in any fiscal year shall not exceed $2.5 million.

“Permitted Refinancing Indebtedness” shall mean any Indebtedness of the Borrower and/or any Subsidiary of the Borrower issued or given in exchange for, or the proceeds of which are used to, extend, refinance, renew, replace, substitute or refund any Indebtedness of such Person permitted pursuant to Sections 7.04(g), (i), (j) or (n) or any Indebtedness of such Person issued to so extend, refinance, renew, replace, substitute or refund any such Indebtedness, so long as (a) such Indebtedness has a weighted average life to maturity greater than or equal to the weighted average life to maturity of the Indebtedness being refinanced, (b) such refinancing or renewal does not (i) increase the amount of such Indebtedness outstanding immediately prior to such refinancing or renewal or (ii) add guarantors, obligors or security from that which applied to such Indebtedness being refinanced or renewed, (c) such refinancing or renewal Indebtedness has substantially the same (or, from the perspective of the Lenders, more favorable) subordination provisions, if any, as applied to the Indebtedness being renewed or refinanced, and (d) all other terms of such refinancing or renewal (including, without limitation, with respect to the amortization schedules, redemption provisions, maturities, covenants, defaults and remedies), taken as a whole, are not less favorable to the respective borrower than those previously existing with respect to the Indebtedness being refinancing or renewed.

“Permitted Senior Subordinated Notes” shall mean any Indebtedness of the Borrower evidenced by subordinated notes and incurred pursuant to one or more issuances of such subordinated notes, all of terms and conditions (including, without limitation, with respect to interest rate, amortization, redemption provisions, maturities, covenants, defaults, remedies, guaranties and subordination provisions) which are on market terms for a public offering of subordinated notes or for a private placement of subordinated notes under Rule 144A of the Securities Act and are otherwise reasonably satisfactory to the Administrative Agent and the Required Lenders (it being understood that, after the Administrative Agent has approved the relevant documentation with respect to any Permitted Senior Subordinated Notes, such documentation shall be distributed to the Lenders and, if a given Lender has not objected to the terms of the relevant documentation within 5 Business Days after delivery thereof, such terms, conditions and documentation shall be deemed satisfactory to such Lender), as such Indebtedness may be amended, modified and/or supplemented from time to time in accordance with the terms hereof and thereof; provided, that in any event, unless the Required Lenders otherwise expressly consent in writing prior to the issuance thereof, (i) no such Indebtedness shall be secured by any asset of the Borrower or any of its Subsidiaries, (ii) no such Indebtedness shall be guaranteed by any Person other than a Subsidiary Guarantor and (iii) no such Indebtedness shall be subject to scheduled amortization or have a final maturity, in either case prior to the date occurring one year following the Term Loan Maturity Date.  As used in this

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Agreement (other than this definition), the term “Permitted Senior Subordinated Notes” shall include any Permitted Exchange Senior Subordinated Notes issued pursuant to the respective Permitted Senior Subordinated Notes Indenture in exchange for outstanding Permitted Senior Subordinated Notes, as contemplated by the definition of “Permitted Exchange Senior Subordinated Notes”.  The issuance of Permitted Senior Subordinated Notes shall be deemed to be a representation and warranty by the Borrower that all conditions thereto have been satisfied in all material respects and that same is permitted in accordance with the terms of this Agreement, which representation and warranty shall be deemed to be a representation and warranty for all purposes hereunder, including, without limitation, Sections 4.02 and 8.

“Permitted Senior Subordinated Notes Documents” shall mean, on and after the execution and delivery thereof, each Permitted Senior Subordinated Notes Indenture, the Permitted Senior Subordinated Notes and all other documents relating to each issuance of the Permitted Senior Subordinated Notes, as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

“Permitted Senior Subordinated Notes Indenture” shall mean any indenture or similar agreement entered into in connection with an issuance of Permitted Senior Subordinated Notes, as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

“Permitted Senior Unsecured Notes” shall mean any Indebtedness of the Borrower evidenced by senior notes and incurred pursuant to one or more issuances of such senior notes, all of terms and conditions of which (including, without limitation, with respect to interest rate, amortization, redemption provisions, maturities, covenants, defaults, remedies and guaranties) are on market terms for a public offering of senior notes or for a private placement of senior notes under Rule 144A of the Securities Act and are otherwise reasonably satisfactory to the Administrative Agent and the Required Lenders (it being understood that, after the Administrative Agent has approved the relevant documentation with respect to any Permitted Senior Unsecured Notes, such documentation shall be distributed to the Lenders and, if a given Lender has not objected to the terms of the relevant documentation within 5 Business Days after delivery thereof, such terms, conditions and documentation shall be deemed satisfactory to such Lender), as such Indebtedness may be amended, modified and/or supplemented from time to time in accordance with the terms hereof and thereof; provided, that in any event, unless the Required Lenders otherwise expressly consent in writing prior to the issuance thereof, (i) no such Indebtedness shall be secured by any asset of the Borrower or any of its Subsidiaries, (ii) no such Indebtedness shall be guaranteed by any Person other than a Subsidiary Guarantor and (iii) no such Indebtedness shall be subject to scheduled amortization or have a final maturity, in either case prior to the date occurring one year following the Term Loan Maturity Date.  As used in this Agreement (other than this definition), the term “Permitted Senior Unsecured Notes” shall include any Permitted Exchange Senior Unsecured Notes issued pursuant to the relevant Permitted Senior Unsecured Notes Indenture in exchange for outstanding Permitted Senior Unsecured Notes, as contemplated by the definition of “Permitted Exchange Senior Unsecured Notes”.   The issuance of Permitted Senior Unsecured Notes shall be deemed to be a representation and warranty by the Borrower that all conditions thereto have been satisfied in all material respects and that same is permitted in accordance with the terms of this Agreement,

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which representation and warranty shall be deemed to be a representation and warranty for all purposes hereunder, including, without limitation, Sections 4.02 and 8.

“Permitted Senior Unsecured Notes Documents” shall mean, on or after the execution and delivery thereof, each Permitted Senior Unsecured Notes Indenture, the Permitted Senior Unsecured Notes and each other agreement, document or instrument relating to the issuance of the Permitted Senior Unsecured Notes, in each case as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

“Permitted Senior Unsecured Notes Indenture” shall mean any indenture or similar agreement entered into in connection with the issuance of Permitted Senior Unsecured Notes, as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof and thereof.

“Permitted Swap Transaction” shall mean a transfer of assets by the Borrower or any of its Subsidiaries in which at least 85% of the consideration received therefrom consists of assets (other than cash) that will be used in the Business; provided that (x) the fair market value (as determined in good faith by the board of directors of the Borrower) of the assets so transferred shall not exceed the fair market value (determined as provided in the preceding parenthetical) of the assets so received and (y) the fair market value (as determined in good faith by the board of directors of the Borrower) of the assets transferred pursuant to any such transaction shall not exceed 12.5% of Consolidated Tangible Assets (as shown on the consolidated balance sheet of the Borrower most recently delivered (or required to be delivered) to the Administrative Agent pursuant to Section 6.01(a) or (b), as the case may be); provided further that the fair market value of such assets shall be determined by an independent appraiser satisfactory to the Administrative Agent if in excess of $20,000,000.

“Person” shall mean any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof.

“Plan” shall mean any pension plan as defined in Section 3(2) of ERISA (other than a multiemployer plan as defined in Section 3(37) of ERISA), which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower or any of its Subsidiaries or an ERISA Affiliate and that is subject to Title IV of ERISA, and each such plan for the five year period immediately following the latest date on which the Borrower, any such Subsidiary of the Borrower or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan.

“Pledge Agreement” shall have the meaning provided in Section 4.01(i).

“Pledge Party” shall mean the Borrower, each Subsidiary Guarantor and each other Subsidiary of the Borrower party to the Pledge Agreement.

“Pledged Subsidiary” shall mean each Subsidiary the capital stock or other equity interests of which is or are pledged pursuant to the Pledge Agreement.

“Post-Closing Period” shall have the meaning provided in Section 6.10(a).

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“Preferred Stock,” as applied to the capital stock of any Person, means capital stock of such Person (other than common stock of such Person) of any class or classes (however designed) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of capital stock of any other class of such Person, and shall include any Disqualified Preferred Stock and any Qualified Preferred Stock.

“Prime Lending Rate” shall mean the rate which DBTCA announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes.  The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer.  DBTCA may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate.

“Pro Forma Basis” shall mean, in connection with any calculation of compliance with any financial covenant or financial term, the calculation thereof after giving effect on a pro forma basis to (x) the incurrence of any Indebtedness (other than revolving Indebtedness, except to the extent same is incurred to refinance other outstanding Indebtedness or to finance a Permitted Acquisition) after the first day of the relevant Test Period or Calculation Period as if such Indebtedness had been incurred (and the proceeds thereof applied) on the first day of the relevant Calculation Period, (y) the permanent repayment of any Indebtedness (other than revolving Indebtedness) after the first day of the relevant Test Period or Calculation Period as if such Indebtedness had been retired or repaid on the first day of the relevant Test Period or Calculation Period and (z) any Permitted Acquisition or Significant Asset Sale then being consummated as well as any other Permitted Acquisition or Significant Asset Sale consummated after the first day of the relevant Test Period or Calculation Period, as the case may be, and on or prior to the date of the respective Permitted Acquisition or Significant Asset Sale, as the case may be, then being effected, with the following rules to apply in connection therewith:

(i)            all Indebtedness (x) (other than revolving Indebtedness, except to the extent same is incurred to refinance other outstanding Indebtedness or to finance Permitted Acquisitions) incurred or issued after the first day of the relevant Test Period or Calculation Period (whether incurred to finance a Permitted Acquisition, to refinance Indebtedness or otherwise) shall be deemed to have been incurred or issued (and the proceeds thereof applied) on the first day of the respective Test Period or Calculation Period and remain outstanding through the date of determination (and thereafter in the case of projections pursuant to Section 6.10(a)) and (y) (other than revolving Indebtedness) permanently retired or redeemed after the first day of the relevant Test Period or Calculation Period shall be deemed to have been retired or redeemed on the first day of the respective Calculation Period and remain retired through the date of determination (and thereafter in the case of projections pursuant to Section 6.10(a));

(ii)           all Indebtedness assumed to be outstanding pursuant to preceding clause (i) shall be deemed to have borne interest at (x) the rate applicable thereto, in the case of fixed rate indebtedness or (y) the rates which would have been applicable thereto during the respective period when same was deemed outstanding, in the case of floating rate Indebtedness (although interest expense with respect to any Indebtedness for periods

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while same was actually outstanding during the respective period shall be calculated using the actual rates applicable thereto while same was actually outstanding); and

(iii)          in making any determination of Adjusted Consolidated EBITDA on a Pro Forma Basis, pro forma effect shall be given to any Permitted Acquisition or Significant Asset Sale effected during the respective Calculation Period or Test Period (or thereafter, as provided in Section 6.10, for determinations pursuant to Section 6.10 only) as if same had occurred on the first day of the respective Calculation Period or Test Period, as the case may be, taking into account, in the case of any Permitted Acquisition, factually supportable and identifiable cost savings and expenses which would otherwise be accounted for as an adjustment pursuant to Article 11 of Regulation S-X under the Securities Act, as if such cost savings or expenses were realized on the first day of the respective Test Period or Calculation Period.

“Pro Forma EBITDA Test” shall be satisfied (i) if, after giving effect to any merger, consolidation, conveyance, sale or transfer referred to in Section 7.02(a) or the creation or acquisition of a new Telco or Carrier Services Company pursuant to a Permitted Acquisition the capital stock or other equity interests of which is or are not to be pledged under the Pledge Agreement, the percentage of Adjusted Consolidated EBITDA for the 12 months last ended at such time (determined, in the case of the acquisition or creation of a new Telco or Carrier Services Company pursuant to a Permitted Acquisition, on a Pro Forma Basis, as if such Permitted Acquisition was consummated on the first day of such 12 month period and taking account of the adjustments described in clause (iii) of the definition of “Pro Forma Basis” for such period) attributable to all Non-Pledged Subsidiaries does not exceed 10% and (ii) for purposes of Section 6.10(a)(vii) only, if, after giving effect to the creation or acquisition of any Acquired Person or business pursuant to a Permitted Acquisition by a Qualified Pledged Subsidiary that is not a Pledge Party, the percentage of Adjusted Consolidated EBITDA for the 12 months last ended at such time (determined on a Pro Forma Basis, as if such Permitted Acquisition was consummated on the first day of such 12 month period and taking account of the adjustments described in clause (iii) of the definition of “Pro Forma Basis” for such period) attributable to all Non-Pledged Subsidiaries acquired after the Initial Borrowing Date by Qualified Pledged Subsidiaries does not exceed 40%.

“Projections” shall have the meaning provided in Section 4.01(o).

“PUC” shall mean a public utility commission, public service commission or any similar agency or commission.

“Qualified Pledged Subsidiary” shall mean each Pledged Subsidiary (i) that is incorporated or organized in the United States or any State or territory thereof or the District of Columbia, and (ii) in which the Investments of cash, property, services and/or other assets are made in each class of equity interests of such Subsidiary by the Pledged Parties, on the one hand, and the other holders of such class of equity interests, on the other hand, in amounts which are proportional to the respective equity percentages of the Pledged Parties, on the one hand, and such other holders, on the other hand, for each class of equity interests of such Subsidiary (as reasonably determined by senior management of the Borrower).

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“Qualified Preferred Stock” shall mean any Preferred Stock of the Borrower, the express terms of which shall provide for no voting rights (except for (x) voting rights required by applicable law and (y) limited customary voting rights on fundamental matters such as mergers, consolidations, sales of all or substantially all of the assets of the Borrower, or liquidations involving the Borrower) or covenants (other than customary information covenants and inspection rights) and shall provide that dividends thereon shall not be required to be paid at any time (and to the extent) that such payment would be prohibited by the terms of this Agreement or any other agreement of the Borrower relating to outstanding indebtedness and which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (including any Change of Control), cannot mature and is not mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, and is not redeemable, or required to be repurchased, at the sole option of the holder thereof (including, without limitation, upon the occurrence of a Change of Control), in whole or in part, on or prior to the date that falls one year and one day after the date on which all Obligations are repaid in full and all Commitments have terminated or expired.

“Quarterly Compliance Certificate” shall have the meaning provided in Section 6.01(e).

“RCRA” shall mean the Resource Conservation and Recovery Act, as amended, 42 U.S.C. § 6901 et seq.

“Redemption Date” shall have the meaning provided in Section 4.01(l).

“Reference Period” shall mean, at any date, the period commencing on the first day of the first full fiscal quarter of the Borrower ending after the Initial Borrowing Date and ending on the last day of the last fiscal quarter for which a Quarterly Compliance Certificate has been delivered by the Borrower prior to such date.

“Refinancing” shall mean the Tender Offers and Consent Solicitations, the Optional Non-2008 Tender Offer Notes Refinancing and the other refinancing transactions contemplated by Sections 4.01(l) and 6.13 (including the execution and delivery of the Existing Tender Offer Notes Indenture Supplement as contemplated by Section 4.01(l)).

“Refinancing Documents” shall mean the documents, instruments and agreements entered into connection with the Refinancing.

“Regulation D” shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements.

“Regulation T” shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

“Regulation U” shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

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“Regulation X” shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

“Reinvestment Election” shall have the meaning provided in Section 3.02(A)(b).

“Reinvestment Notice” shall mean a written notice signed by an Authorized Officer stating that the Borrower, in good faith, intends and expects that the Borrower and its Subsidiaries will use all or a specified portion of the Net Cash Proceeds of an Asset Sale to finance a Permitted Acquisition within 270 days following the consummation of such Asset Sale.

“Reinvestment Prepayment Amount” shall mean, with respect to any Reinvestment Election, the amount, if any, on the Reinvestment Prepayment Date relating thereto by which (a) the Anticipated Reinvestment Amount in respect of such Reinvestment Election exceeds (b) the aggregate amount thereof expended by the Borrower and its Subsidiaries to finance Permitted Acquisitions.

“Reinvestment Prepayment Date” shall mean, with respect to any Reinvestment Election, the earliest of (i) the date, if any, upon which the Administrative Agent, on behalf of the Required Lenders, shall have delivered a written termination notice to the Borrower, provided that such notice may only be given while an Event of Default under Section 8.01 exists and (ii) the date occurring 270 days after the date of the related Reinvestment Notice.

“Repayment Election” shall have the meaning provided in Section 3.02(A)(b).

“Replaced Lender” shall have the meaning provided in Section 1.13.

“Replacement Lender” shall have the meaning provided in Section 1.13.

“Reportable Event” shall mean an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30-day notice period is waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.

“Required Lenders” shall mean Non-Defaulting Lenders the sum of whose outstanding Term Loans (and, if prior to the termination thereof, Delayed-Draw Term Commitments) and Revolving Commitments (or, after the termination thereof, outstanding RF Loans and Percentages of (x) outstanding Swingline Loans and (y) Letter of Credit Outstandings) constitute greater than 50% of the sum of (i) all outstanding Term Loans (and, if prior to the termination thereof, Delayed-Draw Term Commitments) of Non-Defaulting Lenders and (ii) the Total Revolving Commitment less the Revolving Commitments of all Defaulting Lenders (or after the termination thereof, the sum of then total outstanding RF Loans of Non-Defaulting Lenders and the aggregate Percentages of all Non-Defaulting Lenders of the total outstanding Swingline Loans and Letter of Credit Outstandings at such time).

“Required RF Lenders” shall mean those RF Lenders which are Non-Defaulting Lenders and which would constitute the Required Lenders under, and as defined in, this

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Agreement if all outstanding Term Loans were repaid in full and the Total Delayed-Draw Term Commitment had terminated in its entirety.

“Restricted” shall mean, when referring to cash or Cash Equivalents of the Borrower or any of its Subsidiaries, that such cash or Cash Equivalents (i) appear (or would be required to appear) as “restricted” on a consolidated balance sheet of the Borrower or of any such Subsidiary, (ii) are subject to any Lien in favor of any Person other than the Collateral Agent for the benefit of the Secured Creditors or (iii) are not otherwise generally available for use by the Borrower or any of its Subsidiaries.

“Restricted Payment” shall mean, with respect to the Borrower or any of its Subsidiaries, (i) any Dividend by such Person, (ii) any payment of cash interest by such Person on account of any Indebtedness that is subordinated in right of payment to the Obligations (including, without limitation, any Permitted Senior Subordinated Notes, any Additional Permitted Subordinated Debt and guaranties thereof), (iii) any payment by the Borrower or any of its Subsidiaries with respect to any Intercompany Debt and (iv) the making of (or giving any notice in respect of) any voluntary or optional payment or prepayment on or redemption, repurchase or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due), or any prepayment, repurchase, redemption or acquisition for value as a result of any asset sale, change of control or similar event of any Permitted Acquired Debt, any Scheduled Existing Indebtedness,(7) any Existing 2008 Subordinated Notes Document, any Existing 2010 Subordinated Notes Document, any Existing 2010 Senior Notes Document and, on and after the execution, delivery and/or incurrence thereof, any Permitted Senior Unsecured Notes Document, any Permitted Senior Subordinated Notes Document, any other Permitted Junior Capital and any Permitted Refinancing Indebtedness.

“Revolving Commitment” shall mean, with respect to each Lender, the amount set forth opposite such Lender’s name in Annex I hereto directly below the column entitled “Revolving Commitment,” as the same may be (x) reduced or terminated from time to time pursuant to Section 2.02, 2.03 and/or 8 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 and/or 11.04.

“Revolving Facility” shall mean the Facility evidenced by the Total Revolving Commitment.

“RF Commitment Commission” shall have the meaning provided in Section 2.01(a).

(7)If the Existing Seller/Opco Notes constitute Scheduled Existing Indebtedness because same are not refinanced pursuant to the Refinancing on the Initial Borrowing Date, then the repurchase of the Existing Seller/Opco Notes will be excluded from the definition of “Restricted Payment”, so long as no Default or Event of Default then exists or would result from the respective repurchase.

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“RF Lender” shall mean at any time each Lender with a Revolving Commitment or with outstanding RF Loans.

“RF Loan” shall have the meaning provided in Section 1.01(c).

“RF Maturity Date” shall mean February [    ], 2011.

“RF Note” shall have the meaning provided in Section 1.05(a).

“Scheduled Existing Indebtedness” shall have the meaning provided in Section 7.04(g).

“SEC” shall have the meaning provided in Section 6.01(g).

“SEC Regulation D” shall mean Regulation D as promulgated under the Securities Act.

“2d-Tier Holdco” shall mean any indirect Subsidiary of the Borrower that is a holding company formed to hold the capital stock or other equity interests of one or more Subsidiaries (i.e., is not an operating company).

“Section 1A.01(c) Arrangements” shall have the meaning provided in Section 1A.01(c).

“Section 3.04 Certificate” shall have the meaning provided in Section 3.04(b)(ii).

“Secured Creditor” shall mean and include any “Secured Creditor” as defined in the Pledge Agreement.

“Securities Act” shall mean the Securities Act of 1933, as amended, as the same may be in effect from time to time.

“Segregated Account” shall have the meaning specified in Section 4.01(l)(iii).

“Senior Consolidated Debt” shall mean, at any time, (i) Consolidated Debt at such time less (ii) any such Consolidated Debt that constitutes Indebtedness under any Existing 2010 Senior Subordinated Notes Documents, any Permitted Senior Subordinated Notes Documents, any Additional Permitted Subordinated Debt and/or Permitted Refinancing Indebtedness incurred to refinance Permitted Senior Subordinated Notes less (iii) the amount of any Disqualified Preferred Stock deemed to be Consolidated Debt at such time pursuant to the definition thereof.

“Senior Secured Consolidated Debt” shall mean, at any time, (i) Senior Consolidated Debt at such time less (ii) any such Senior Consolidated Debt that constitutes Indebtedness under the Existing 2010 Senior Notes Documents, any Permitted Senior Unsecured Notes Documents and/or Permitted Refinancing Indebtedness incurred to refinance the foregoing.

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“Senior Secured Leverage Ratio” shall mean, at any date of determination, the ratio of (x) Senior Secured Consolidated Debt on such date to (y) Adjusted Consolidated EBITDA for the Test Period then or last ended.  All calculations of the Senior Secured Leverage Ratio shall be made on a Pro Forma Basis.

“Series A Preferred Stock” shall mean Series A preferred stock of the Borrower, par value $.01 per share, authorized by Article IV.B.1. of the Borrower’s certificate of incorporation consisting of 1,000,000 authorized shares.

“Significant Asset Sale” shall mean each Asset Sale which generates Net Sale Proceeds of at least $5,000,000.

“Stated Amount” shall mean, with respect to any Letter of Credit at any time, the maximum available to be drawn thereunder at such time (regardless of whether any conditions for drawing could then be met).

“STE” shall mean ST Enterprises, Ltd., a Kansas corporation.

“Subsidiary” of any Person shall mean and include (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries, has more than a 50% equity interest at the time.  Unless otherwise expressly provided, all references herein to “Subsidiary” shall mean a Subsidiary of the Borrower.  Notwithstanding the foregoing (and except for purposes of (x) Sections 5.01, 5.04, 5.12, 5.13, 5.14, 5.17, 6.01(f), 6.04, 6.06, 6.07, 8.05, 8.06 and 8.09 and the defined terms used therein and (y) the definition of Unrestricted Subsidiary contained herein), an Unrestricted Subsidiary shall be deemed not to be a Subsidiary of the Borrower or any of its other Subsidiaries for purposes of this Agreement.

“Subsidiary Guarantors” shall mean each Subsidiary party to the Subsidiary Guaranty.

“Subsidiary Guaranty” shall have the meaning provided in Section 4.01(h).

“Swingline Expiry Date” shall mean that date which is five Business Days prior to the RF Maturity Date.

“Swingline Lender” shall mean DBTCA in its individual capacity for so long as DBTCA is the Administrative Agent hereunder, and thereafter shall mean the successor Administrative Agent in its individual capacity.

“Swingline Loan” shall have the meaning provided in Section 1.01(d).

“Swingline Note” shall have the meaning provided in Section 1.05(a).

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“Syndication Agent” shall have the meaning provided in the first paragraph of this Agreement.

“Syndication Date” shall mean the earlier of (i) the 90th day following the Initial Borrowing Date and (ii) the date upon which the Administrative Agent determines (and notifies the Borrower and the Lenders) that the primary syndication (and resultant addition of Persons as Lenders pursuant to Section 11.04(b)) has been completed.

“S&P” shall have the meaning provided in the definition of “Cash Equivalents”.

“Taxes” shall have the meaning provided in Section 3.04(a).

“TelCo” shall mean any Subsidiary of the Borrower that is an operating company (except to the extent same is a Non-Core Asset).

“Tender Offer and Consent Solicitation Consummation” shall mean the taking of the actions specified in clause (y) of Section 4.01(l)(ii) and 6.13(a).

“Tender Offers and Consent Solicitations” shall have the meaning provided in Section 4.01(l).

“Term Loan Maturity Date” shall mean February [    ], 2012.

“Term Loans” shall mean, collectively, each B Term Loan and each Delayed-Draw Term Loan.

“Test Period” shall mean each period of four consecutive fiscal quarters then last ended, in each case taken as one accounting period.

“THL” shall mean THL Equity Advisors IV, LLC and its Affiliates.

“Total Commitment” shall mean, at any time, the sum of the Total Initial B Term Commitment, the Total Delayed-Draw Term Commitment, the Total Incremental B Term Commitment and the Total Revolving Commitment at such time.

“Total Delayed-Draw Term Commitment” shall mean the sum of the Delayed-Draw Term Commitments of each of the Lenders.

“Total Incremental B Term Commitment” shall mean the sum of the Incremental B Term Commitments of each of the Lenders.

“Total Initial B Term Commitment” shall mean the sum of the Initial B Term Commitments of each of the Lenders.

“Total Revolving Commitment” shall mean, at any time, the sum of the Revolving Commitments of each of the Lenders at such time.

“Total Unutilized Revolving Commitment” shall mean, at any time, (i) the Total Revolving Commitment at such time less (ii) the sum of (x) the aggregate principal amount of all

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RF Loans and Swingline Loans at such time plus (y) the Letter of Credit Outstandings at such time.

“Transaction” shall mean (i) the Refinancing, (ii) the issuance of Borrower Common Stock pursuant to the IPO, (iii) the entering into of the Credit Documents and the incurrence of all Loans and the issuance of all Letters of Credit on the Initial Borrowing Date, and (iv) the payment of fees and expenses in connection with the foregoing.

“Type” shall mean any type of Loan determined with respect to the interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar Loan.

“UCC” shall mean the Uniform Commercial Code as in effect from time to time in New York.

“Unfunded Current Liability” of any Plan shall mean the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year, determined in accordance with actuarial assumptions at such time consistent with Statement of Financial Accounting Standards No. 87, exceeds the market value of the assets allocable thereto.

“Unpaid Drawing” shall have the meaning provided in Section 1A.04.

“Unrestricted” shall mean, when referring to cash or Cash Equivalents of the Borrower or any of its Subsidiaries, that such cash or Cash Equivalents are not Restricted.

“Unrestricted Subsidiary” shall mean any Subsidiary of the Borrower that is acquired or created after the Effective Date and designated by the Borrower as an “Unrestricted Subsidiary” hereunder by written notice to the Administrative Agent, provided that the Borrower shall only be permitted to so designate a new Unrestricted Subsidiary after the Initial Borrowing Date and so long as (i) no Default or Event of Default exists or would result therefrom, (ii) such Subsidiary is not a Telco or a Carrier Services Company, and (iii) such Unrestricted Subsidiary shall be capitalized (to the extent capitalized by the Borrower or any of its Subsidiaries) through Investments as permitted by, and in compliance with, Section 7.06(l), with the Pledge Party’s or respective Qualified Pledged Subsidiary’s ownership percentage in the value of the assets owned by such Unrestricted Subsidiary at the time of the initial designation thereof to be treated as an Investment pursuant to Section 7.06(l); provided that at the time of the initial Investment in any Subsidiary designated as an “Unrestricted Subsidiary”, such Subsidiary and the Borrower shall have entered into tax sharing agreement on a basis which is satisfactory to the Administrative Agent.

“Unutilized Revolving Commitment” for any Lender with a Revolving Commitment at any time shall mean the excess of (i) the Revolving Commitment of such Lender at such time over (ii) the sum of (x) the aggregate outstanding principal amount of RF Loans made by such Lender at such time plus (y) an amount equal to such Lender’s Percentage of the Letter of Credit Outstandings at such time.

“U.S.” shall mean the United States of America and any state or territory thereof.

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“Wholly-Owned Domestic Subsidiary” shall mean, as to any Person, any Wholly-Owned Subsidiary of such Person which is a Domestic Subsidiary.

“Wholly-Owned Subsidiary” of any Person shall mean any Subsidiary of such Person to the extent all of the capital stock or other ownership interests in such Subsidiary, other than directors’ qualifying shares, is owned directly or indirectly by such Person; provided, however, that (x) for purposes of the definitions of “Asset Sale”, “Available Basket Amount”, “Available Basket Sub-Limit”, “Consolidated Net Income” and “Wholly-Owned Domestic Subsidiary” and Sections 6.10, 7.06(c), (h) and (l), 90%-Owned Subsidiaries that are Telcos or Carrier Services Companies shall be deemed to be “Wholly-Owned Subsidiaries” and (y) no Unrestricted Subsidiary shall be considered a Wholly-Owned Subsidiary.

“Written” or “in writing” shall mean any form of written communication or a communication by means of telex, facsimile transmission, telegraph or cable.

SECTION 10.  The Agents.

10.01  Appointment.  (a)  Each Lender hereby irrevocably designates and appoints (x) DBTCA as Administrative Agent for such Lender (for purposes of this Section 10, the term “Administrative Agent” shall mean DBTCA in its capacities as Administrative Agent and as Collateral Agent hereunder and pursuant to the Pledge Agreement), (y) BAS as Syndication Agent for such Lender, and (z) [              ] and [              ] as Co-Documentation Agents for such Lender, each to act as specified herein and in the other Credit Documents, and each such Lender hereby irrevocably authorizes the Administrative Agent, the Syndication Agent and each Co-Documentation Agent to take such action on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to or required of the Administrative Agent, the Syndication Agent or such Co-Documentation Agent, as the case may be, by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto.  Each of the Agents may perform any of their respective duties under this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein by or through its respective officers, directors, agents, employees or affiliates (it being understood and agreed, for avoidance of doubt and without limiting the generality of the foregoing, that the Administrative Agent and/or Collateral Agent may perform any of its duties under the Pledge Agreement by or through one or more of its affiliates).

(b)           The provisions of this Section 10 are solely for the benefit of the Administrative Agent, the Syndication Agent, the Co-Documentation Agents and the Lenders, and neither the Borrower nor any of its Subsidiaries shall have any rights as a third party beneficiary of any of the provisions hereof.  In performing its functions and duties under this Agreement, each of the Administrative Agent, the Syndication Agent and each Co-Documentation Agent shall act solely as agent for the Lenders, and none of the Administrative Agent, the Syndication Agent or the Co-Documentation Agents assumes (and shall not be deemed to have assumed) any obligation or relationship of agency or trust with or for Borrower or any of its Subsidiaries.

10.02  Nature of Duties.  (a)  No Agent shall have any duties or responsibilities except those expressly set forth in this Agreement and in the other Credit Documents.  Neither

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any Agent nor any of its officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).  The duties of the Agents shall be mechanical and administrative in nature; no Agent shall have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Note and nothing in this Agreement or in any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein.

(b)           Notwithstanding any other provision of this Agreement or any provision of any other Credit Document, each of the Joint Lead Arrangers and the Joint Book Running Managers is named as such for recognition purposes only, and in their respective capacities as such shall have no powers, duties, responsibilities or liabilities with respect to this Agreement or the other Credit Documents or the transactions contemplated hereby and thereby; it being understood and agreed that each Joint Lead Arranger and each Joint Book Running Manager shall be entitled to all indemnification and reimbursement rights in favor of “Agents” as, and to the extent, provided for under Sections 10.07 and 11.01.  Without limitation of the foregoing, none of the Joint Lead Arrangers or the Joint Book Running Managers shall, solely by reason of this Agreement or any other Credit Documents, have any fiduciary relationship in respect of any Lender or any other Person.

10.03  Certain Rights of the Agents.  The Agents shall have the right to request instructions from the Required Lenders at any time.  If any Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, such Agent shall be entitled to refrain from such act or taking such action unless and until such Agent shall have received instructions from the Required Lenders; and such Agent shall not incur liability to any Lender by reason of so refraining.  Without limiting the foregoing, neither any Lender nor the holder of any Note shall have any right of action whatsoever against any Agent or any of its employees, directors, officers, agents or affiliates as a result of such Agent or such other person acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders.

10.04  Reliance by Agents.  Each Agent shall be entitled to rely, and shall be fully protected (and shall have no liability to any Person) in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order, telephone message or other document or conversation that such Agent believed, in the absence of gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision), to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by such Agent (which may be counsel for the Credit Parties) and, with respect to other matters, upon advice of independent public accountants or other experts selected by it.

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10.05  Notice of Default, etc.  The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Administrative Agent has actually received written notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default.”  In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders.  The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders (as determined by the Administrative Agent in its sole discretion).

10.06  Nonreliance on Agents and Other Lenders.  Independently and without reliance upon any Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrower and its Subsidiaries and, except as expressly provided in this Agreement, no Agent shall have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter.  No Agent or their respective affiliates nor any of their respective officers, directors, agents or employees shall be responsible to any Lender or the holder of any Note for, or be required or have any duty to ascertain, inquire or verify the accuracy of, (i) any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, (ii) the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document, (iii) the financial condition of the Borrower and any of its Subsidiaries, (iv) the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, (v) the satisfaction of any of the conditions precedent set forth in Section 4, or (vi) the existence or possible existence of any Default or Event of Default.

10.07  Indemnification.  (a)  To the extent any Agent (or any affiliate thereof) is not reimbursed and indemnified by the Borrower, the Lenders will reimburse and indemnify such Agent (and any affiliate thereof) in proportion to their respective “percentages” as used in determining the Required Lenders (determined as if there were no Defaulting Lenders), for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by such Agent (or any affiliate thereof) in performing its respective duties hereunder or under any other Credit Document or in any way relating to or arising out of this Agreement or any other Credit Document, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent’s gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).

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(b)Any Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Credit Document (except actions expressly required to be taken by it hereunder or under the Credit Documents) unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action.

(c)The agreements in this Section 10.07 shall survive the payment of all Obligations.

10.08  Agents in their Individual Capacities.  With respect to its obligation to make Loans, or issue or participate in Letters of Credit, under this Agreement, each Agent shall have the rights and powers specified herein for a “Lender” and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term “Lender”, “Required Lenders”, “Required RF Lender”, “holders of Notes” or any similar terms shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity.  Each Agent and its affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, investment banking, trust or other business with, or provide debt financing, equity capital or other services (including financial advisory services) to, any Credit Party or any Affiliate of any Credit Party (or any Person engaged in a similar business with any Credit Party or any Affiliate thereof) as if they were not performing the duties specified herein, and may accept fees and other consideration from any Credit Party or any Affiliate of any Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders.

10.09  Holders.  The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent.  Any request, authority or consent of any Person or entity who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or endorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor.

10.10  Resignation of the Agents.  (a)  The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents (including, without limitation, its functions and duties as Collateral Agent) at any time by giving 15 Business Days’ prior written notice to the Lenders and, unless a Default or an Event of Default under Section 8.05 then exists, the Borrower.  Any such resignation by an Agent hereunder shall also constitute its resignation (if applicable) as a Letter of Credit Issuer and Swingline Lender, in which case the resigning Agent (x) shall not be required to issue any further Letters of Credit or make any additional Swingline Loans hereunder and (y) shall maintain all of its rights as Letter of Credit Issuer or Swingline Lender, as the case may be, with respect to any Letter of Credit issued by it, or Swingline Loans made by it, prior to the date of such resignation. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below.

(b)Upon any such notice of resignation by the Administrative Agent, the Required Lenders shall appoint a successor Administrative Agent hereunder and/or under the

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other Credit Documents who shall be a commercial bank or trust company acceptable to the Borrower, which acceptance shall not be unreasonably withheld or delayed (provided that the Borrower’s approval shall not be required if an Event of Default then exists).

(c)If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the Administrative Agent, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed, provided that the Borrower’s consent shall not be required if an Event of Default then exists), shall then appoint a successor Administrative Agent who shall serve as Administrative Agent hereunder and/or under the other Credit Documents until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above.

(d)If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) above by the 15th Business Day after the date such notice of resignation was given by the Administrative Agent, the Administrative Agent’s resignation shall become effective and the Required Lenders shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above.

(e)The Syndication Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving five Business Days’ prior written notice to the Borrower and the Administrative Agent.  Such resignation shall take effect at the end of such five Business Day period.

(f)Either Co-Documentation Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving five Business Days’ prior written notice to the Borrower and the Administrative Agent.  Such resignation shall take effect at the end of such five Business Day period.

(g)Upon a resignation of any Agent pursuant to this Section 10.10, such Agent shall remain indemnified to the extent provided in this Agreement and the other Credit Documents and the provisions of this Section 10 shall continue in effect for the benefit of such Agent for all of its actions and inactions while serving as such Agent.

10.11  Collateral Matters.  (a)  Each Lender authorizes and directs the Collateral Agent to enter into the Pledge Agreement for the benefit of the Lenders and the other Secured Creditors.  Each Lender hereby agrees, and each holder of any Note or participant in Letters of Credit by the acceptance thereof will be deemed to agree, that, except as otherwise set forth herein, any action taken by the Required Lenders in accordance with the provisions of this Agreement or the Pledge Agreement, and the exercise by the Required Lenders of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders.  The Collateral Agent is hereby authorized on behalf of all of the Lenders, without the necessity of any notice to or further consent from any Lender, from time to time prior to an Event of Default, to take any action with respect to any Collateral or the Pledge Agreement which may be necessary to perfect and maintain perfected the security interest in and liens upon the Collateral granted pursuant to the Pledge Agreement.

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(b)The Lenders hereby authorize the Collateral Agent, at its option and in its discretion, to release any Lien granted to or held by the Collateral Agent upon any Collateral (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations at any time arising under or in respect of this Agreement or the Credit Documents or the transactions contemplated hereby or thereby, (ii) constituting property being sold or otherwise disposed of (to Persons other than the Borrower and its Subsidiaries) upon the sale or other disposition thereof in compliance with Section 7.02, (iii) if approved, authorized or ratified in writing by the Required Lenders (or all of the Lenders hereunder, to the extent required by Section 11.12) or (iv) as otherwise may be expressly provided in the Pledge Agreement.  Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Collateral Agent’s authority to release particular types or items of Collateral pursuant to this Section 10.11.

(c)The Collateral Agent shall have no obligation whatsoever to the Lenders or to any other Person to assure that the Collateral exists or is owned by the Borrower or any of its Subsidiaries or is cared for, protected or insured or that the Liens granted to the Collateral Agent herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise or to continue exercising at all or in any manner or under any duty of care, disclosure or fidelity any of the rights, authorities and powers granted or available to the Collateral Agent in this Section 10.11 or in the Pledge Agreement, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Collateral Agent may act in any manner it may deem appropriate, in its sole discretion, given the Collateral Agent’s own interest in the Collateral as one of the Lenders and that the Collateral Agent shall have no duty or liability whatsoever to the Lenders, except for its gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).

10.12  Delivery of Information.  The Administrative Agent shall not be required to deliver to any Lender originals or copies of any documents, instruments, notices, communications or other information received by the Administrative Agent from the Borrower, any Subsidiary, the Required Lenders, any Lender or any other Person under or in connection with this Agreement or any other Credit Document except (i) as specifically provided in this Agreement or any other Credit Document and (ii) as specifically requested from time to time in writing by any Lender with respect to a specific document, instrument, notice or other written communication received by and in the possession of the Administrative Agent at the time of receipt of such request and then only in accordance with such specific request.

SECTION 11.  Miscellaneous.

11.01  Payment of Expenses, etc.  (a)  The Borrower agrees to:  (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the negotiation, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of White & Case LLP) and of each Agent, the Collateral Agent, each Letter of Credit Issuer, the Swingline Lender and each of the Lenders in connection with the enforcement of the Credit Documents and the documents and instruments referred to

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therein (including, without limitation, the reasonable fees and disbursements of counsel for the Agents, the Collateral Agent, each Letter of Credit Issuer, the Swingline Lender and each of the Lenders); (ii) pay and hold each of the Lenders (including in its capacity as Agent, Collateral Agent, Swingline Lender and/or Letter of Credit Issuer) harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Lender (including in its capacity as Agent, Collateral Agent, Swingline Lender and/or Letter of Credit Issuer) and its affiliates, and each officer, director, trustee, employee, representative, advisor and agent thereof (each, an “Indemnified Person”) from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not any Agent or any Lender is a party thereto and whether or not any such investigation, litigation or other proceeding is between or among any Agent, any Lender, any Credit Party or any third Person or otherwise (except to the extent between or among any Lenders in their capacity as such)) related to the entering into and/or performance of any Credit Document or the use of the proceeds of any Loans hereunder or the Transaction or the consummation of any transactions contemplated in any Credit Document, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or ground water or on the surface or subsurface of any property owned or operated at any time by Borrower or any of its Subsidiaries or the generation, storage, transportation, handling or disposal of Hazardous Materials by the Borrower or any of its Subsidiaries at any location, or the noncompliance by the Borrower or any of its Subsidiaries with any Environmental Law or any Environmental Claim in connection with the Borrower or any of its Subsidiaries or business or operations or any property owned or operated at any time by the Borrower or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of any Indemnified Person as determined by a court of competent jurisdiction in a final and non-appealable decision).

(b)To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnified Person, on any theory of liability, for special, indirect, consequential or incidental damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof.  No Indemnified Person shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby, except to the extent the liability of such Indemnified Person results from such Indemnified Person’s gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision) .

11.02  Right of Setoff.  In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, if an Event of

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Default then exists, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Credit Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special but not trust accounts) and any other Indebtedness at any time held or owing by such Lender (including, without limitation, by branches and agencies of such Lender wherever located) to or for the credit or the account of any Pledge Party against and on account of the Obligations and liabilities of such Pledge Party to such Lender under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations of such Pledge Party purchased by such Lender pursuant to Section 11.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured.

11.03  Notices.  Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier, facsimile or cable communication) and mailed, telegraphed, telexed, telecopied, faxed, cabled or delivered, if to the Borrower at the address specified opposite its signature below, if to any Lender, at its address specified for such Lender on Annex II hereto; or, at such other address as shall be designated by any party in a written notice to the other parties hereto.  All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received.

11.04  Benefit of Agreement.  (a)  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of each of the Lenders.  Each Lender may at any time grant participations in any of its rights hereunder or under any of the Notes to another financial institution, provided that in the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant’s rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, except that the participant shall be entitled to the benefits of Sections 1.10, 1A.06 and 3.04 of this Agreement to the extent that such Lender would be entitled to such benefits if the participation had not been entered into or sold, and, provided, further, that no Lender shall transfer, grant or assign any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan or Note in which such participant is participating (it being understood that any waiver of any prepayment of, or the method of any application of any prepayment to, the Loans shall not constitute an extension of the Maturity Date therefor), or reduce the rate or extend the time of payment of interest or Fees (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof, or increase such participant’s participating interest in any Commitment over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment or a mandatory prepayment shall not constitute a change in the terms of

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any Commitment), (ii) release all or substantially all of the Collateral, (iii) release all or substantially all of the Subsidiaries from the Subsidiary Guaranty (except as provided therein) or (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or any other Credit Document.

(b)Notwithstanding the foregoing, (x) any Lender may assign all or a portion of its outstanding Term Loans and/or Revolving Commitment and its rights and obligations hereunder (which assignment does not have to be pro rata among the Facilities) to (i)(A) its parent company and/or any affiliate of such Lender which is at least 50% owned by such Lender or its parent company or (B) to one or more other Lenders or any affiliate of any such other Lender which is at least 50% owned by such other Lender or its parent company (provided that any fund that invests in loans and is managed or advised by the same investment advisor of another fund which is a Lender (or by an affiliate of such investment advisor) shall be treated as an affiliate of such other Lender for the purposes of this sub-clause (x)(i)(B)), or (ii) in the case of any Lender that is a fund that invests in loans, any other fund that invests in loans and is managed and/or advised by the same investment advisor of such Lender or by an Affiliate of such investment advisor and (y) with the consent of the Administrative Agent and, if no Default under Section 8.01 or 8.05 or Event of Default exists, the Borrower (which consents shall not be unreasonably withheld or delayed), any Lender (or any Lender together with one or more other related Lenders) may assign all, or if less than all, a portion equal to at least (I) in the case of Revolving Commitments, $2,500,000 in the aggregate for the assigning Lender or Lenders of such outstanding Loans and Commitments and its or their related rights and obligations hereunder and (II) in the case of Term Loans, $1,000,000 in the aggregate for the assigning Lender or Lenders of such outstanding Loans and its or their related rights and obligations hereunder, to one or more Eligible Transferees (treating any fund that invests in loans and any other fund that invests in loans and is managed and/or advised by the same investment advisor of such fund or by an Affiliate of such investment advisor of such fund or by an Affiliate of such investment advisor as a single Eligible Transferee).  If any Lender so sells or assigns all or a part of its rights hereunder or under the Notes, any reference in this Agreement or the Notes to such assigning Lender shall thereafter refer to such Lender and to the respective assignee to the extent of their respective interests and the respective assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would if it were such assigning Lender.  Each assignment pursuant to this Section 11.04(b) shall be effected by the assigning Lender and the assignee Lender executing an Assignment Agreement and giving the Administrative Agent written notice thereof.  At the time of any such assignment, (i) either the assigning or the assignee Lender shall pay to the Administrative Agent a nonrefundable assignment fee of $3,500 (provided that only one assignment fee shall be payable in respect of any reasonably contemporaneous assignment by a Lender to any one or more funds that invest in loans and are managed and/or advised by the same investment advisor of such Lender or by an Affiliate of such investment advisor), (ii) Annex I shall be deemed to be amended to reflect the Commitments and Loans of the respective assignee (which shall result in a direct reduction to the Commitment of the assigning Lender) and of the other Lenders, and (iii) upon surrender of the old Notes the Borrower will, at its own expense, issue new Notes to the respective assignee and to the assigning Lender in conformity with the requirements of Section 1.05, provided, further, that such transfer or assignment will not become effective until recorded by the Administrative Agent on the Lender Register pursuant to Section 11.16.  To the extent of any assignment pursuant to this Section 11.04(b) to a Person which is not already a Lender hereunder and which

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is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Borrower and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable, a Section 3.04 Certificate) described in Section 3.04(b).  To the extent that an assignment pursuant to this Section 11.04(b) would, at the time of such assignment, result in increased costs under Section 1.10 or 3.04 from those being charged by the respective assigning Lender prior to such assignment, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment).  Nothing in this clause (b) shall prevent or prohibit any Lender from pledging its Notes or Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and, with prior written notice to the Administrative Agent, any Lender which is a fund may pledge all or any portion of its Notes or Loans to its trustee or to a collateral agent or to another creditor providing credit or credit support to such Lender in support of its obligations to such trustee, such collateral agent or a holder of, or any other representative of a holder of, such obligations, or such other creditor, as the case may be; provided that no such pledge shall release the transferor Lender from any of its obligations hereunder or substitute any such trustee, collateral agent or other assignee for such Lender as a party hereto.

(c)Notwithstanding any other provisions of this Section 11.04, no transfer or assignment of the interests or obligations of any Lender hereunder or any grant of participation therein shall be permitted if such transfer, assignment or grant would require the Borrower or any of its Subsidiaries to (i) file a registration statement with the SEC, (ii) qualify the Loans under the “Blue Sky” laws of any State or (iii) integrate such transfer or assignment with a separate securities offering of securities of the Borrower or any of its Subsidiaries.

(d)Each Lender initially party to this Agreement hereby represents, and each Person that became a Lender pursuant to an assignment permitted by this Section 11 will, upon its becoming party to this Agreement, represent that it is an Eligible Transferee which makes or invests in loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that subject to the preceding clauses (a) and (b), the disposition of any promissory notes or other evidences of or interests in Indebtedness held by such Lender shall at all times be within its exclusive control.

11.05  No Waiver; Remedies Cumulative.  No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between any Credit Party and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder.  The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have.  No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand.

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11.06  Payments Pro Rata.  (a)  The Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of any Pledge Party in respect of any Obligations of such Pledge Party hereunder, it shall distribute such payment to the Lenders (other than any Lender that has expressly waived its right to receive its pro rata share thereof) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received.

(b)Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker’s lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loans or Fees, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the respective Pledge Party to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount, provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.

(c)Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 11.06(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.

11.07  Calculations; Computations.  (a)  The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Lenders), provided that (x) except as otherwise specifically provided herein, all computations determining compliance with Sections 7.11 and 7.12, including definitions used therein, shall utilize accounting principles and policies in effect at the time of the preparation of, and in conformity with those used to prepare, the December 31, 2003 historical financial statements of the Borrower delivered to the Lenders pursuant to Section 5.10(b), (y) that if at any time such computations utilize accounting principles different from those utilized in the financial statements furnished to the Lenders, such financial statements shall be accompanied by reconciliation work-sheets and (z) for purposes of calculating financial terms, all covenants and related definitions, all such calculations based on the operations of the Borrower and its Subsidiaries on a consolidated basis shall be made without giving effect to the operations of any Unrestricted Subsidiaries.

(b)All computations of interest and Fees hereunder shall be made on the actual number of days elapsed over a year of 360 days (365-366 days in the case of interest on Base Rate Loans).

11.08  Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial.  (a)  This Agreement and the other Credit Documents and the rights and obligations of the

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parties hereunder and thereunder shall be construed in accordance with and be governed by the law of the State of New York.  Any legal action or proceeding with respect to this Agreement or any other Credit Document may be brought in the courts of the State of New York sitting in the Borough of Manhattan or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Credit Party hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts.  Each Credit Party further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to each Credit Party located outside New York City and by hand delivery to each Credit Party located within New York City, at its address for notices pursuant to Section 11.03, such service to become effective 30 days after such mailing.  Nothing herein shall affect the right of the Administrative Agent, any Lender to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any Credit Party in any other jurisdiction.

(b)Each Credit Party hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Credit Document brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.

(c)Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the other Credit Documents or the transactions contemplated hereby or thereby.

11.09  Counterparts.  This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.  A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agent.

11.10  Effectiveness.  This Agreement shall become effective on the date (the “Effective Date”) on which each of the Borrower, the Administrative Agent, the Syndication Agent, each Co-Documentation Agent and each Lender shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered the same (including by way of facsimile transmission) to the Administrative Agent.  The Administrative Agent will give the Borrower and each Lender prompt written notice of the occurrence of the Effective Date.

11.11  Headings Descriptive.  The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.

11.12  Amendment or Waiver.  (a)  Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrower and the Required Lenders, provided that no such change, waiver, discharge or termination shall,

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without the consent of each Lender (other than a Defaulting Lender) (with Obligations being directly affected thereby in the case of the following clauses (i) and (vii)), (i) extend the final scheduled maturity of any Loan or Note (it being understood that any waiver of any prepayment of, or the method of application of any prepayment to, the Loans shall not constitute any such extension), or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) or Fees, or reduce the principal amount thereof, or increase the Commitment of any Lender over the amount thereof then in effect (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the Total Commitment shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase in the Commitment of such Lender), (ii) amend, modify or waive any provision of this Section 11.12 (except for technical amendments with respect to additional extensions of credit pursuant to this Agreement which afford the protections to such additional extensions of credit of the type provided to the Initial B Term Loans and the Revolving Commitments on the Initial Borrowing Date), (iii) reduce the percentage specified in, or (except to give effect to any additional facilities hereunder) otherwise modify, the definition of Required Lenders, (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (v) release all or substantially all of the Collateral, (vi) release all or substantially all of the Subsidiaries from the Subsidiary Guaranty (except as provided therein) or (vii) alter the requirements set forth in Sections 3.02(B) and 11.06 that certain payments with respect to Loans under a given Facility be applied or distributed on a pro rata basis to the holders of such Loans; provided, further, that no such change, waiver, discharge or termination shall, (t) except in cases where additional extensions of term loans and/or revolving loans are being afforded substantially the same treatment afforded to the Term Loans and RF Loans pursuant to this Agreement as originally in effect, without the consent of the Majority Lenders of each Facility which is being allocated a lesser prepayment, repayment or commitment reduction as a result of the actions described below, alter the required application of any prepayments or repayments (or commitment reduction), as between the various Facilities, pursuant to Sections 3.02(A)(b) through (g) and Section 2.03(c) or (e), as applicable (it being understood, however, that the Required Lenders may waive, in whole or in part, any such prepayment, repayment or commitment reduction, so long as the application, as amongst the various Facilities, of any such prepayment, repayment or commitment reduction which is still required to be made is not altered), (u) without the consent of the Majority Lenders of the respective Facility affected thereby, amend the definition of Majority Lenders (it being understood that, with the consent of the Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Majority Lenders on substantially the same basis as the extensions of Loans and Commitments are included on the Effective Date), (v) without the written consent of the Required RF Lenders, amend, modify or waive any condition precedent set forth in Section 4.02 or 4.03 with respect to the making of RF Loans, Swingline Loans or the issuance of Letters of Credit, (w) without the consent of each Letter of Credit Issuer, amend, modify or waive any provision of Section 1A or alter its rights or obligations with respect to Letters of Credit, (x) without the consent of the Swingline Lender, alter its rights or obligations with respect to Swingline Loans, (y) without the consent of the respective Agent, amend, modify or waive any provision of Section 11 as same applies to such Agent or any other provision as same relates to the rights or obligations of such

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Agent and (z) without the consent of the Collateral Agent, amend, modify or waive any provision relating to the rights or obligations of the Collateral Agent.

(b)If, in connection with any proposed change, waiver, discharge or termination of or to any of the provisions of this Agreement as contemplated by clauses (i) through (vi), inclusive, of the first proviso to Section 11.12(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clause (A) or (B) below, to either (A) replace each such non-consenting Lender or Lenders (or, at the option of the Borrower if the respective Lender’s consent is required with respect to less than all Facilities of Loans (or related Commitments), to replace only the Revolving Commitments and/or Loans of the respective non-consenting Lender which gave rise to the need to obtain such Lender’s individual consent) with one or more Replacement Lenders pursuant to Section 1.13 so long as at the time of such replacement, each such Replacement Lender consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Lender’s Revolving Commitment (if such Lender’s consent is required as a result of its Revolving Commitment) and/or repay each Facility of outstanding Loans of such Lender which gave rise to the need to obtain such Lender’s consent and/or cash collateralize its applicable Percentage of the Letter of Credit of Outstandings, in accordance with Sections 2.02(b) and/or 3.02(A)(a), provided that, unless the Commitments which are terminated and Loans which are repaid pursuant to preceding clause (B) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B), the Required Lenders (determined after giving effect to the proposed action) shall specifically consent thereto, provided, further, that the Borrower shall not have the right to replace a Lender, terminate its Commitment or repay its Loans solely as a result of the exercise of such Lender’s rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to Section 11.12(a).

(c)Notwithstanding anything to the contrary contained in clause (a) above of this Section 11.12, the Borrower, the Administrative Agent and each Incremental B Term Lender may, in accordance with the provisions of Section 1.14, enter into an Incremental B Term Commitment Agreement, provided that after the execution and delivery by the Borrower, the Administrative Agent and each such Incremental B Term Lender of such Incremental B Term Commitment Agreement, such Incremental B Term Commitment Agreement may thereafter only be modified in accordance with the requirements of clause (a) above of this Section 11.12.

11.13  Survival.  All indemnities set forth herein including, without limitation, in Section 1.10, 1.11, 3.04, 10.06 or 11.01 shall survive the execution and delivery of this Agreement and the making and repayment of the Loans.

11.14  Domicile of Loans.  Each Lender may transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Lender, provided that the Borrower shall not be responsible for costs arising under Section 1.10 or 3.04 resulting from any such transfer (other than a transfer pursuant to Section 1.12) to the extent not otherwise applicable to such Lender prior to such transfer.

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11.15  Confidentiality.  (a)  Each of the Lenders agrees that it will use its best efforts not to disclose without the prior consent of the Borrower (other than to its employees, auditors, counsel or other professional advisors, to affiliates or to another Lender if the Lender or such Lender’s holding or parent company in its sole discretion determines that any such party should have access to such information) any information with respect to the Borrower or any of its Subsidiaries which is furnished pursuant to any Credit Document and which is designated by the Borrower or the Borrower to the Lenders in writing as confidential; provided, that any Lender may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors or to the National Association of Insurance Commissioners, (c) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation (notice of which will be promptly sent to the Borrower to the extent permitted by law), (d) in order to comply with any law, order, regulation or ruling applicable to such Lender, and (e) to any pledgee referred to in Section 11.04(b) or any prospective transferee that is an Eligible Transferee that is acceptable to the Borrower in connection with any contemplated transfer of any of the Notes or any interest therein by such Lender to the extent that such prospective transferee is notified of the confidentiality requirements relating thereto.  No Lender shall be obligated or required to return any materials furnished by the Borrower or any Subsidiary.  The Borrower hereby agrees that the failure of a Lender to comply with the provisions of this Section 11.15 shall not relieve the Credit Parties of any of their obligations to such Lender under this Agreement and the other Credit Documents.

(b)The Borrower hereby represents and acknowledges that, to the best of its knowledge, neither any Lender, nor any employees or agents of, or other persons affiliated with, any Lender, have directly or indirectly made or provided any statement (oral or written) to the Borrower or to any of its employees or agents, or other persons affiliated with or related to the Borrower (or, so far as the Borrower is aware, to any other person), as to the potential tax consequences of the Transaction.

11.16  LenderRegister.  The Borrower hereby designates the Administrative Agent to serve as the Borrower’s agent, solely for purposes of this Section 11.16, to maintain a register (the “Lender Register”) on which it will record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each of the Lenders.  Failure to make any such recordation, or any error in such recordation shall not affect the Borrower’s obligations in respect of such Loans.  With respect to any Lender, the transfer of the Commitments or Loans of such Lender and the rights to the principal of, and interest on, such Loans or any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Lender Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor.  The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Lender Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment Agreement pursuant to Section 11.04(b).  Any

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provision of Incremental B Term Commitments pursuant to Section 1.14 shall be recorded by the Administrative Agent on the Lender Register only upon the acceptance of the Administrative Agent of a properly executed and delivered Incremental B Term Commitment Agreement.  The Borrower agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 11.16 (but excluding such losses, claims, liabilities or liabilities incurred by reason of the Administrative Agent’s gross negligence or willful misconduct).

11.17  Patriot Act Notice.  Each Lender that is subject to the Patriot Act, the Letter of Credit Issuer and the Administrative Agent (for itself and not on behalf of any Lender) hereby notify the Borrower that, pursuant to the requirements of the Patriot Act, each of them is required to obtain, verify and record information that identifies each Credit Party, which information includes the name and address of such Credit Party and other information that will allow such Lender, the Letter of Credit Issuer or the Administrative Agent, as applicable, to identify such Credit Party in accordance with the Patriot Act.

11.18  Post-Closing Actions.  Notwithstanding anything to the contrary contained in this Agreement or the other Credit Documents, the parties hereto acknowledge and agree that:

(a)(i)  The security interests in respect of, and Liens securing, the Existing Seller/Opco Notes (other than the Existing Seller/Opco Note owed by the Borrower) are not required to have been terminated and released, and the Borrower and the other Credit Parties are not required to have delivered to the Administrative Agent all such releases as may have been reasonably requested by the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent (including without limitation proper termination statements (Form UCC-3 or the appropriate equivalent)), pursuant to Section 4.01(l)(vii), and (ii) within [90] days after the Initial Borrowing Date, all security interests in respect of, and Liens securing, such Existing Seller/Opco Notes shall have been terminated and released, and the Administrative Agent shall have received all such releases as may have been reasonably requested by the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent (including without limitation proper termination statements (Form UCC-3 or the appropriate equivalent)).

(b)[Reserved].

All conditions precedent and representations contained in this Agreement and the other Credit Documents shall be deemed modified to the extent necessary to effect the foregoing (and to permit the taking of the actions described above within the time periods required above, rather than as elsewhere provided in the Credit Documents), provided that (x) to the extent any representation and warranty would not be true because the foregoing actions were not taken on the Initial Borrowing Date, the respective representation and warranty shall be required to be true and correct in all material respects at the time the respective action is taken (or was required to be taken) in accordance with the foregoing provisions of this Section 11.18 and (y) all representations and warranties relating to the Pledge Agreement shall be required to be true in all material respects immediately after the actions required to be taken by Section 11.18 have been taken (or were required to be taken).  The incurrence of Loans on the Initial Borrowing Date

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shall constitute a representation, warranty and covenant by the Borrower to each of the Lenders that the actions required pursuant to this Section 11.18 will be, or have been, taken within the relevant time periods referred to in this Section 11.18 and that, at such time, all representations and warranties contained in this Agreement and the other Credit Documents shall then be true and correct in all material respects without any modification pursuant to this Section 11.18, and the parties hereto acknowledge and agree that the failure to take any of the actions required above, within the relevant time periods required above, shall give rise to an immediate Event of Default pursuant to this Agreement.

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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.

Address:	FAIRPOINT COMMUNICATIONS, INC.
521 East Morehead Street, Suite 250
Charlotte, NC 28202	By
		Name:
		Title:
	DEUTSCHE BANK TRUST COMPANY AMERICAS, Individually and as Administrative Agent
	By
		Name:
		Title:
	BANC OF AMERICA SECURITIES LLC, as Syndication Agent
	By
		Name:
		Title:
	[                                    ], Individually and as Co- Documentation Agent
	By
		Name:
		Title:
	[                                    ], Individually and as Co- Documentation Agent
	By
		Name:
		Title:
	BANK OF AMERICA, N.A.
	By
		Name:
		Title:

[OTHER LENDERS]
By
	Name:
	Title:

ANNEX I

LENDER COMMITMENTS AND/OR OUTSTANDING LOANS

	Revolving Commitment		Initial B Term Commitments	Delayed-Draw Term Commitments
Deutsche Bank Trust Company Americas
	$	100,000,000

ANNEX II

LENDER ADDRESSES

DEUTSCHE BANK TRUST COMPANY AMERICAS	60 Wall Street New York, NY 10006 Attention: Anca Trifan Telephone: 646-324-2184 Facsimile: 646-324-7456
[OTHER LENDERS]

ANNEX III

[ALL SCHEDULES SUBJECT TO UPDATING]

SUBSIDIARIES

A.FairPoint Communications, Inc. (f/k/a MJD Communications, Inc.)

1.Class A Common Stock

Kelso Equity Partners V, L.P.	1,771,770
Kelso Investment Associates V, L.P.	16,427,726
JED Communications Associates, Inc.	2,135,140
Meyer Haberman	562,352
Susan Haberman	180,000
Haberman Family Investments LLC	184,000
Meyer Haberman 1999 Qualified Five Year Laura Annuity	245,749
Meyer Haberman 1999 Qualified Five Year Deborah Annuity	245,749
Eugene B. Johnson	427,180
Jack H. Thomas	1,473,390
Michael & Lindy Bergstein	102,800
Joel Bergstein	62,200
Peter Nixon	9,200
Michael Stein	60,000
Lisa Hood	7,500
Pamela D. Clark	9,000
Patrick L. Eudy	127,200
STC Cust. Rollover, f/b/o Patrick L. Morse	22,000
Timothy W. Henry	17,800
Ryan D. Cure	1,600
S. Whitfield Edwards	8,000
Daniel Phillip Fine	1,600
Leon Frazier	1,100
Ross Fritz	800
Robert D. Gniadek	800
Michael L. Harrington	800
Thomas Iachetta	800
Stephen R. Lagasse	800
Jack Morfield	2,000
Neil A. Torpey	17,600
City National Bank, f/b/o Neil A. Torpey	17,020
Jeffrey D. Tousa	2,000
Dana E. Twombly	20,000
Brown Brothers Harriman Trust Co., f/b/o Dana E. Twombly	2,000
Daniel J. Yamin, Jr.	800
Darien Yamin	800

John W. Bauchman Family Limited Partnership	81,394
James and Susan Bauchman Limited Partnership	81,394
Putnam Holdings, LLC	294,820
Thomas H. Lee Equity Fund IV, L.P.	17,927,740
Thomas H. Lee Foreign Fund IV, L.P.	613,540
Thomas H. Lee Foreign Fund IV-B, L.P.	1,741,200
Thomas H. Lee Charitable Investment Limited Partnership	116,560
THL-CCI Investors Limited Partnership	6,300
1997 Thomas H. Lee Nominee Trust	276,540
David V. Harkins	63,140
The 1995 Harkins Gift Trust	7,080
Scott A. Schoen	52,660
C. Hunter Boll	52,660
Scott M. Sperling	52,660
Anthony J. DiNovi	52,660
Thomas M. Hagerty	52,660
Warren C. Smith, Jr.	52,660
Seth W. Lawry	21,940
Kent R. Weldon	14,660
Terrence M. Mullen	11,680
Todd M. Abbrecht	11,680
Charles A. Brizius	8,780
Scott L. Jaeckel	3,320
Soren L. Oberg	3,320
Thomas R. Shepherd	6,140
Wendy L. Masler	1,520
Andrew D. Flaster	1,320
RSL Trust	3,820
Stephen Zachary Lee	3,820
Charles W. Robins as Custodian for Nathan Lee	1,900
Charles W. Robins as Custodian for Jesse Lee	1,900
Charles W. Robins	1,520
James Westra	1,520
Subtotal	45,773,784

2.Class C Common Stock

DLJ Capital Partners I, LLC	173,060
DLJ Fund Investment Partners II, L.P.	161,000
DLJ Private Equity Employees Fund, L.P.	14,740
DLJ Private Equity Partners Fund, L.P.	413,600
Greenwich Street Capital Partners II, L.P.	681,100
GSCP Offshore Fund, L.P.	14,200
Greenwich Fund, L.P.	23,080
Greenwich Street Employees Fund, L.P.	40,660

2

TRV Executives Fund, L.P.	3,360
Magnetite Asset Investors LLC	304,960
CoInvestment I, LLC	152,480
DB Capital Investors, L.P.	762,400
First Union Capital Partners, LLC	762,400
BancAmerica Capital Investors I, L.P.	762,400
Subtotal	4,269,440

3.Series A Preferred Stock as of December 31, 2002

Wachovia Bank, National Association	28,086.70598
Bank of America, N.A.	15,353.03999
Deutsche Bank Trust Corporation	15,353.03999
Citicorp USA, Inc.	22,469.36478
Credit Suisse First Boston, Cayman Islands	12,282.43197
CoBank, ACB	5,617.34120
CIT Lending Services Corporation	5,617.34120
Subtotal	104,779.26510

B.FairPoint Broadband, Inc. (f/k/a MJD Holdings Corp.) - 3,000 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

FairPoint Communications, Inc. - 100 shares
Morehead Place, 521 E. Morehead Street,
Suite 250, Charlotte, North Carolina 28202

C.ST Enterprises, Ltd. - 200,000 shares of Common Stock, par value $.01 per share, authorized; 90,000 shares issued and outstanding.

FairPoint Communications, Inc. - 90,000 shares
Morehead Place, 521 E. Morehead Street,
Suite 250, Charlotte, North Carolina 28202
Common Stock Purchase Warrants - 222.98 warrants issued and outstanding

Steve McGeeney - Warrants to purchase 111.49 shares
c/o Paul, Hastings, Janofsky & Walker LLP
Ninth Floor
1055 Washington Boulevard
Stamford, Connecticut  06901-2217

Sylvana Zoberg - Warrants to purchase 111.49 shares
418 East 59th Street
New York, New York  10022

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D.All the issued and outstanding stock of the following entities is held by ST Enterprises, Ltd., P.O. Box 199, Dodge City, Kansas 67801:

Northland Telephone Company of Maine, Inc. - - 200 shares of Common stock, par value $.01 per share, authorized; 100 shares issued and outstanding

STE/NE Acquisition Corp. (d/b/a Northland Telephone Company of Vermont) - 1,000 shares of Common Stock, par value $.01 per share, authorized; 1,000 shares issued and outstanding

ST Computer Resources, Inc. - - 10,000 shares of Common Stock, no par value, authorized; 500 shares issued and outstanding

ST Long Distance, Inc. - 1,000 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding

E.Sunflower Telephone Company, Inc. - 1,500 shares of Common Stock, par value $100 per share, authorized; 968 shares issued and outstanding.  1,500 shares of Preferred Stock, par value $100 per share, authorized; 234 preferred shares issued and outstanding (234 preferred shares and 282 common shares held in treasury).

ST Enterprises, Ltd. - 684 common shares
P.O. Box 199
Dodge City, Kansas 67081

Frank and Mathilda Schreck - 2 common shares
Marienthal, Kansas  67863

F.MJD Ventures, Inc. - 100 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

FairPoint Communications, Inc. - 100 common shares
Morehead Place, 521 E. Morehead Street,
Suite 250, Charlotte, North Carolina 28202

G.All of the issued and outstanding stock of the following entities is held by MJD Ventures, Inc., Morehead Place, 521 E. Morehead Street, Suite 250, Charlotte, North Carolina 28202:

Sidney Telephone Company - 100,000 shares of Common Stock, par value $.01 per share, authorized; 100 common shares issued and outstanding.

Ellensburg Telephone Company - - 50,000 shares of Common Stock, par value $10.00 per share, authorized; 100 shares issued and outstanding.

4

Taconic Telephone Corp. - 100 shares of Common Stock, par value $100 per share, authorized; 100 shares issued and outstanding.

Chouteau Telephone Company - 100 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

C-R Communications, Inc. - 750 shares of Common Stock, without par value, authorized; 750 shares issued and outstanding.

Telephone Service Co. - 8,000 shares of Common Stock, no par value, authorized; 100 shares issued and outstanding.

Chautauqua and Erie Telephone Corporation - - 100,000 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.  35,000 shares of Preferred Stock, par value $50 per share, authorized; 0 shares issued and outstanding.

The Columbus Grove Telephone Company - - 500 shares of Common Stock, $100 par value, authorized; 318 shares issued and outstanding.

Utilities, Inc. - 50,000 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding; 20,000 shares of Preferred Stock authorized; 0 shares outstanding.

The Orwell Telephone Company - - 10,000  shares of Common Stock, no par value, authorized; 4,795.7461 shares issued and outstanding.

GTC, Inc. – 1,500,000 shares of Common Stock, par value $0.01 per share, authorized; 1,000,000 shares issued and outstanding.

Peoples Mutual Telephone Company – 12,000 shares of Common Stock, par value $25.00 per share, authorized; 9,832 shares issued and outstanding.

Fremont Telcom Co. - 100,000 shares of Common Stock, no par value, authorized; 5,155.5 issued and outstanding.

Fretel Communications, LLC - 100% membership interest

Comerco, Inc. - 50,000 shares of Common Stock, $10 par value, authorized; 31,250 shares issued and outstanding.

Marianna and Scenery Hill Telephone Company - - 2400 shares of Common Stock, par value $25 per share, authorized; 306 shares

5

issued and outstanding and 400 shares of Preferred Stock, par value $100 per share; 0 shares issued and outstanding (194 shares of Common Stock are held in treasury).

H.YCOM Networks, Inc. - 450 shares of Common Stock, $100 par value, authorized; 294 shares issued and outstanding.

Comerco, Inc. - 294 shares

I.Peoples Mutual Services Company – 500 shares of Common Stock, no par value, authorized; 1 share issued and outstanding.

Peoples Mutual Telephone Company – 1 share

J.Peoples Mutual Long Distance Company – 10,000 shares of Common Stock, no par value authorized; 10,000 shares issued and outstanding.

Peoples Mutual Telephone Company – 10,000 shares

K.St. Joe Communications, Inc. – 1,000 shares of Common Stock, par value $1.00 per share, authorized; 1,000 shares issued and outstanding.

GTC Communications, Inc. – 1,000 shares

L.GTC, Inc. – 25,000 shares of Common Stock, par value $0.01 per share, authorized; 14,890 shares issued and outstanding.

St. Joe Communications, Inc. – 14,890 shares

M.GTC Finance Corporation (f/k/a TPGC Finance Corporation)  – 300 shares of Common Stock, par value $0.01 per share, authorized; 300 shares issued and outstanding.

GTC, Inc. – 300 shares

N.MJD Services Corp. - 100 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

FairPoint Communications, Inc. - 100 shares
Morehead Place, 521 E. Morehead Street,
Suite 250, Charlotte, North Carolina 28202

O.Marianna Tel, Inc. - 100 shares of Common Stock, par value $10 per share authorized; 100 shares issued and outstanding.

Marianna and Scenery Hill Telephone Company - 100 shares

P.All of the issued and outstanding stock of the following entities is held by MJD Services Corp., Morehead Place, 521 E. Morehead Street, Suite 250, Charlotte, North Carolina 28202:

6

Bluestem Telephone Company - 100 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

Big Sandy Telecom, Inc. - 100 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

Columbine Telecom Company (f/k/a Columbine Acquisition Corp.) - 100 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

Ravenswood Communications, Inc. - - 1,000 shares of Common Stock, no par value, authorized; 405 shares issued and outstanding.

Kadoka Telephone Co. - 5,000 shares of Common Stock, par value $100 per share, authorized; 1,212 shares issued and outstanding.

Union Telephone Company of Hartford - - 357 and 1/7 shares of Common Stock, par value $70.00 per share, authorized; 174 shares issued and outstanding.

WMW Cable TV Co. - 10,000 shares of Common Stock, $10.00 par value, authorized; 500 shares issued and outstanding.

Yates City Telephone Company - - 500 shares of Common Stock, $20.00 par value, authorized; 252 issued and outstanding.

Q.Armour Independent Telephone Co. - 6,000 shares of Common Stock, par value $100 per share, authorized; 2,330 shares issued and outstanding.  400 shares of Preferred Stock, par value $1,000 per share, authorized, 200 shares outstanding.

MJD Services Corp. -  2,330 common shares
521 E. Morehead Street, Suite 250
Charlotte, North Carolina 28202

Union Telephone Company of Hartford  - 200 preferred shares
116 N. Main Avenue
Hartford, South Dakota 57033

R.Odin Telephone Exchange, Inc. - 150 shares of Common Stock, no par value per share, authorized; 101 shares issued and outstanding (5.7143 shares held in treasury).

MJD Services Corp. - 95.2857 common shares
521 E. Morehead Street, Suite 250
Charlotte, North Carolina  28202

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S.Orwell Communications, Inc. - 500 shares of Common Stock, no par value, authorized; 500 issued and outstanding.

The Orwell Telephone Company – 500 shares

70 South Maple Street

P.O. Box 337

Orwell, Ohio 44076-0337

T.MJD Capital Corp. - 100 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

FairPoint Communications, Inc. - 100 shares
Morehead Place, 521 E. Morehead Street,
Suite 250, Charlotte, North Carolina 28202

U.All of the issued and outstanding stock of the following entities is held by C-R Communications, Inc., 106 N. 6th Street, Cornell, Illinois 61319:

C-R Telephone Company - 750 shares of Common Stock, par value $10.00 per share, authorized; 100 shares issued and outstanding.

C-R Long Distance, Inc. -  10,000 shares of Common Stock, no par value, authorized; 100 shares issued and outstanding.

V.C-R Cellular, Inc. - 10,000 shares of Common Stock, no par value, authorized; 2,500 shares issued and outstanding.

C-R Telephone Company - 2,500 shares

W.Elltel Long Distance Corp. – 100 shares of Common Stock, $0.01 par value,  authorized; 100 shares issued and outstanding.

Ellensburg Telephone Company – 100 shares

305 N. Ruby

Ellensburg, WA 98926

X.All of the issued and outstanding stock of the following entities is held by Taconic Telephone Corp., One Taconic Place, Chatham, NY 12037:

Taconic Cellular Corp. - 1 share of Common Stock, no par value, authorized; 1 share issued and outstanding.

Taconic Technology Corp. - 200 shares of Common Stock, no par value, authorized; 200 shares issued and outstanding.

Taconic TelCom Corp. - 1 share of Common Stock, no par value, authorized; 1 share issued and outstanding.

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Taconet Wireless Corp. - 1 share of Common Stock, no par value, authorized; 1 share issued and outstanding.

Taconet Corp. - 1 share of Common Stock, no par value, authorized; 1 share issued and outstanding.

Y.Chouteau Telecommunications & Electronics, Inc. - 200,000 shares of Common Stock, par value $.01 per share, authorized; 100,000 shares issued and outstanding.

Chouteau Telephone Company – 100,000 shares.

1025 S. McCracken

Chouteau, OK 74337

Z.All of the issued and outstanding stock of the following entities is held by Utilities, Inc., One Ossippee Trail East, Standish, ME 04084:

Standish Telephone Company - 26,000 shares of Common Stock, par value $25.00 per share, authorized, 23,560 shares issued and outstanding.  12,000 shares of Preferred Stock authorized, 0 shares issued and outstanding.

China Telephone Company - 20,000 shares of Common Stock, par value $10.00 per share, authorized; 20,000 shares issued and outstanding.

Maine Telephone Company - 100,000 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

UI Long Distance, Inc. - 100,000 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

UI Communications, Inc. - 100,000 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

UI Telcom, Inc. - 100,000 shares of Common Stock, par value $.01 per share, authorized; 100 shares issued and outstanding.

AA.All of the issued and outstanding stock of the following entities is held by Ravenswood Communications, Inc., 48 West First Street, El Paso, Illinois 61738:

The El Paso Telephone Company - - 800 shares of Common Stock, par value $25 per share, authorized; 405 shares issued and outstanding.

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El Paso Long Distance Company - - 1,000 shares of Common Stock, no par value per share, authorized; 1,000 shares issued and outstanding.

BB.Gemcell, Inc. - 6,000 shares of Common Stock, no par, authorized; 2,000 issued and outstanding.

The El Paso Telephone Company - 2,000 shares.

CC.Quality One Technologies, Inc. - 850 shares of Common Stock, no par value, authorized; 850 shares issued and outstanding.

The Columbus Grove Telephone Company – 850 shares.

DD.All of the issued and outstanding stock of the following entity is held by Armour Independent Telephone Co., 116 N. Main Avenue, Hartford, South Dakota 57033:

Bridgewater-Canistota Independent Telephone Co. - - 10,000 shares of Common Stock, par value $10.00 per share, authorized; 10,000 shares issued and outstanding.

EE.Union TelNET, Inc. – 100,000 shares of Common Stock, par value $1.00 per share, authorized; 25,000 shares issued and outstanding.

Union Telephone Company of Hartford – 25,000 shares.

116 N. Main Avenue

Hartford, South Dakota 57033

FF.All of the issued and outstanding stock of the following entities is held by Chautauqua and Erie Telephone Corporation, 30 Main Street, Westfield, New York 14787:

Chautauqua & Erie Communications, Inc. (f/k/a Chautauqua & Erie Technologies, Inc.) – 200 shares of Common Stock, no par value, authorized; 110 shares issued and outstanding.

Chautauqua & Erie Network, Inc. – 200 shares of Common Stock, no par value, authorized; 101 shares issued and outstanding.

C&E Communications, Ltd. – 200 shares of Common Stock, no par value, authorized; 101 shares issued and outstanding.

Western New York Cellular, Inc. – 200 shares of Common Stock, no par value, authorized; 101 shares issued and outstanding.

GG.Chautauqua Cable, Inc. – 200 shares of Common Stock, no par value, authorized; 100 shares issued and outstanding.

Western New York Cellular, Inc. – 100 shares.

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ANNEX IV

ERISA

ACTIVE PLANS

1.FairPoint Communications, Inc. Employee Savings Plan.

2.St. Joe Communications, Inc. Hourly Employees Salary Deferral Plan

3.Chautauqua and Erie Telephone Corporation Union 401(k) Plan

FROZEN PLANS (NOT PAID OUT)

1.Marianna and Scenery Hill Telephone Company Defined Benefit Plan.  Currently held at National Telephone Cooperative Association, frozen at December 31, 2002 (the company ceased making contributions to the plan at that time).

TERMINATED OR MERGED PLANS
NO ASSETS REMAIN

1.Retirement Plan of Utilities, Inc and Associated Employers for Standish Telephone Company and China Telephone Company

2.Retirement Plan of Utilities, Inc. and Associated Employers for Telephone Service Co.

3.STE/NE Acquisition Corp. Pension Plan for Vermont Employees of Transferred GTE Operations

4.Retirement Plan for Employees of the Ellensburg Telephone Company

5.Chautauqua and Erie Telephone Corporation Management Pension Plan

6.Chautauqua and Erie Telephone Corporation Union Pension Plan

7.Taconic Telephone Corp Union Employee Defined Benefit Plan

8.Retirement Plan of Utilities, Inc and Associated Employers for Utilities, Inc.

9.Fremont Telecom Co. 401(k) Retirement Savings Plan

10.YCOM Networks, Inc. Money Purchase Pension Plan and Trust

11.YCOM Networks, Inc. 401(k) Profit Sharing Plan and Trust

12.Taconic Telephone Corp. Management Employee Defined Benefit Plan

13.Taconic Telephone Corp. Management 401(k)

14.The Columbus Grove Telephone Company 401(k) Profit Sharing Plan

15.Amended and Restated Profit Sharing Plan and Trust of The Orwell Telephone Company

16.Peoples Mutual Telephone Company Profit Sharing Plan

17.St. Joe Communications, Inc. Salaried Employees Salary Deferral Plan & Trust

18.St. Joe Communications, Inc. Salaried Employees Pension Plan

19.St. Joe Communications, Inc. Hourly Employees Pension Plan

20.Union Telephone Company of Hartford Profit Sharing Plan

21.With respect to Marianna and Scenery Hill Telephone Company, the Savings Plan of the National Telephone Cooperative Association and its Member System (“401(k)”)

22.Ellensburg Telephone Company Thrift Plan

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ANNEX V

EXISTING LIENS

ANNEX VI

EXISTING INDEBTEDNESS AS OF THE EFFECTIVE DATE

ANNEX VII

EXISTING INVESTMENTS AS OF THE EFFECTIVE DATE

ANNEX VIII

AFFILIATE TRANSACTIONS

ANNEX IX

EXISTING LETTERS OF CREDIT

Beneficiary Maturities Amount

EX-10.12

Exhibit 10.12

FORM OF NOMINATING AGREEMENT

THIS NOMINATING AGREEMENT (this “Agreement”), dated as of February [__], 2005, is entered into by and among FairPoint Communications, Inc., a Delaware corporation (the “Company”), Kelso Investment Associates V, L.P., a Delaware limited partnership (“KIA V”), Kelso Equity Partners V, L.P., a Delaware limited partnership (“KEP V” and together with KIA V, “Kelso”) and Thomas H. Lee Equity Fund IV, L.P., a Delaware limited partnership (“THL”).  Kelso and THL, together with the affiliates of THL listed on Schedule A attached hereto, are referred to herein collectively as the “Stockholders.”

WHEREAS, as of the date hereof and immediately prior to the consummation of the Company’s initial public offering of its common stock, par value $.01 per share (the “Common Stock”), the Stockholders own in the aggregate [_____] shares (collectively, the “Shares”) of Common Stock; and

WHEREAS, Kelso, THL and the Company wish to make certain agreements with respect to the nomination of candidates for election to the board of directors of the Company, upon the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and considerations herein set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.             Board of Directors.  The size of the Board of Directors of the Company (the “Board”) shall be established in accordance with the Certificate of Incorporation and By-Laws of the Company.  The members of the Board shall be nominated and elected in accordance with the Certificate of Incorporation and By-Laws of the Company, and the provisions of this Agreement.  “Certificate of Incorporation” shall mean the Eighth Amended and Restated Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware and effective as of the date hereof, as may be amended from time to time.  “By-Laws” shall mean the Amended and Restated By-Laws of the Company, effective as of the date hereof, as may be amended from time to time.

2.             Staggered Board.  The Certificate of Incorporation and By-Laws of the Company shall provide that the Board shall be divided into three classes, as nearly equal in number as possible, as follows: (A) one class initially consisting of two directors (“Class I”), the initial term of which shall expire at the first annual meeting of the stockholders to be held after the date hereof; (B) a second class initially consisting of two directors (“Class II”), the initial term of which shall expire at the second annual meeting of the stockholders to be held after the date hereof and (C) a third class initially consisting of two directors (“Class III”), the initial term of which shall expire at the third annual meeting of the stockholders to be held after the date hereof, with each class to hold office until its successors are elected and qualified.  At each annual meeting of the stockholders of the Company, the successors of the members of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the third succeeding annual meeting of stockholders.  On the date hereof, the Board shall

consist of: (i) Eugene B. Johnson and Patricia Garrison-Corbin in Class I, (ii) Frank K. Bynum and David L. Hauser in Class II and (iii) Kent R. Weldon and Claude C. Lilly in Class III.

3.             Designees.  Upon expiration of the respective terms of the initial Board members set forth in Section 2 above, and subject to the provisions of Section 4 hereof, Kelso and THL shall have the right to designate individuals for nomination for election to the Board as set forth below and the Company shall, acting through its Nominating Committee, cause such individuals to be nominated for election to the Board as set forth below; provided that the Nominating Committee’s obligations under this Agreement are subject to the requirements of their fiduciary duties as directors and the Delaware General Corporation Law.

(a)           For so long as the Stockholders (together with any of their respective successors and permitted assigns) own, in the aggregate, at least forty percent (40%) of the Shares and Kelso (together with its successors and permitted assigns) owns at least one (1) Share, (i) Kelso shall be entitled to designate one person for nomination for election to the Board in Class II and (ii) THL shall be entitled to designate one person for nomination for election to the Board in Class III; provided, however, that if Kelso no longer owns any Shares, but THL (together with its successors and permitted assigns)owns at least forty percent (40%) of the Shares, THL shall be entitled to designate one person for nomination for election to the Board in Class II and one person for nomination for election to the Board in Class III; or

(b)           For so long as the Stockholders (together with any of their respective successors and permitted assigns) own, in the aggregate, less than forty percent (40%), but at least twenty percent (20%), of the Shares, THL shall be entitled to designate one person for nomination for election to the Board in Class III.

4.             Mechanics of Designation.

(a)           In order to nominate an individual for election to the Board, Kelso or THL, as applicable, must submit to the Company a prior written notice at least ninety (90) days prior to the date of the next scheduled annual meeting of the Company’s stockholders in accordance with the notice provisions set forth in Section 11 hereof, which notice shall include (i) the name of the designee, (ii) a current resume and curriculum vitae of the designee, (iii) a statement describing the designee’s qualifications and (iv) contact information for personal and professional references.  At least one hundred and twenty (120) days prior to the date of such annual meeting of the Company’s stockholders, the Company shall provide Kelso and THL with written notice of the expected date of such meeting in accordance with the notice provisions set forth in Section 11 hereof.

(b)           At each meeting of the Company’s stockholders at which the directors of the Company are to be elected, the Company agrees to recommend that the stockholders elect to the Board each designee of Kelso and/or THL nominated for election at such meeting in accordance with the provisions of Section 3 above.

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5.             Vacancies.

(a)           At any time at which a vacancy shall be created on the Board in any class as a result of the death, disability, retirement, resignation, removal or otherwise of a designee of Kelso and Kelso maintains the right to designate a person for nomination for election to the Board, as specified in Section 3 above, Kelso shall have the right to designate for appointment by the remaining directors of the Company under the Certificate of Incorporation an individual to fill such vacancy and to serve as a director on the Board in such class.

(b)           At any time at which a vacancy shall be created on the Board in any class as a result of the death, disability, retirement, resignation, removal or otherwise of a designee of THL and THL maintains the right to designate a person or persons for nomination for election to the Board, as specified in Section 3 above, THL shall have the right to designate for appointment by the remaining directors of the Company under the Certificate of Incorporation an individual to fill such vacancy and to serve as a director on the Board in such class.   In addition, in the event a vacancy of a Kelso designee occurs at a time when Kelso no longer owns any Shares, but THL owns at least forty percent (40%) of the Shares, THL shall be entitled to designate an individual to fill such vacancy.

(c)           In connection with the foregoing, THL or Kelso, as applicable, must submit to the Company written notice of such designee or designees in accordance with the notice provisions set forth in Section 11 hereof, which notice shall include (i) the name of the designee, (ii) a current resume and curriculum vitae of the designee, (iii) a statement describing the designee’s qualifications and (iv) contact information for personal and professional references.  The Company agrees to take such actions as will result in the appointment to the Board as soon as practicable of any individual so designated by THL or Kelso, as applicable.

6.             Modification, Amendment, Waiver.  No modification, amendment or waiver of any provision of this Agreement shall be effective unless approved in writing by the Company, THL and Kelso; provided, however, that Kelso’s consent will not be required if Kelso no longer owns any Shares.  The failure of any party at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the rights of the party thereafter to enforce the provisions of this Agreement in accordance with its terms.

7.             Invalid or Unenforceable Provisions.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any term or provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.  The parties further agree that any court of competent jurisdiction is expressly authorized to modify any such unenforceable provision of this Agreement in lieu of severing such unenforceable provision from this Agreement in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Agreement, or by making such other modifications as it deems warranted to carry out the intent and agreement of the parties as

3

embodied herein to the maximum extent permitted by law.  The parties expressly agree that this Agreement as so modified by a court of competent jurisdiction shall be binding upon and enforceable against each of them.

8.             Entire Agreement. Except as otherwise expressly set forth herein, this document embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

9.             Binding Effect; Assignment.  All of the terms of this Agreement shall inure to the benefit of and shall be binding upon the Company, THL and Kelso and their respective successors and permitted assigns; provided, however, that this Agreement may not be assigned except in accordance with the following sentence.  No party hereto shall assign its rights, or delegate its duties, under this Agreement without the prior written consent of all of the other parties hereto; provided, however, that (a) THL and Kelso may assign their respective rights hereunder to their respective affiliates without consent and (b) Kelso’s consent will not be required if Kelso no longer owns any Shares.

10.           Remedies.  The parties hereto will be entitled to enforce their rights under this Agreement specifically (without posting a bond or other security), to recover damages by reason of any material breach of any provision of this Agreement and to exercise all other rights existing in their favor.  The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief in order to enforce or prevent any violation of the provisions of this Agreement.  In the event of any dispute involving the terms of this Agreement, the prevailing party shall be entitled to collect reasonable fees and expenses incurred by the prevailing party in connection with such dispute from the other parties to such dispute.

11.           Notices.  Any notice or other communication in connection with this Agreement or the Shares shall be deemed to be delivered and received if in writing (or in the form of a telex or telecopy) addressed as provided below (a) when actually delivered, in person, (b) if telexed or telecopied to said address, when electronically confirmed, (c) when delivered if delivered by overnight courier or (d) in the case of delivery by mail, five (5) business days shall have elapsed after the same shall have been deposited in the United States mails, postage prepaid and registered or certified:

If to the Company, to:

FairPoint Communications, Inc.

521 East Morehead Street

Suite 250

Charlotte, North Carolina 28202

Attention:  Shirley J. Linn, Esq.

Facsimile:  (704) 344-1594

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with a copy to:

Paul, Hastings, Janofsky & Walker LLP
75 East 55th Street
New York, New York  10022
Attention: Jeffrey J. Pellegrino, Esq.

If to Kelso, to:

Kelso & Company

320 Park Avenue, 24th Floor

New York, New York 10022

Attention:  James J. Connors, II, Esq.

Facsimile:  (212) 223-2379

If to THL, to:

Thomas H. Lee Partners, L.P.

100 Federal Street

35th Floor

Boston, Massachusetts 02110

Attention:  Anthony J. DiNovi

                  Kent R. Weldon

Facsimile:  (617) 227-3514

12.           Term.  The term of this Agreement shall terminate upon the earlier to occur of: (i) the mutual consent in writing of all of the parties hereto, provided that Kelso’s consent will not be required if Kelso no longer owns any Shares or (ii) the date on which the Stockholders (together with any of their respective successors and permitted assigns) own, in the aggregate, less than twenty percent (20%) of the Shares.

13.           Governing Law; Submission to Jurisdiction.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by the internal laws of the State of Delaware, without giving effect to principles of conflicts of law. The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of Delaware or the United States of America located in the State of Delaware for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated hereby (and the parties agree not to commence any action, suit or proceeding relating hereto except in such courts), and further agree that service of any process, summons, notice or documents by United States registered mail to a party in accordance with Section 11 hereof shall be effective service of process for any action, suit or proceeding brought against such party in any such court and, absent any statute, rule or order to the contrary, that each party shall have thirty (30) days from actual receipt of any complaint to answer or otherwise plead with respect thereto.  The parties hereby irrevocably and unconditionally

5

waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the courts of the State of Delaware or the United States of America located in the State of Delaware, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

14.           Descriptive Headings.  The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

15.           Counterparts.  This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement.

(Signature Pages Follow)

6

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

COMPANY:
FAIRPOINT COMMUNICATIONS, INC.
By:
	Name:
	Title:
KELSO:
KELSO INVESTMENT ASSOCIATES V, L.P.
By: Kelso Partners V, L.P.,
its General Partner
By:
	Name:
	Title:
KELSO EQUITY PARTNERS V, L.P.
By:
	Name:
	Title:
THL:
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By:
	Name:
	Title:

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Schedule A

THL Related Parties

Thomas H. Lee Foreign Fund IV, L.P.

Thomas H. Lee Foreign Fund IV-B, L.P.

1987 Thomas H. Lee Nominee Trust

David V. Harkins

The Harkins 1995 Gift Trust

Scott A. Schoen

C. Hunter Boll

Scott M. Sperling

Anthony J. DiNovi

Thomas M. Hagerty

Warren C. Smith, Jr.

Seth W. Lawry

Kent R. Weldon

Terrence M. Mullen

Todd M. Abbrecht

Charles A. Brizius

Scott Jaeckel

Soren Oberg

Thomas R. Shepherd

Joseph J. Incandela

Wendy L. Malser

Andrew D. Flaster

Robert Schiff Lee 1988 Irrevocable Trust

Stephen Zachary Lee

Charles W. Robins as Custodian for Jesse Lee

Charles W. Robins as Custodian for Nathan Lee

Charles W. Robins

James Westra

Thomas H. Lee Charitable Investment L.P.

THL-CCI Investors Limited Partnership

Putnam Investments, Inc.

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EX-10.15

Exhibit 10.15

FORM OF REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made as of February     , 2005, by and among FairPoint Communications, Inc., a Delaware corporation (the “Company”), and those persons listed on Schedule A attached hereto, as the same may be amended from time to time (each an “Initial Holder” and collectively, the “Initial Holders”).

WHEREAS, the Holders own an aggregate of        shares of common stock, par value $.01 per share, of the Company (the “Common Stock”); and

WHEREAS, the Company has agreed to grant to the Holders the registration rights set forth in this Agreement.

NOW, THEREFORE, BE IT RESOLVED, that the parties hereto, in consideration of the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby agree as follows:

Section 1.Definitions.  As used in this Agreement, the following capitalized defined terms shall have the following meanings:

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, controls, or is controlled by, or is under common control with, such Person.  For the purposes of this definition, “control,” when used with respect to any Person, means possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “affiliated,” “controlling” and “controlled” have meanings correlative to the foregoing.

“Business Day” means a day, other than a Saturday, Sunday or other day on which banking institutions in New York, New York are permitted or required by any applicable law to close.

“Commission” means the Securities and Exchange Commission.

“Common Stock” has the meaning set forth in the Recitals.

“Company” has the meaning set forth in the Preamble and also includes the Company’s successors.

“Delay Notice” has the meaning set forth in Section 2(c) hereof.

“Delay Period” has the meaning set forth in Section 2(c) hereof.

“Effectiveness Period” has the meaning set forth in Section 2(b) hereof.

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

“Holder” or “Holders” means the Initial Holder(s) or each Person to whom a Holder Transfers Registrable Securities in accordance with Section 7(c) hereof.

“Initial Holder” or “Initial Holders” has the meaning set forth in the Preamble.

“Person” means an individual, partnership, corporation, limited liability company, joint venture, trust, association, estate, or unincorporated organization, or other entity or organization, or a government or agency or political subdivision thereof.

“Prospectus” means the prospectus included in the Shelf Registration Statement, including any preliminary prospectus, and any such prospectus amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by the Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and, in each case, including all documents incorporated by reference therein.

“Registrable Securities” means (i) the shares of Common Stock held by the Holders; (ii) any shares of Common Stock or other securities issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Company generally for, or in replacement by the Company generally of, such shares of Common Stock; and (iii) any securities issued in exchange for such shares of Common Stock in any merger, combination or reorganization of the Company; provided, however, that Registrable Securities shall not include any securities which have theretofore been registered and sold by a Holder pursuant to the Securities Act or which have been sold by a Holder to the public pursuant to Rule 144 or any similar rules promulgated by the Commission pursuant to the Securities Act, and, provided further, that the Company shall have no obligation under Section 2 hereof to register any Registrable Securities of a Holder if the Company shall deliver to the Holders requesting such registration an opinion of counsel reasonably satisfactory to such Holders and their counsel to the effect that the proposed sale or disposition of all of the Registrable Securities does not require registration under the Securities Act for a sale or disposition in a single public sale in accordance with the volume limitations contained in Rule 144(e)(1)(i) under the Securities Act, and if the Company shall offer to remove any and all legends restricting transfer from the certificates evidencing such Registrable Securities.  For purposes of this Agreement, a Person will be deemed to be a Holder of Registrable Securities whenever such Person has the then-existing right to acquire such Registrable Securities (by conversion, purchase or otherwise), whether or not such acquisition has actually been effected.

“Rule 144” and “Rule 145” mean Rule 144 and Rule 145 promulgated under the Securities Act.

“Securities Act” means the Securities Act of 1933, as amended from time to time.

“Shelf Registration” means a registration effected pursuant to Section 2(a) hereof.

“Shelf Registration Statement” means the “shelf” registration statement of the Company pursuant to the provisions of Section 2 hereof which covers all of the Registrable Securities, on an appropriate form under Rule 415 under the Securities Act, or any successor or similar rule that may be adopted by the Commission, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein.  For the avoidance of doubt, the “Shelf Registration Statement” will not cover any securities other than Registrable Securities.

“Transfer” means and includes the act of selling, giving, transferring, creating a trust (voting or otherwise), assigning or otherwise disposing of (other than pledging, hypothecating or otherwise transferring as security or any transfer upon any merger or consolidation) (and correlative words shall have correlative meanings); provided however, that any transfer or other disposition upon foreclosure or other exercise of remedies of a secured creditor after an event of default under or with respect to a pledge, hypothecation or other transfer as security shall constitute a Transfer.

Section 2.Registration under the Securities Act.

(a)Registration Requirement.  The Company shall use commercially reasonableefforts to prepare and file with the Commission on the 181st day following the date hereof a Shelf Registration Statement meeting the requirements of the Securities Act and cause such Shelf Registration Statement to be declared effective by the Commission as reasonably practicable thereafter.  For the avoidance of doubt, each Holder acknowledges that the Company is subject to the provisions of Section 3 of the Underwriting Agreement, dated as of February     , 2005, which currently restrict the Company’s ability to file the Shelf Registration Statement prior to the day after the 180th day following the date hereof.  No Holder of Registrable Securities shall be entitled to include any of its Registrable Securities in any Shelf Registration pursuant to this Agreement unless and until such Holder agrees in writing to be bound by all of the provisions of this Agreement applicable to such Holder and furnishes to the Company in writing, within 10 Business Days after receipt of a request therefor, such information as the Company may, after conferring with counsel with regard to information relating to Holders that would be required by the Commission to be included in such Shelf Registration Statement or the Prospectus, reasonably request for inclusion in any Shelf

Registration Statement or the Prospectus.  Each Holder as to which any Shelf Registration is being effected agrees to furnish to the Company all information with respect to such Holder necessary to make the information previously furnished to the Company by such Holder not materially misleading.

(b)Effectiveness Requirement.  The Company agrees to use commercially reasonable efforts to keep the Shelf Registration Statement continuously effective and the Prospectus usable for resales for a period commencing on the date that such Shelf Registration Statement is initially declared effective by the Commission and terminating on the date when all of the Registrable Securities covered by such Shelf Registration Statement have been sold pursuant to such Shelf Registration Statement or cease to be Registrable Securities (the “Effectiveness Period”); provided, however, that (i) the Company shall be permitted to defer the filing and/or effectiveness of such Shelf Registration Statement, to suspend the sale of securities pursuant to the Shelf Registration Statement and to withdraw the Shelf Registration Statement during any Delay Period (as defined below) and (ii) nothing contained herein shall require the Company to prepare any financial statements for inclusion or incorporation by reference in the Shelf Registration Statement prior to the time period such financial statements would otherwise be required to be filed with the Commission pursuant to the Exchange Act.

(c)Delay Period.  The term “Delay Period” shall mean, with respect to any obligation to keep the Shelf Registration Statement or the Prospectus usable for resales pursuant to this Section 2, the shortest period of time determined in good faith by the Company to be necessary for such purpose when there exist circumstances relating to a material pending development, including but not limited to a pending or contemplated material acquisition or merger or other material transaction or similar event, which would require disclosure by the Company in such Shelf Registration Statement or the Prospectus of material information which the Company determines in good faith that it has a bona fide business purpose for keeping confidential and non-public and the non-disclosure of which in the Shelf Registration Statement or the Prospectus might cause such Shelf Registration Statement or Prospectus to fail to comply with applicable disclosure requirements.  A Delay Period shall commence on and include the date that the Company gives written notice (a “Delay Notice”) to the Holders that the Prospectus is no longer usable as a result of a material pending development pursuant to Section 2(b) hereof and shall end on the date when the Holders are advised in writing by the Company that the current Delay Period has terminated (it being understood that the Company shall give such notice to all Holders promptly upon making the determination that the Delay Period has ended); provided, however, that the Company shall not be entitled during any consecutive twelve (12)-month period to (i) more than three (3) Delay Periods or (ii) to Delay Periods having durations that exceed ninety (90) days in the aggregate.

(d)Notice.  The Company shall, in the event the Shelf Registration Statement is declared effective, provide to each Holder a reasonable number of copies of the Prospectus which is a part of such Shelf Registration Statement, notify each such

Holder when such Shelf Registration Statement has become effective and take such other actions as are required to permit unrestricted resales of the Registrable Securities.  The Company further agrees to supplement or amend the Shelf Registration Statement if and as required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registrations, and the Company agrees to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the Commission.

(e)Effective Shelf Registration Statement.  The Shelf Registration Statement will not be deemed to have become effective unless it has been declared effective by the Commission; provided, however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to such Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Shelf Registration Statement will be deemed not to have been effective during the period of such interference until the offering of Registrable Securities pursuant to such Shelf Registration Statement may legally resume.

(f)Selection of Underwriter.  In any underwritten offering to be effected pursuant to a Shelf Registration, Holders of a majority of the shares of Common Stock to be included in such offering will have the right to select the managing underwriter (which shall be of nationally recognized standing) to administer the offering, but only with the approval of the Company, such approval not to be unreasonably withheld.

Section 3.Registration Procedures.

(a)Obligations of the Company.  In connection with its obligations under Section 2 hereof with respect to the Shelf Registration Statement, the Company shall use commercially reasonable efforts, during the Effectiveness Period, to:

(i)prepare and file with the Commission the Shelf Registration Statement as prescribed by Section 2(a) hereof on the appropriate form under the Securities Act, which form shall (i) be selected by the Company, (ii) be available for the sale of the Registrable Securities by the selling Holders thereof, and (iii) comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith; the Company shall use commercially reasonable efforts to cause such Shelf Registration Statement to become effective and remain effective and the Prospectus usable for resales in accordance with Section 2 hereof, subject to the proviso contained in Section 2(b) hereof; provided, however, that, before filing the Shelf Registration Statement or the Prospectus or any amendments or supplements thereto, the Company shall furnish to and

afford the Holders of the Registrable Securities covered by such Shelf Registration Statement, their counsel and the managing underwriters of an underwritten offering of Registrable Securities, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed; and the Company shall not file the Shelf Registration Statement or the Prospectus or any amendments or supplements thereto in respect of which the Holders must be afforded an opportunity to review prior to the filing of such document, other than filings required under the Exchange Act, if the Holders, their counsel or the managing underwriters of an underwritten offering of Registrable Securities, if any, shall reasonably object in a timely manner;

(ii)prepare and file with the Commission such amendments and post-effective amendments to such Shelf Registration Statement as may be necessary to keep such Shelf Registration Statement effective for the Effectiveness Period, subject to the proviso contained in Section 2(b) hereof or as reasonably requested by the Holders of a majority of Registrable Securities, and cause the Prospectus to be supplemented, if so determined by the Company or requested by the Commission, by any required prospectus supplement and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force), under the Securities Act, respond within a reasonable time to any comments received from the Commission with respect to such Shelf Registration Statement, or any amendment, post-effective amendment or supplement relating thereto, and comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder applicable to it with respect to the disposition of all Registrable Securities covered by such Shelf Registration Statement during the Effectiveness Period in accordance with the intended method or methods of distribution by the selling Holders thereof described in this Agreement;

(iii)register or qualify the Registrable Securities under all applicable state securities or “blue sky” laws of such jurisdictions by the time the Shelf Registration Statement is declared effective by the Commission as any Holder of Registrable Securities covered by such Shelf Registration Statement and each underwriter of an underwritten offering of Registrable Securities, if any, shall reasonably request in writing in advance of such date of effectiveness, and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder and any such underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company shall not be required to (A) qualify as a foreign corporation or as a dealer in securities in any

jurisdiction where it would not otherwise be required to qualify but for this Section 3(a)(iii) hereof, (B) file any general consent to service of process in any jurisdiction where it would not otherwise be subject to such service of process or (C) subject itself to taxation in any such jurisdiction if it is not then so subject;

(iv)promptly notify each Holder of Registrable Securities, its counsel and the managing underwriters of an underwritten offering of Registrable Securities, if any, and promptly confirm such notice in writing (A) when the Shelf Registration Statement covering such Registrable Securities has become effective and when any post-effective amendments thereto become effective, (B) of any request by the Commission or any state securities authority for amendments and supplements to such Shelf Registration Statement or the Prospectus or for additional information after such Shelf Registration Statement has become effective, (C) of the issuance or threatened issuance by the Commission or any state securities authority of any stop order suspending the effectiveness of such Shelf Registration Statement or the qualification of the Registrable Securities in any jurisdiction described in Section 3(a)(iii) hereof or the initiation of any proceedings for that purpose, (D) if, between the effective date of such Shelf Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any purchase agreement, securities sales agreement or other similar agreement cease to be true and correct in all material respects, (E) of the happening of any event or the failure of any event to occur or the discovery of any facts, during the Effectiveness Period, which makes any statement made in such Shelf Registration Statement or the Prospectus untrue in any material respect or which causes such Shelf Registration Statement or the Prospectus to omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (F) of the reasonable determination of the Company that a post-effective amendment to such Shelf Registration Statement would be appropriate;

(v)in the event of the issuance of any stop order suspending the effectiveness of the Shelf Registration Statement, use commercially reasonable efforts to obtain the prompt withdrawal of such stop order;

(vi)furnish to each Holder of Registrable Securities included within the coverage of the Shelf Registration Statement, without charge, a reasonable number of conformed copies of such Shelf Registration Statement and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested) as

such Holder or managing underwriters of an underwritten offering of Registrable Securities, if any, may reasonably request;

(vii)deliver to each selling Holder of Registrable Securities and each managing underwriter participating in any such disposition of Registrable Securities, if any, without charge, as many copies of the Prospectus (including any preliminary prospectus) as such Holder or managing underwriters, if any, may reasonably request (it being understood that the Company consents to the use of the Prospectus by each of the selling Holders of Registrable Securities and the underwriter or underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by the Prospectus), such other documents incorporated by reference therein and any exhibits thereto as such selling Holder or managing underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities by such Holder or underwriter;

(viii)cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and registered in such names as the selling Holders or any underwriters may reasonably request at least two Business Days prior to the closing of any sale of Registrable Securities pursuant to the Shelf Registration Statement;

(ix)as soon as practicable after the resolution of any matter or event specified in Sections 3(a)(iv)(B), 3(a)(iv)(C), 3(a)(iv)(E) (subject to the proviso contained in Section 2(b) hereof) and 3(a)(iv)(F) hereof), prepare a supplement or post-effective amendment to the Shelf Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(x)within a reasonable time following the filing of any document which is to be incorporated by reference into the Shelf Registration Statement or the Prospectus after the initial filing of such Shelf Registration Statement, provide a copy to the Holders and managing underwriters of an underwritten offering of Registrable Securities, if any;

(xi)if requested by the Holders of Registrable Securities in connection with a firm commitment underwritten offering of at least

$1.0 million of Registrable Securities: (i) enter into such agreements (including underwriting agreements) as are customary in underwritten offerings, (ii) obtain an opinion of counsel to the Company and updates thereof (which may be in the form of a reliance letter) in form and substance reasonably satisfactory to the managing underwriters covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters (it being agreed that the matters to be covered by such opinion may be subject to customary qualifications and exceptions); (iii) obtain a “cold comfort” letter or letters from the Company’s independent public accountants in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with underwritten offerings and such other matters as reasonably requested by the underwriters in accordance with Statement on Auditing Standards No. 72; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures customary for such agreements;

(xii)provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by the Shelf Registration Statement from and after a date not later than the effective date of such Shelf Registration Statement;

(xiii)list or quote all Registrable Securities covered by the Shelf Registration Statement on any securities exchange or quotation system on which the Common Stock is then listed or quoted if such Registrable Securities are not already so listed or quoted and if such listing is then permitted under the rules of such exchange or quotation system;

(xiv)cooperate with each seller of Registrable Securities covered by the Shelf Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with any securities exchange or quotation system on which the Common Stock is listed; and

(xv)take such other actions as are reasonably necessary to effect the registration of the Registrable Securities covered by the Shelf Registration Statement contemplated hereby.

(b)Holders’ Obligations.  In connection with any registration pursuant to Section 2 hereof, each Holder agrees that:

(i)upon receipt of any notice from the Company of the occurrence of any event specified in Sections 3(a)(iv)(B), 3(a)(iv)(C),

3(a)(iv)(E), 3(a)(iv)(F) hereof or any Delay Notice, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the Shelf Registration Statement at issue until such Holder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(a)(ix) hereof or until it is advised in writing by the Company that the use of the Prospectus may be resumed, and, if so directed by the Company, such Holder will deliver to the Company (at the Company’s expense) all copies in such Holder’s possession, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice; and

(ii)the Company may require each seller of Registrable Securities as to which any registration is being effected to furnish to it such information regarding such seller as may be required by the staff of the Commission to be included in the Shelf Registration Statement, the Company may exclude from such registration the Registrable Securities of any seller who fails to furnish such information within 10 Business Days after receiving such request, and the Company shall have no obligation to register under the Securities Act the Registrable Securities of a seller who so fails to furnish such information.

(c)Lock-Up Agreement.  If requested in writing by the Company, each Holder agrees to execute a lock-up agreement pursuant to which such Holder shall not effect any public or private sale or distribution (including sales pursuant to Rule 144 of the Securities Act) of Registrable Securities, or any securities convertible into or exchangeable or exercisable for such securities, held by such Holder during the period starting with the date seven (7) days prior to the Company’s good faith estimate, as certified in writing by an executive officer of the Company to the Holders, of the date of the proposed pricing of an underwritten public offering of equity securities of the Company for the account of the Company and ending on the date ninety (90) days following the consummation of such underwritten public offering.  If requested by the managing underwriter, if any, each Holder agrees to execute a lock-up agreement consistent with such managing underwriter’s customary form of lock-up agreement.

Section 4.Expenses of Registration.  The Company shall bear and pay all expenses incurred by it in connection with any registration, filing, or qualification of Registrable Securities with respect to the Shelf Registration Statement for each selling Holder, including all registration, stock exchange listing, accounting and filing fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the reasonable fees and disbursements of counsel for the Company, and of the Company’s independent public accountants, including the expenses of “comfort letters” required by or incident to such performance and compliance and reasonable fees and disbursements of one firm of counsel and one firm of accountants for the Holders.  Holders shall be responsible for any

underwriting discounts and commissions and taxes of any kind (including without limitation, transfer taxes) relating to any disposition, sale or transfer of Registrable Securities.

Section 5.Indemnification; Contribution.

(a)Indemnification by the Company.  If any Registrable Securities are included in the Shelf Registration Statement under this Agreement, to the extent permitted by applicable law, the Company shall indemnify and hold harmless each selling Holder, each Person, if any, who controls such selling Holder within the meaning of the Securities Act, and each officer, director, trustee, partner, and employee of such selling Holder and such controlling Person, against any and all losses, claims, damages, liabilities, joint or several, and expenses (including reasonable attorneys’ fees and reasonable expenses of investigation), to which any of the foregoing Persons may become subject under the Securities Act, the Exchange Act or other federal or state laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in such Shelf Registration Statement, including any amendments or supplements thereto, any document incorporated by reference therein and the Prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading; provided, however, that the indemnification required by this Section 5(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or expense to the extent that it arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such Shelf Registration Statement in reliance upon and in conformity with written information furnished to the Company by a Holder, underwriter or the indemnified party expressly for use in connection with such registration; provided, further, that the indemnity agreement contained in this Section 5(a) shall not apply to any loss, liability, claim or damage based on or arising out of (i) an offer or sale of Registrable Securities during any Delay Period pursuant to Section 2(c) hereof (provided that the Company has given the Holder a Delay Notice pursuant to Section 2(c) hereof) or (ii) an untrue statement or alleged untrue statement of a material fact, or an omission or alleged omission to state a material fact, contained in or omitted from such Shelf Registration Statement, any amendments or supplements thereto, any document incorporated by reference therein or the Prospectus in conformity with information furnished to the Company in writing by such Person specifically for use therein.

(b)Indemnification by Holder.  If any of a selling Holder’s Registrable Securities are included in the Shelf Registration Statement under this

Agreement, to the extent permitted by applicable law, such selling Holder shall indemnify and hold harmless the Company, each of its directors, each of its officers who shall have signed such Shelf Registration Statement, each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, any other selling Holder, any controlling Person of any such other selling Holder and each officer, director, partner, and employee of such other selling Holder and such controlling Person, against any and all losses, claims, damages, liabilities and expenses (joint and several), including reasonable attorneys’ fees and disbursements and expenses of investigation, incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation, or to which any of the foregoing Persons may otherwise become subject under the Securities Act, the Exchange Act or other federal or state laws, insofar as such losses, claims, damages, liabilities and expenses arise out or are based upon any untrue statement or alleged untrue statement of a material fact contained in such Shelf Registration Statement, including the Prospectus, or any amendments or supplements thereto or any document incorporated by reference therein, or any omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein (in light of the circumstances under which they were made in the case of the Prospectus) not misleading, but only to the extent that such untrue statement or omission had been contained in any information furnished in writing by such Holder to the Company expressly for use in connection with such registration; provided, however, that (i) the indemnification required by this Section 5(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if settlement is effected without the consent of the relevant selling Holder of Registrable Securities, which consent shall not be unreasonably withheld, and (ii) in no event shall the amount of any indemnity under this Section 5(b) exceed the gross proceeds from the applicable offering received by such selling Holder.  The Company and the Holders of the Registrable Securities in their capacities as stockholders and/or controlling persons (but not in their capacities as directors or officers of the Company) hereby acknowledge and agree that the only information furnished or to be furnished to the Company for use in any registration statement or prospectus relating to the Registrable Securities or in any amendment, supplement or preliminary materials associated therewith are statements specifically relating to (A) the beneficial ownership of shares of Common Stock by such Holder and its Affiliates and (B) the name and address of such Holder.  If any additional information about such Holder or the plan of distribution (other than for an underwritten offering) is required by law to be disclosed in any such document, then such Holder shall not unreasonably withhold its agreement referred to in the immediately preceding sentence of this Section 5(b).  In no event shall a Holder be jointly liable with any other Holder as a result of its indemnification obligations.

(c)Conduct of Indemnification Proceedings.  Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action, suit, proceeding, investigation or threat thereof made in writing for which such indemnified party may make a claim under this Section 5, such indemnified party shall

deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties.  The failure to deliver written notice to the indemnifying party within a reasonable time following the commencement of any such action, if it prejudices or results in forfeiture of substantial rights or defenses of the indemnifying party, shall relieve such indemnifying party of any liability to the indemnified party under this Section 5, to the extent of any damage directly suffered by the indemnifying party as a result thereof.  Any fees and expenses incurred by the indemnified party (including any fees and expenses incurred in connection with investigating or preparing to defend such action or proceeding) shall be paid to the indemnified party, as incurred, within thirty (30) days of written notice thereof to the indemnifying party.  Any such indemnified party shall have the right to employ separate counsel in any such action, claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to pay such fees and expenses, (ii) the indemnifying party shall have failed to promptly assume the defense of such action, claim or proceeding or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action, claim or proceeding on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one additional firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties.  No indemnifying party shall be liable to an indemnified party for any settlement of any action, proceeding or claim without the written consent of the indemnifying party, which consent shall not be unreasonably withheld.

(d)Contribution.  If the indemnification required by this Section 5 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to in this Section 5:

(i)The indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the

actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations.  The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any indemnifiable action has been committed by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such indemnifiable action.  The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 5(a) and Section 5(b), any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.

(ii)The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in Section 5(d)(i).  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

(iii)No party shall be liable for contribution under this Section 5(d) except to the extent and under such circumstances as such party would have been liable for indemnification under this Section 5 if such indemnification were enforceable under applicable law.

(e)Full Indemnification.  If indemnification is available under this Section 5, the indemnifying parties shall indemnify each indemnified party to the full extent provided in this Section 5 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration referred to in Section 5(d)(i) hereof.

(f)Survival.  The obligations of the Company and the selling Holders of Registrable Securities under this Section 5 shall survive the completion of any offering of Registrable Securities pursuant to the Shelf Registration Statement under this agreement, and otherwise.

Section 6.Covenants of the Company.  The Company hereby agrees and covenants as follows:

(a)The Company shall use commercially reasonable efforts to file as and when applicable, on a timely basis, all reports required to be filed by it under the Exchange Act.  If the Company is not required to file reports pursuant to the Exchange

Act, upon the request of any Holder of Registrable Securities, the Company shall use commercially reasonable efforts to make publicly available the information specified in subparagraph (c)(2) of Rule 144.  The Company shall use commercially reasonable efforts to take such further action as may be reasonably required from time to time and as may be within the reasonable control of the Company to enable the Holders to Transfer Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 or any other exemption from registration.  Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements and, if not, the specifics thereof.

(b)In connection with any sale, transfer or other disposition by a Holder of any Registrable Securities pursuant to Rule 144, the Company shall use commercially reasonable efforts to cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any Securities Act legend, and enable certificates for such Registrable Securities to be for such number of shares and registered in such names as the Holder may reasonably request at least two Business Days prior to any sale of Registrable Securities.

Section 7.Miscellaneous .

(a)Amendments and Waivers.

(i)The provisions of this Agreement, including the provisions of this Section 7(a), may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of the Company and the Holders of a majority of the outstanding Registrable Securities.  Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder, each future Holder of Registrable Securities, and the Company.

(ii)Notice of any amendment, modification or supplement to this Agreement adopted in accordance with this Section 7 shall be provided by the Company to the Holders prior to the effective date of such amendment, modification or supplement.

(b)Notices.  All notices or other communications under this Agreement shall be sufficient if in writing and delivered by hand or sent, postage prepaid by registered, certified or express mail, or by recognized overnight air courier service and shall be deemed given when so delivered by hand, or if mailed or sent by overnight courier service, on the third Business Day after mailing (one Business Day in the case of express mail or overnight courier service) to the parties at the following addresses:

(i)if to the Initial Holders, to the addresses set forth under their signatures on the signature page hereof and if to any other Holder to the address contained in the records of the Company;

(ii)if to the Company, to:

FairPoint Communications, Inc.

521 East Morehead Street, Suite 250

Charlotte, North Carolina 28202
Attention: Shirley J. Linn, Esq.

with a copy to:

Paul, Hastings, Janofsky & Walker LLP
75 East 55th Street
New York, New York  10022
Attention: Jeffrey J. Pellegrino, Esq.

or at such other address as the addressee may have furnished in writing to the sender as provided herein.

(c)Assignment.

(i)Except as expressly provided in this Section 7(c), the rights of the parties hereto cannot be assigned and any purported assignment or transfer to the contrary shall be void ab initio.  So long as the terms of this Section 7(c) are followed, any Holder may assign any of its rights under this Agreement, without the consent of the Company, to any Person to whom such holder Transfers any Registrable Securities or any rights to acquire Registrable Securities so long as such Transfer is not made pursuant to an effective Registration Statement or pursuant to Rule 144 or Rule 145 (or any successor provisions) under the Securities Act or in any other manner or to any Person the effect or consequences of which is to cause the Transferred securities to be freely transferable without regard to the volume and manner of sale limitations set forth in Rule 144 (or any successor provision) in the hands of the transferee as of the date of such Transfer.

(ii)Notwithstanding Section 7(c)(i) hereof, no Holder may assign any of its rights under this Agreement to any Person to whom such Holder Transfers any Registrable Securities if the Transfer of such Registrable Securities requires registration under the Securities Act.

(iii)The nature and extent of any rights assigned shall be as agreed to between the assigning party and the assignee.  No Person may be

assigned any rights under this Agreement unless (x) the Company is given written notice by the assigning party at the time of such assignment stating the name and address of the assignee, identifying the securities of the Company as to which the rights in question are being assigned, and providing a detailed description of the nature and extent of the rights that are being assigned and (y) the assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including, without limitation, the provisions of this Section 7(c).

(d)Successors and Assigns; No Third Party Beneficiaries.  This Agreement will be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns.  Except as set forth herein and by operation of law, no party to this Agreement may assign or delegate all or any portion of its rights, obligations, or liabilities under this Agreement without the prior written consent of the Company in the case of a Holder or without the written consent of Holders holding a majority of Registrable Securities in the case of the Company; provided, that (i) such transferee acquires such Registrable Securities pursuant to an express assignment from the transferor, and (ii) such transferee executes a joinder agreement agreeing to be bound by all of the transferor’s obligations hereunder, a copy of which shall have been delivered to the Company.  This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties hereto and their respective successors and permitted assigns to the extent contemplated herein.

(e)Counterparts.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

(f)Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(g)GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.

(h)Specific Performance.  The parties hereto acknowledge that there would be no adequate remedy at law if any party fails to perform any of its obligations hereunder, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of any other party under this Agreement in accordance with the terms and conditions of this Agreement in any court of the United States or any State thereof having jurisdiction.

(i)Entire Agreement.  This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein.  This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

IN WITNESS WHEREOF, the undersigned Company has executed this Agreement as of the date first written above.

FAIRPOINT COMMUNICATIONS, INC.
By:
	Name:
	Title:

IN WITNESS WHEREOF, the undersigned Holder has executed this Agreement as of the date first written above.

  Name:

  Address:

SCHEDULE A

EX-10.16

Exhibit 10.16

FORM OF AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT

THIS AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT (this “Amendment”) dated as of February        , 2005, by and among FAIRPOINT COMMUNICATIONS, INC. (formerly named MJD Communications, Inc.), a Delaware corporation (the “Company”), KELSO INVESTMENTS ASSOCIATES V, L.P., a Delaware limited partnership (“KIA V”), KELSO EQUITY PARTNERS V, L.P., a Delaware limited partnership (“KEP V”and, together with KIA V, “Kelso”), THOMAS H. LEE EQUITY FUND IV, L.P., a Delaware limited partnership (“THL Fund IV”), those parties listed on Schedule A to the Agreement (as defined herein) (collectively, the “THL Related Parties” and, together with THL Fund IV, “THL”) and the other undersigned parties hereto (the “Other Stockholders”), amends the Registration Rights Agreement (the “Agreement”) dated as of January 20, 2000, by and among the Company and the Stockholders.  THL and Kelso are referred to herein as the “Investor Stockholders”  Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned to such terms in the Agreement.

WITNESSETH:

WHEREAS, the Stockholders own shares of Common Stock;

WHEREAS, the Company, the Stockholders and certain other signatories thereto have heretofore executed and delivered the Agreement setting forth certain rights and obligations with respect to the registration of the shares of Common Stock under the Securities Act;

WHEREAS, Section 12.4 of the Agreement provides that the Company may amend the Agreement with the written consent of the Investor Stockholders and a majority (by number of shares) of any other holders of Registrable Securities whose interests would be adversely affected by such amendment; and

WHEREAS, in connection with the Company’s initial public offering (the “Offering”) of shares of its common stock, the Company, the Investor Stockholders and certain other signatories hereto wish to amend the Agreement as set forth herein;

NOW THEREFORE, in consideration of the premises and the covenants and agreements contained herein, and for other good and valuable consideration the receipt of which is hereby acknowledged, and for the equal and proportionate benefit of the holders of the Common Stock, the Company, the Stockholders and certain other signatories hereto hereby agree as follows:

Article I.

Consent

1.1           Consent.  Pursuant to Section 12.4 of the Agreement, the Investor Stockholders and the Other Stockholders hereby consent to the amendment of the Agreement as set forth in Section 2.1 hereof and the execution and delivery of this Amendment.

1.2           Common Stock Ownership.

(a)           Each Investor Stockholder represents and warrants that such Investor Stockholder holds the amount of Registrable Securities listed next to such Investor Stocholder’s name on Schedule A hereto.

(b)           Each Other Stockholder represents and warrants that such Other Stockholder holds the amount of Registrable Securities listed next to such Other Stockholder’s name on Schedule B hereto.

Article II.

Amendment to the Agreement

2.1           Registrable Securities.  The definition of Registrable Securities contained in Section 11 of the Agreement is hereby deleted in its entirety and replaced with the following: “Registrable Securities:  the shares of Common Stock beneficially owned (within the meaning of Rule 13d-3 of the Exchange Act) immediately prior to the consummation of the Offering by Kelso, the Kelso Holders, THL, the THL Holders, the Other Investors, the Management Stockholders or the Permitted Transferees.  As to any particular shares of Common Stock, such securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) in the case of Management Stockholders who hold options to purchase shares of Common Stock, a registration statement on Form S-8 with respect to the sale of the shares of Common Stock into which such options are exercisable shall have become effective under the Securities Act, (iii) they shall have been sold to the public pursuant to Rule 144 under the Securities Act, (iv) they shall have been otherwise transferred other than to a Permitted Transferree, Kelso Holder, or THL Holder and subsequent disposition of them shall not require registration under the Securities Act or an exemption therefrom or any similar state law then in force, (v) they shall have ceased to be outstanding, or (vi) the Offering shall have been consummated.

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Article III.

Miscellaneous

3.1           Continuing Effect of the Agreement.  Except as expressly provided herein, all of the terms, provisions and conditions of the Agreement thereunder shall remain in full force and effect.

3.2           Reference and Effect on the Agreement.  Upon the execution of this Amendment, each reference in the Agreement to “the Agreement,” “this Agreement,” “hereunder,” “hereof” or “herein” shall mean and be a reference to the Agreement as supplemented by this Amendment, unless the context otherwise requires.

3.3           Governing Law.  This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby.

3.4           Counterparts.  This Amendment may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

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IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as of the date first written above.

FAIRPOINT COMMUNICATIONS, INC.
By
	Name:
	Title:
THE INVESTOR STOCKHOLDERS:
KELSO INVESTMENT ASSOCIATES V, L.P.
By Kelso Partners V, L. P.,
its general partner
By
	Name:
	Title:
KELSO EQUITY PARTNERS V, L. P.
By
	Name:
	Title:
THOMAS H. LEE EQUITY FUND IV, L. P.
By: THL Equity Advisors IV, LLC,
its general partner
By
	Name:
	Title:

4

THOMAS H. LEE FOREIGN FUND IV, L. P.
By: THL Equity Advisors IV, LLC,
its general partner
By:
	Name:
	Title:
THOMAS H. LEE FOREIGN FUND IV-B, L. P.
By:	THL Equity Advisors IV, LLC,
	its general partner
By:
	Name:
	Title:
1987 THOMAS H. LEE NOMINEE TRUST
By:
	Trustee:
David V. Harkins

5

THE HARKINS 1995 GIFT TRUST
By:
	Trustee:
Scott A. Schoen
C. Hunter Boll
Scott M. Sperling
Anthony J. DiNovi
Thomas M. Hagerty
Warren C. Smith, Jr.
Seth W. Lawry
Kent R. Weldon
Terrence M. Mullen

6

	Todd M. Abbrecht
	Charles A. Brizius
	Scott Jaeckel
	Soren Oberg
	Thomas R. Shephard
	Joseph Incandela
	Wendy L. Masler
\
	Andrew D. Flaster
	ROBERT SCHIFF LEE 1988 IRREVOCABLE TRUST
	By:
		Trustee:
	Stephen Zachary Lee

7

Charles W. Robins as Custodian for Jesse Lee
Charles W. Robins as Custodian for Nathan Lee
Charles W. Robbins
James Westra
THOMAS H. LEE CHARITABLE INVESTMENT L.P.
By:	Thomas H. Lee,
	its general partner
By:
	Name:
	Title:
THL-CCI INVESTORS LIMITED PARTNERSHIP
By:	THL Investment Management Corp.,
	its general partner
By:
	Name:
	Title:

8

PUTNAM HOLDINGS, INC.
By:
	Name:
	Title:
THE OTHER STOCKHOLDERS
JED COMMUNICATIONS ASSOCIATES, INC.
By
	Name:
	Title:
Daniel G. Bergstein
Joel Bergstein
Michael Bergstein
Lindy Sobel Bergstein
Meyer Haberman
John P. Duda

9

Lisa R. Hood

Eugene B. Johnson

Walter E. Leach, Jr.

Peter G. Nixon

Michael J. Stein

Jack H. Thomas

Tim Henry

Pat Morse

Pat Eudy

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SCHEDULE A

INVESTOR STOCKHOLDER	NUMBER OF REGISTRABLE SECURITIES
Kelso Equity Partners V, L.P.	1,771,770
Kelso Investment Associates V, L.P.	16,427,726
Thomas H. Lee Equity Fund IV, L.P.	17,927,740
Thomas H. Lee Foreign Fund IV, L.P.	613,540
Thomas H. Lee Foreign Fund IV-B, L.P.	1,741,200
Putnam Holdings, Inc.	294,820
Thomas H. Lee Charitable Investment Limited Partnership	116,560
THL-CCI Investors Limited Partnership	6,300
1997 Thomas H. Lee Nominee Trust	276,540
David V. Harkins	63,140
The 1995 Harkins Gift Trust	7,080
Scott A. Schoen	52,660
C. Hunter Boll	52,660
Scott M. Sperling	52,660
Anthony J. DiNovi	52,660
Thomas M. Hagerty	52,660
Warren C. Smith, Jr.	52,660
Seth W. Lawry	21,940
Kent R. Weldon	14,660
Terrence M. Mullen	11,680
Todd M. Abbrecht	11,680
Charles A. Brizius	8,780
Scott L. Jaeckel	3,320
Soren L. Oberg	3,320
Thomas R. Shepherd	6,140
Wendy L. Masler	1,520
Andrew D. Flaster	1,320
RSL Trust	3,820
Stephen Zachary Lee	3,820
Charles W. Robins as Custodian for Nathan Lee	1,900
Charles W. Robins as Custodian for Jesse Lee	1,900
Charles W. Robins	1,520
James Westra	1,520

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SCHEDULE B

OTHER STOCKHOLDER	NUMBER OF REGISTRABLE SECURITIES
JED Communications, Inc.	2,150,388
Daniel G. Bergstein	0
Joel Bergstein	62,200
Michael & Lindy Bergstein	102,800
Meyer Haberman	648,834
John P. Duda	0
Lisa R. Hood	7,500
Eugene B. Johnson	427,180
Walter E. Leach, Jr.	0
Peter G. Nixon	9,200
Michael J. Stein	60,000
Jack H. Thomas	1,473,390
Tim Henry	17,800
Pat Morse	22,000
Pat Eudy	127,200

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EX-10.18

Exhibit 10.18

FORM OF TERMINATION AGREEMENT

WITH

THL EQUITY ADVISORS IV, LLC

THIS TERMINATION AGREEMENT (this “Agreement”), entered into as of February                         , 2005, by and between FairPoint Communications, Inc. (formerly known as MJD Communications, Inc.) (the “Company”), a Delaware corporation, and THL Equity Advisors IV, LLC (the “Consultant”), a Massachusetts limited liability company.

WITNESSETH

WHEREAS, the Company and the Consultant are party to that certain Management Services Agreement, dated as of January 20, 2000 (the “Management Agreement”); and

WHEREAS, in connection with the Company’s initial public offering of common stock, the Company and the Consultant wish to terminate and discharge the Management Agreement and all obligations of the parties thereunder and/or in respect thereof as of the date hereof.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

Article I.
Termination

1.1           Termination of the Management Agreement.  The Management Agreement is hereby terminated as of the date hereof, and the Company and the Consultant shall have no further rights or obligations thereunder from and after the date hereof.

Article II.
Miscellaneous

2.1           Entire Agreement; Amendment.  This Agreement contains the entire understanding of the parties with respect to the subject matter contained herein.  This Agreement supersedes all prior and contemporaneous agreements, arrangements, contracts, discussions, negotiations, undertakings and understandings (whether written or

oral) among the parties with respect to such subject matter.  This Agreement may be amended only by a written instrument executed by each of the parties hereto.

2.2           Captions.  Article and section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement.

2.3           Governing Law.  This Agreement shall be governed by and construed in accordance with the substantive laws of the State of New York, without regard to conflicts of laws and principles thereof, or any other law that would make the laws of any jurisdiction other than the State of New York applicable hereto.

2.4           Severability.  In case any provision in this Agreement shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof will not in any way be affected or impaired thereby.

2.5           Counterparts.This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above.

FAIRPOINT COMMUNICATIONS, INC.
By
	Name:
	Title:
THL EQUITY ADVISORS IV, LLC
By
	Name:
	Title:

3

EX-10.20

Exhibit 10.20

FORM OF TERMINATION AGREEMENT

WITH

KELSO & COMPANY, L.P.

THIS TERMINATION AGREEMENT (this “Agreement”), entered into as of February         , 2005, by and between FairPoint Communications, Inc. (formerly known as MJD Communications, Inc.) (the “Company”), a Delaware corporation, and Kelso & Company, L.P. (the “Consultant”), a Delaware limited partnership.

WITNESSETH

WHEREAS, the Company and the Consultant are party to that certain Amended and Restated Financial Advisory Agreement, dated as of January 20, 2000 (the “Management Agreement”); and

WHEREAS, in connection with the Company’s initial public offering (the “Offering”) of shares of its common stock, par value $0.01 per share,the Company and the Consultant wish to terminate and discharge the Management Agreement and, except as otherwise set forth herein, all obligations of the parties thereunder and/or in respect thereof as of the date hereof.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

Article I.
Termination

1.1           Termination of the Management Agreement.  The Management Agreement is hereby terminated as of the date hereof, and, except as otherwise set forth herein,  the Company and the Consultant shall have no further rights or obligations thereunder from and after the date hereof.

1.2           Acknowledgement and Receipt. The Consultant hereby acknowledges receipt from the Company of $8,445,080 in full payment of the transaction fee required to be paid by the Company to the Consultant pursuant to Section 4(b) of the Management Agreement in connection with the consummation of the Offering.

1.3           Survival of Expense Reimbursement and Indemnity.  Notwithstanding the termination of the Management Agreement, pursuant to Section 12 of the Management Agreement, the Company and the Consultant hereby acknowledge

and affirm that the obligations of the Company under Section 4 (Compensation; Expense Reimbursement) of the Management Agreement and under Section 5 (Indemnification) of the Management Agreement shall survive such termination.

Article II.
Miscellaneous

2.1           Entire Agreement; Amendment.  This Agreement contains the entire understanding of the parties with respect to the subject matter contained herein.  This Agreement supersedes all prior and contemporaneous agreements, arrangements, contracts, discussions, negotiations, undertakings and understandings (whether written or oral) among the parties with respect to such subject matter.  This Agreement may be amended only by a written instrument executed by each of the parties hereto.

2.2           Captions.  Article and section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement.

2.3           Governing Law.  This Agreement shall be governed by and construed in accordance with the substantive laws of the State of New York, without regard to conflicts of laws and principles thereof, or any other law that would make the laws of any jurisdiction other than the State of New York applicable hereto.

2.4           Severability.  In case any provision in this Agreement shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof will not in any way be affected or impaired thereby.

2.5           Counterparts.This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.

2

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above.

FAIRPOINT COMMUNICATIONS, INC.
By
	Name:
	Title:
KELSO & COMPANY, L.P.
By
	Name:
	Title:

3

EX-10.34

Exhibit 10.34

FORM OF FAIRPOINT COMMUNICATIONS, INC. 2005 STOCK INCENTIVE PLAN

ARTICLE I
PURPOSES

This FairPoint Communications, Inc. 2005 Stock Incentive Plan is intended to foster and promote the long-term financial success of the Company and the Subsidiaries and increase total shareholder returns by (i) motivating superior performance by means of performance-related incentives, (ii) encouraging and providing for the acquisition of an ownership interest in the Company by its employees and directors and (iii) enabling the Company and its Subsidiaries to attract and retain the services of outstanding employees, consultants and directors upon whose judgment, interest and special effort the successful conduct of its operations is largely dependent.  Capitalized terms are defined in Article XIII.

ARTICLE II
POWERS OF THE COMMITTEE

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

2.2           Administration.  The Committee shall be responsible for the administration of the Plan, including, without limitation, determining which Participants receive Awards, what kind of Awards are made under the Plan and for what number of shares, and the other terms and conditions of each such Award.  The Committee shall have the responsibility of construing and interpreting the Plan and of establishing, amending and rescinding such rules and regulations as it may deem necessary or desirable for the proper administration of the Plan.  Any decision or action taken or to be taken by the Committee, arising out of or in connection with the construction, administration, interpretation and effect of the Plan and of its rules and regulations, shall, to the greatest extent permitted by applicable law, be within its absolute discretion (except as otherwise specifically provided herein) and shall be conclusive and binding upon the Company and its Subsidiaries, all Participants and any person claiming under or through any Participant.  No term of this Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under section 422 of the Code.

2.3           Delegation by the Committee.  The Committee may delegate its authority under this Plan; provided that the Committee shall in no event delegate its authority with respect to the compensation of the Chief Executive Officer of the Company, the other four most highly compensated executive officers (as determined under Section 162(m) of the Code and regulations thereunder) of the Company and any other individual whose

compensation the Board or Committee reasonably believes may become subject to Section 162(m) of the Code.

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

ARTICLE III
STOCK SUBJECT TO PLAN

3.1           Number.  Subject to the provisions of this Article III, the number of Shares subject to Awards under the Plan may not exceed 947,441 Shares.  The Shares to be delivered under the Plan may consist, in whole or in part, of treasury stock or authorized but unissued Common Stock not reserved for any other purpose.  The maximum number of Shares with respect to which Options or Stock Appreciation Rights may be granted to any one Participant in any calendar year shall be 500,000.

3.2           Canceled, Terminated, or Forfeited Awards; Awards Settled for Cash.  Any Shares subject to any Award granted hereunder that for any reason is canceled, terminated or otherwise settled without the issuance of any Common Stock after the effective date of this Plan shall be available for further Awards under this Plan.

3.3           Adjustment in Capitalization.  In the event of any Adjustment Event such that an adjustment is required to preserve, or to prevent enlargement of, the benefits or potential benefits made available under this Plan, the Committee shall, in such manner as the Committee shall deem equitable, adjust any or all of (a) the number and kind of Shares which thereafter may be awarded or optioned and sold under the Plan (including, without limitation, adjusting the limits on the number and types of certain Awards that may be made under the Plan), (b) the number and kinds of Shares subject to outstanding Options and other Awards and (c) the grant, exercise or conversion price with respect to any of the foregoing, provided that any adjustment to the exercise or conversion price of, or the number and kind of Shares subject to, outstanding Options or Stock Appreciation Rights that the Committee intends to be excluded from the coverage of Section 409A of the Code shall be made in accordance with the requirements of Section 409A of the Code.  In addition, the Committee may make provisions for a cash payment to a Participant or a person who has an outstanding Option or other Award.  The number of Shares subject to any Option or other Award shall always be a whole number.

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ARTICLE IV
STOCK OPTIONS

4.1           Grant of Options.  The Committee shall have the power to grant Options that are “incentive stock options” within the meaning of section 422 of the Code (“ISOs”) or that are non-statutory stock options (“NSOs”) to any Participant and to determine (a) the number of ISOs and the number of NSOs to be granted to each Participant and (b) the other terms and conditions of such Awards.  An Option shall be an NSO unless otherwise specified by the Committee at the time of grant.  Each Option shall be evidenced by an Option agreement that shall specify (a) the type of Option granted, (b) the number of Shares to which the Option pertains, (c) the exercise price, (d) the period in which the Option may be exercised and (e) such terms and conditions not inconsistent with the Plan as the Committee shall determine.  The maximum number of Shares that may be issued under the Plan through ISOs is 500,000.

4.2           Exercise Price.  Unless otherwise determined by the Committee, Options granted pursuant to the Plan shall have an exercise price that is not less than the Fair Market Value of a Share on the date the Option is granted.

4.3           Vesting and Exercisability.  Options awarded under the Plan shall vest and become exercisable in accordance with the vesting schedule determined by the Committee, subject to the Participant’s continuous employment with the Company or a Subsidiary from the date of grant through the applicable vesting date.  No Option shall be exercisable for more than 10 years after the date on which it is granted.

4.4           Payment.  The Committee shall establish procedures governing the exercise of Options.  Without limiting the generality of the foregoing, the Committee may provide that payment of the exercise price may be made (a) in cash or its equivalent, (b) by exchanging Shares owned by the optionee (which are not the subject of any pledge or other security interest), (c) through an arrangement with a broker approved by the Company whereby payment of the exercise price is accomplished with the proceeds of the sale of Common Stock or (d) by any combination of the foregoing; provided that the combined value of all cash and cash equivalents paid and the Fair Market Value of any such Common Stock so tendered to the Company, valued as of the date of such tender, is at least equal to such exercise price.  No Shares shall be delivered pursuant to any exercise of an Option unless arrangements satisfactory to the Committee have been made to assure full payment of the exercise price therefor and any required withholding or other similar taxes or governmental charges.

4.5           Termination of Employment.  Unless otherwise determined by the Committee at or after the date of grant and except as provided in Article XI, in the event a Participant’s employment terminates by reason of a Qualifying Termination of Employment, the Participant (or the Participant’s beneficiary or legal representative) may exercise any Options (regardless of whether then exercisable) until the earlier of (a) the twelve-month anniversary of the date of such termination of employment and (b) the date such Options would otherwise expire but for the operation of this Section 4.5.  Unless otherwise determined by the Committee at or after the date of grant, in the event a

3

Participant’s employment terminates for any reason other than a Qualifying Termination of Employment or Cause, the Participant may exercise any Option that is exercisable at the time of such termination of employment until the earlier of (a) the 60-day anniversary of the date of such termination of employment and (b) the date such Options would otherwise expire but for the operation of this Section 4.5, and any Option that is not then exercisable shall be forfeited and cancelled as of the date of such termination of employment.  In the event that a Participant’s employment is terminated for Cause (or, following the date the Participant’s employment terminates, the Committee determines that circumstances exist such that the Participant’s employment could have been terminated for Cause), any Options granted to such Participant, whether or not then vested, shall be forfeited and cancelled as of the date of such termination of employment.

4.6           Certain NSO’s. If at the time of grant the Committee intends a grant of NSOs to any Participant to be excluded from the coverage of Section 409A of the Code, then, notwithstanding any other provision of the Plan, such grant of NSOs shall (i) have an exercise price that is not less than the Fair Market Value of a Share on the date the NSOs are granted and (ii) not include any feature for the deferral of compensation other than the deferral of recognition of income until the exercise or other disposition of the NSOs.

ARTICLE V
RESTRICTED STOCK AND RESTRICTED UNITS

5.1           Grant of Restricted Stock and Restricted Units.  The Committee shall have the power to grant Restricted Stock or Restricted Units to any Participant and to determine (a) the number of shares of Restricted Stock and the number of Restricted Units to be granted to each Participant, (b) the Period(s) of Restriction and (c) the other terms and conditions of such Awards.  The Committee shall require that the stock certificates evidencing any Restricted Stock or Restricted Units be held in the custody of the Secretary of the Company until the Period of Restriction lapses, and that, as a condition of any Restricted Stock award, the Participant shall have delivered a stock power, endorsed in blank, relating to the Shares covered by such award.  Each grant of Restricted Stock or Restricted Units shall be evidenced by a written agreement setting forth the terms of such Award.

5.2           Vesting of Restricted Stock and Restricted Units.  Restricted Stock or Restricted Units granted pursuant to Section 5.1 shall vest and become nonforfeitable, and the Period of Restriction with respect to such Restricted Stock or Restricted Units will lapse, in accordance with the vesting schedule determined by the Committee.

5.3           Dividend Equivalents.

(a)           Restricted Stock.  Unless otherwise determined by the Committee at the time of grant, Participants holding outstanding Restricted Stock shall not be entitled to receive any dividends or Dividend Equivalents paid with respect to such shares of Restricted Stock.

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(b)           Restricted Units.  The Committee will determine whether and to what extent to credit to the account of, or to pay currently to, each recipient of a Restricted Unit, any Dividend Equivalents.  To the extent provided by the Committee at or after the date of grant, any cash Dividend Equivalents credited to a Participant’s account shall be deemed to have been invested in Shares on the record date established for the related dividend and, accordingly, a number of Restricted Units shall be credited to such Participant’s account equal to the greatest whole number which may be obtained by dividing (i) the value of such Dividend Equivalents on the record date by (ii) the Fair Market Value of a Share on such date.  Any additional Restricted Units credited in respect of Dividend Equivalents shall become vested and nonforfeitable, if at all, on the same terms and conditions as are applicable in respect of the Restricted Units with respect to which such Dividend Equivalents were payable.

5.4           Termination of Employment.  Unless otherwise determined by the Committee at or after the date of grant and except as provided in Article XI, in the event a Participant’s employment terminates by reason of a Qualifying Termination of Employment during the Period of Restriction, a pro rata portion of any Shares related to a Restricted Stock or Restricted Unit held by such Participant shall become nonforfeitable, based upon the percentage of which the numerator is the portion of the Period of Restriction that expired prior to the Participant’s termination and the denominator is the number of days in the Period of Restriction.  Unless otherwise determined by the Committee at or after the date of grant, in the event a Participant’s employment terminates for any reason other than a Qualifying Termination of Employment during the Period of Restriction, any Restricted Stock or Restricted Units held by such Participant shall be forfeited and cancelled as of the date of such termination of employment.

5.5           Settlement of Restricted Units.  Unless otherwise determined by the Committee at or after the date of grant, when a Period of Restriction with respect to an Award of Restricted Units lapses and the Restricted Units become vested and nonforfeitable, the Participant shall receive (i) one Share for each such Restricted Unit (including additional Restricted Units credited in respect of Dividend Equivalents) or (ii) if the Committee so determines, the Committee may direct the Company to pay to the Participant the Fair Market Value of such Shares as of such payment date.

ARTICLE VI
INCENTIVE AWARDS

6.1           Grant of Incentive Stock and Incentive Units.  The Committee shall have the authority to grant Incentive Stock or Incentive Units to any Participant and to determine (a) the number of Incentive Stock and the number of Incentive Units to be granted to each Participant, (b) the restrictions pursuant to which such Award is subject to forfeiture by reason of the Performance Criteria established by the Committee pursuant to Section 6.2 not being met in whole or in part and (c) the other terms and conditions of such Awards.  Each grant of Incentive Stock or Incentive Units shall be evidenced by a written agreement setting forth the terms of such Award.

6.2           Performance Criteria.

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(a)           Within 90 days after each Performance Period begins (or such other date as may be required or permitted under Section 162(m) of the Code, if applicable), the Committee shall establish the performance objective or objectives for the applicable Performance Period that must be satisfied in order for an Award to be vested and nonforfeitable (the “Performance Criteria”).  Any such Performance Criteria will be based upon the relative or comparative achievement of one or more of the following criteria, or such other criteria, as may be determined by the Committee: (i) revenue growth; (ii) earnings before interest, taxes, depreciation and amortization; (iii) earnings before interest, taxes and amortization; (iv) operating income; (v) pre- or after-tax income; (vi) cash flow; (vii) cash flow per share; (viii) net earnings; (ix) earnings per share; (x) return on equity; (xi) return on invested capital; (xii) return on assets; (xiii) economic value added (or an equivalent metric); (xiv) share price performance; (xv) total shareholder return; (xvi) improvement in or attainment of expense levels; (xvii) improvement in or attainment of working capital levels; or (xviii) debt reduction.

(b)  The Performance Criteria related to Incentive Stock or Incentive Units shall be achieved upon the determination by the Committee that the objective or objectives for the applicable Performance Period have been attained, in whole or in part.  The Committee may provide at the time of grant that in the event the objective or objectives are attained in part, a specified portion (which may be zero) of the Award will vest and become nonforfeitable and the remaining portion shall be forfeited.

6.3           Dividend Equivalents.

(a)           Incentive Stock.  Unless otherwise determined by the Committee at or after the date of grant, Participants granted Incentive Stock shall not be entitled to receive cash dividends or Dividend Equivalents.

(b)           Incentive Units.  The Committee will determine whether and to what extent to credit to the account of, or to pay currently to, each recipient of an Incentive Unit, any Dividend Equivalents.  To the extent provided by the Committee at or after the date of grant, any cash Dividend Equivalents with respect to the Incentive Units credited to a Participant’s account shall be deemed to have been invested in Shares on the record date established for the related dividend and, accordingly, a number of Incentive Units, as the case may be, shall be credited to such Participant’s account equal to the greatest whole number which may be obtained by dividing (i) the value of such Dividend Equivalents on the record date by (ii) the Fair Market Value of a Share on such date.  Any additional Incentive Unit credited in respect of Dividend Equivalents shall become vested and nonforfeitable, if at all, on the same terms and conditions as are applicable in respect of the Incentive Unit with respect to which such Dividend Equivalents were payable.

6.4           Termination of Employment.  Unless otherwise determined by the Committee at or after the date of grant and except as provided in Article XI, in the event that a Participant’s employment terminates by reason of a Qualifying Termination of Employment during the Performance Period, any award of Incentive Stock or Incentive Units shall become vested and nonforfeitable at the end of the Performance Period as to

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that number of such Incentive Stock or Incentive Units, as the case may be, that is equal to that percentage, if any, of such Award that would have been earned had the Participant’s employment not so terminated prior to the expiration of the Performance Period times a fraction, the numerator of which is the number of days employed during the Performance Period and the denominator of which is the total number of days during the Performance Period.  Unless otherwise determined by the Committee at or after the date of grant, in the event a Participant’s employment terminates for any reason other than a Qualifying Termination of Employment during the Performance Period, any Incentive Stock or Incentive Units held by such Participant shall be forfeited and cancelled as of the date of such termination of employment.

6.5           Settlement of Incentive Units.  Unless otherwise determined by the Committee at or after the date of grant, when the Performance Criteria with respect to an Award of Incentive Units is achieved and the Incentive Units become vested and nonforfeitable, the Participant shall receive (i) one Share for each such Incentive Unit (including additional Incentive Units credited in respect of Dividend Equivalents, if any) or (ii) if the Committee so determines, the Committee may direct the Company to pay to the Participant the Fair Market Value of such Shares as of such payment date.

ARTICLE VII
STOCK APPRECIATION RIGHTS

7.1           Grant of Stock Appreciation Rights.  Stock Appreciation Rights may be granted to any Participants, all Participants or any class of Participants at such time or times as shall be determined by the Committee.  Stock Appreciation Rights may be granted only on a freestanding basis, and not related to any Option.  A grant of a Stock Appreciation Right shall be evidenced by a written agreement containing such provisions not inconsistent with the Plan as the Committee shall approve.

7.2           Terms and Conditions of Stock Appreciation Rights.  Unless otherwise determined by the Committee at or after the date of grant, the terms and conditions (including, without limitation, the exercise period of the Stock Appreciation Right, the vesting schedule applicable thereto and the impact of any termination of service on the Participant’s rights with respect to the Stock Appreciation Right) applicable with respect to Stock Appreciation Rights shall be substantially identical (to the extent possible taking into account the differences related to the character of the Stock Appreciation Right) to the terms and conditions that would have been applicable under Article IV above were the grant of the Stock Appreciation Rights a grant of an Option.

7.3           Payment of Stock Appreciation Right Amount.  Upon exercise of a Stock Appreciation Right, the holder shall be entitled to receive payment, in cash, in Shares or in a combination thereof, as determined by the Committee, of an amount determined by multiplying the excess, if any, of the Fair Market Value of a Share at the date of exercise over the Stock Appreciation Right’s base value or exercise price, by the number of Shares with respect to which the Stock Appreciation Rights are then being exercised.

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7.4           Certain Stock Appreciation Rights.  If at the time of grant the Committee intends a grant of Stock Appreciation Rights to any Participant to be excluded from the coverage of Section 409A of the Code, then, notwithstanding any other provision of the Plan, such grant of Stock Appreciation Rights shall (i) have a base value or exercise price that is not less than the Fair Market Value of a Share on the date the Stock Appreciation Rights are granted, (ii) be payable upon exercise only with Shares and (iii) not include any feature for the deferral of compensation other than the deferral of recognition of income until the exercise or other disposition of the Stock Appreciation Rights.

ARTICLE VIII
DEFERRED SHARES

8.1           Deferred Share Awards.  The Committee shall have the authority to grant Deferred Shares to any Participant and to determine (i) the number of Deferred Shares granted to each Participant, (ii) the date such Deferred Shares shall become vested and (iii) the date such Deferred Shares will be payable to the Participant.  In addition, on such date or dates as shall be established by the Committee and subject to such terms and conditions as the Committee shall determine, a Participant may be permitted to elect to defer receipt of all or a portion of his annual compensation and/or annual incentive bonus (“Deferred Amount”) payable by the Company or a Subsidiary and receive in lieu thereof a number of Deferred Shares equal to the greatest whole number which may be obtained by dividing (i) the Deferred Amount by (ii) the Fair Market Value of a Share on the date such compensation or bonus would otherwise have been payable to the Participant.  No Shares will be issued at the time an award of Deferred Shares is made and the Company shall not be required to set aside a fund for the payment of any such award.  The Company will establish a separate account for the Participant and will record in such account the number of Deferred Shares awarded to the Participant.  To the extent the Committee so determines, a Participant who elects to defer receipt of his or her compensation or bonus and receive Deferred Shares may also receive that number of supplemental Deferred Shares (“Supplemental Units”) equal to the greatest whole number which may be obtained by dividing (i) such percentage of the Deferred Amount as is determined by the Committee by (ii) the Fair Market Value of a Share on the date of grant.  Each grant of Deferred Shares and Supplemental Units shall be evidenced by a written agreement setting forth the terms of such Award.

8.2           Vesting of Deferred Shares and Supplemental Units.  Unless otherwise determined by the Committee at or after the date of grant, the Deferred Shares together with any Dividend Equivalents credited with respect thereto, shall be fully vested at all times.  The Supplemental Units together with any Dividend Equivalents credited with respect thereto,will become vested in accordance with the vesting schedule determined by the Committee, subject to the Participant’s continuous employment with the Company or a Subsidiary through such vesting date.

8.3           Dividend Equivalents.  The Committee will determine whether and to what extent Dividend Equivalents will be credited to the account of, or paid currently to, a recipient of Deferred Shares or Supplemental Units.  To the extent provided by the Committee at or after the date of grant, any cash Dividend Equivalents with respect to the

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Deferred Shares and Supplemental Units deemed credited to a Participant’s account shall be deemed to have been invested in Shares on the record date established for the related dividend and, accordingly, a number of Deferred Shares or Supplemental Units, as the case may be, shall be credited to such Participant’s account equal to the greatest whole number which may be obtained by dividing (i) the amount of such Dividend Equivalent on the record date by (ii) the Fair Market Value of a Share on such date.

8.4           Termination of Employment.  Unless otherwise determined by the Committee at or after the date of grant and except as provided in Article XI, in the event that a Participant’s employment terminates by reason of a Qualifying Termination of Employment during the vesting period, any Supplemental Units (and related Dividend Equivalents, if any) granted to a Participant shall become vested and nonforfeitable.  Unless otherwise determined by the Committee at or after the date of grant, in the event a Participant’s employment terminates for any reason other than a Qualifying Termination of Employment or Cause during the vesting period, any Supplemental Units (and related Dividend Equivalents, if any) held by such Participant, to the extent unvested, shall be forfeited and cancelled as of the date of such termination of employment.  In the event that a Participant’s employment is terminated for Cause (or, following the date the Participant’s employment terminates, the Committee determines that circumstances exist such that the Participant’s employment could have been terminated for Cause), any Supplemental Units (and related Dividend Equivalents, if any) granted to such Participant, whether or not then vested, shall be forfeited and cancelled as of the date of such termination of employment.

8.5           Settlement of Deferred Shares. Unless otherwise determined by the Committee at or after the date of grant and except as provided in Article XI, a Participant shall receive as of the date of such Participant’s termination of employment (or such other date as may be elected by the Participant or required by the Committee in accordance with the rules and procedures of the Committee) (i) one Share for each Deferred Share credited to such Participant’s account and (ii) subject to Section 8.4, one Share for each Supplemental Unit that shall have become vested.  The Committee may provide in the Award agreement applicable to any Deferred Shares or Supplemental Units that, in lieu of issuing Shares, the Committee may direct the Company to pay to the Participant the Fair Market Value of such Shares as of such payment date.

8.6           Further Deferral Elections.  A Participant may elect to further defer receipt of Shares issuable in respect of Deferred Shares (or an installment of an Award) for a specified period or until a specified event, subject in each case to the Committee’s approval and to such terms as are determined by the Committee, all in its sole discretion.  Subject to any exceptions adopted by the Committee, such election must generally be made at least 12 months prior to the original settlement date of such Deferred Shares (or any such installment thereof) and such election may not take effect until the expiration of such 12 month period.  A further deferral opportunity does not have to be made available to all Participants, and different terms and conditions may apply with respect to the further deferral opportunities made available to different Participants.

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ARTICLE IX
CHANGE IN CONTROL

9.1           Accelerated Vesting and Payment.  Subject to the provisions of Section 9.2 below, in the event of a Change in Control, each Option shall be, at the discretion of the Committee, either canceled in exchange for a payment in cash of an amount equal to the excess, if any, of the Change in Control Price over the exercise price for such Option, or fully exercisable regardless of the exercise schedule otherwise applicable to such Option.  All other Awards shall become nonforfeitable and be immediately transferable or payable, as the case may be.

9.2           Alternative Awards.  Notwithstanding Section 9.1, no cancellation, acceleration of exercisability, vesting, cash settlement or other payment shall occur with respect to any Award or any class of Awards if the Committee reasonably determines in good faith prior to the occurrence of a Change in Control that such Award or Awards shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted award an “Alternative Award”), by a Participant’s employer (or the parent or a Subsidiary of such employer) immediately following the Change in Control, provided that any such Alternative Award must:

(i)            be based on stock that is traded on an established U.S. securities market, or that will be so traded within 60 days of the Change in Control;

(ii)           provide such Participant (or each Participant in a class of Participants) with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such Award, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment;

(iii)          have substantially equivalent economic value to such Award (determined at the time of the Change in Control); and

(iv)          have terms and conditions which provide that in the event that the Participant’s employment is involuntarily terminated or constructively terminated, any conditions on a Participant’s rights under, or any restrictions on transfer or exercisability applicable to, each such Alternative Award shall be waived or shall lapse, as the case may be.

For this purpose, a constructive termination shall mean a termination by a Participant following (i) a material reduction in the Participant’s base salary or a Participant’s incentive compensation opportunity, (ii) a material reduction in the Participant’s responsibilities or (iii) the relocation of the Participant’s principal place of work to a location that is more than 50 miles from the Participant’s principal place of work immediately prior to the Change in Control, in each case without the Participant’s written consent.

9.3           Termination of Employment Prior to Change in Control.  In the event that any Change in Control occurs as a result of any transaction described in subclause (iii) or

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(v) of the definition of such term, any Participant whose employment is terminated due to death or Disability or by the Company for any reason other than Cause on or after the date, if any, on which the shareholders of the Company approve such transaction, but prior to the consummation thereof, shall be treated, solely for purposes of this Plan (including, without limitation, this Article IX), as continuing in the Company’s employment until the occurrence of such Change in Control, and to have been terminated immediately thereafter.

ARTICLE X
STOCKHOLDER RIGHTS

A Participant (or a Permitted Transferee) shall have no rights as a stockholder with respect to any Shares covered by an Award until he or she shall have become the holder of record of such Share(s), and no adjustments shall be made for dividends in cash or other property or distribution or other rights in respect to any such Shares, except as otherwise specifically provided for in this Plan.

ARTICLE XI
 SECTION 409A OF THE CODE

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

ARTICLE XII
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN

The Board or the Committee at any time may terminate or suspend the Plan, and from time to time may amend or modify the Plan, provided that no amendment, modification, or termination of the Plan shall in any manner adversely affect any Award theretofore granted under the Plan, without the consent of the Participant.  Unless earlier terminated, the Plan shall terminate on the day immediately prior to the first meeting of the stockholders of the Company in 2009 at which directors will be elected.

ARTICLE XIII
DEFINITIONS

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

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

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“Adjustment Event” means any stock dividend, stock split, share combination, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares or other similar event affecting the Common Stock.

“Affiliate” means, with respect to any person, any other person controlled by, controlling or under common control with such person.

“Alternative Award” has the meaning given in Section 9.2.

“Award” means any Option, Restricted Stock, Restricted Unit, Stock Appreciation Right, Incentive Stock, Incentive Unit, Deferred Share, or Supplemental Unit granted under the Plan or any combination thereof, including Awards combining two or more types of Awards in a single grant.

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

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

“Change in Control” means the first occurrence of any of the following events (other than a Public Offering):

(i)            the members of the Board (the “Incumbent Directors”) cease for any reason other than due to death to constitute at least a majority of the members of the Board, provided that any director whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the members of the Board other than as a result of a proxy contest, or any agreement arising out of an actual or threatened proxy contest, shall be treated as an Incumbent Director;

(ii)           the acquisition by any person, entity or “group” (as defined in Section 13(d) the Act), other than the Company, the Subsidiaries, any employee

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benefit plan of the Company or the Subsidiaries, any Kelso Entity or any Affiliate of any Kelso Entity, any THL Entity or any Affiliate of any THL Entity, of 50% or more of the combined voting power of the Company’s then outstanding voting securities;

(iii)          the merger or consolidation of the Company, as a result of which persons who were stockholders of the Company immediately prior to such merger or consolidation, do not, immediately thereafter, own, directly or indirectly, more than 50% of the combined voting power entitled to vote generally in the election of directors of the merged or consolidated company;

(iv)          the liquidation or dissolution of the Company other than a liquidation into the Company or into any Subsidiary; and

(v)           the sale, transfer or other disposition of all or substantially all of the assets of the Company to one or more persons or entities that are not, immediately prior to such sale, transfer or other disposition, Affiliates of the Company, any Kelso Entity or any THL Entity.

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to occur in the event the Company files for bankruptcy, liquidation or reorganization under the United States Bankruptcy Code.

“Change in Control Price” means the price per Share offered in conjunction with any transaction resulting in a Change in Control on a fully-diluted basis (as determined in good faith by the Committee as constituted before the Change in Control, if any part of the offered price is payable other than in cash) or, in the case of a Change in Control occurring solely by reason of a change in the composition of the Board, the highest Fair Market Value of a Share on any of the 30 trading days immediately preceding the date on which a Change in Control occurs.

“Code” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.

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

“Common Stock” means the common stock of the Company, par value $.01 per share.

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

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“Deferred Amount” has the meaning given in Section 8.1.

“Deferred Share” means the deferred share units that confer upon a Participant the right to receive Shares at the end of a specified deferral period as set forth in Article VIII.

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

“Dividend Equivalents” means dividends paid by the Company with respect to Shares corresponding to Awards awarded under the Plan.

“Employee” means any officer, employee or consultant of the Company or any Subsidiary, or any director of the Company or any Subsidiary.

“Fair Market Value” means, as of any date of determination, the closing price of a Share on the New York Stock Exchange (or on such other recognized market or quotation system on which the trading prices of Common Stock are traded or quoted at the relevant time).  In the event that there are no Common Stock transactions reported on such exchange or system on such date, Fair Market Value shall mean the closing price of a Share on the immediately preceding day on which Common Stock transactions were so reported.

“Incentive Stock” shall mean an award of Common Stock that is forfeitable until the achievement of specified Performance Criteria as provided for in Section 6.1.

“Incentive Unit” shall mean a contractual right to receive Common Stock, or cash based on the Fair Market Value of Common Stock, made pursuant to Section 6.1 that is forfeitable by the Participant until the achievement of specified Performance Criteria or until otherwise determined by the Committee or in accordance with the terms of the Plan.

“ISOs” has the meaning given in Section 4.1.

“Kelso” means Kelso Investment Associates V, L.P. and any successor investment vehicle managed by Kelso.

“Kelso Entities” means collectively, Kelso and Kelso Equity Partners V, L.P.

“Normal Retirement” means a termination of the Participant’s employment under circumstances that the Committee determines as qualifying as retirement at normal retirement age for purposes of the Plan.

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“NSOs” has the meaning given in Section 4.1.

“Option” means the right to purchase Common Stock at a stated price for a specified period of time.

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

“Performance Criteria” has the meaning given in Section 6.2(a).

“Performance Period” means the period, as determined by the Committee, during which the performance of the Company, any Subsidiary, any business unit and any individual is measured to determine whether and the extent to which the applicable performance measures have been achieved.

“Period of Restriction” means the period during which a Restricted Stock or Restricted Unit is subject to forfeiture.

“Permitted Transferees” has the meaning given in Section 14.1.

“Plan” means this FairPoint Communications, Inc. 2005 Stock Incentive Plan, as the same may be amended from time to time.

“Public Offering” means a public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, that covers (together with prior registrations) (a) not less than 20% of the outstanding Shares, on a fully diluted basis, or (b) Shares that, after the closing of such public offering, will be traded on the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers Automated Quotation System.

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

“Restricted Stock” means an award of Common Stock made pursuant to Section 5.1 that is forfeitable by the Participant until the completion of a specified period of future service or until otherwise determined by the Committee or in accordance with the terms of the Plan.

“Restricted Unit” means a contractual right to receive Common Stock, or cash based on the Fair Market Value of Common Stock, made pursuant to Section 5.1 that is forfeitable by the Participant until the completion of a specified period of future service or until otherwise determined by the Committee or in accordance with the terms of the Plan.

“Share” means a share of Common Stock.

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“Stock Appreciation Right” means the right to receive a payment from the Company, in cash or Common Stock, in an amount to be determined under Article VII of the Plan.

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

“Supplemental Unit” has the meaning given in Section 8.1.

“THL Entity” means Thomas H. Lee Equity Fund IV, L.P. and its Affiliates.

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

ARTICLE XIV
MISCELLANEOUS PROVISIONS

14.1         Nontransferability of Awards.  No Award shall be assignable or transferable except by will or the laws of descent and distribution; provided that the Committee may permit (on such terms and conditions as it shall establish) a Participant to transfer an Award for no consideration to the Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests (“Permitted Transferees”).  Except to the extent required by law, no right or interest of any Participant shall be subject to any lien, obligation or liability of the Participant.  All rights with respect to Awards granted to a Participant under the Plan shall be exercisable during the Participant’s lifetime only by such Participant or, if applicable, his or her Permitted Transferee(s).  The rights of a Permitted Transferee shall be limited to the rights conveyed to such Permitted Transferee, who shall be subject to and bound by the terms of the agreement or agreements between the Participant and the Company.  Notwithstanding the foregoing, no ISO shall be assignable or transferable except by will or the laws of descent and distribution, and during a Participant’s lifetime, shall be exercisable only by the Participant.

14.2         Beneficiary Designation.  Each Participant under the Plan may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid or by whom any right

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under the Plan is to be exercised in case of his death.  Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime.  In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to or exercised by the Participant’s surviving spouse, if any, or otherwise to or by his or her estate.

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

14.4         Tax Withholding.  The Company shall have the right to deduct from all amounts paid to a Participant in cash (whether under this Plan or otherwise) any taxes required by law to be withheld in respect of Awards under this Plan.  In the case of any Award satisfied in the form of Shares, no Shares shall be issued unless and until arrangements satisfactory to the Committee shall have been made to satisfy any withholding tax obligations applicable with respect to such Award.  Without limiting the generality of the foregoing, the Company shall have the right to retain, or the Committee may, subject to such terms and conditions as it may establish from time to time, permit Participants to elect to tender Shares (including Shares issuable in respect of an Award) to satisfy, in whole or in part, the amount required to be withheld (but no greater amount).

14.5         Compliance with Legal and Exchange Requirements.  The Plan, the granting and exercising of Awards thereunder, and any obligations of the Company under the Plan, shall be subject to all applicable federal and state laws, rules, and regulations, and to such approvals by any regulatory or governmental agency as may be required, and to any rules or regulations of any exchange on which the Shares are listed.  The Company, in its discretion, may postpone the granting and exercising of Awards, the issuance or delivery of Shares under any Award or any other action permitted under the Plan to permit the Company, with reasonable diligence, to complete such stock exchange listing or registration or qualification of such Shares or other required action under any federal or state law, rule, or regulation and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Shares in compliance with applicable laws, rules, and regulations.  The Company shall not be obligated by virtue of any provision of the Plan to recognize the exercise of any Award or to otherwise sell or issue Shares in violation of any such laws, rules, or regulations, and any postponement of the exercise or settlement of any Award under this provision shall not extend the term of such Awards.  Neither the Company nor its directors or officers shall have any obligation or liability to a Participant with respect to any Award (or Shares issuable thereunder) that shall lapse because of such postponement.

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

14.7         Legend.  To the extent any stock certificate is issued to a Participant in respect of shares of Restricted Stock prior to the expiration of the Period of Restriction, such certificate shall be registered in the name of the Participant and shall bear such restrictive legend as the Committee determines appropriate.  Upon the lapse of the Period of Restriction with respect to such Restricted Stock, the Company shall issue or have issued in exchange for those certificates previously issued new share certificates without such legend herein in respect of any Shares that have become vested.

14.8         Effective Date.  The Plan shall be effective immediately prior to the consummation date of the initial public offering of Shares.

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

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

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

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

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

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

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EX-10.35

Exhibit 10.35

FAIRPOINT COMMUNICATIONS, INC.

FORM OF ANNUAL INCENTIVE PLAN

SECTION 1
PURPOSE

This FairPoint Communications, Inc. Annual Incentive Plan is intended to permit FairPoint Communications, Inc. (the “Company”), through awards of annual incentive compensation, to attract, retain and motivate qualified executives and key employees.

SECTION 2
DEFINITIONS

“Award” shall mean, for any Performance Period, the incentive opportunity granted to a Participant by the Committee for such Performance Period.

“Board” shall mean the Board of Directors of the Company, or the successor thereto.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

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

“Covered Employee” shall have the meaning set forth in Section 162(m) of the Code and the regulations promulgated thereunder.

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

“Participant” shall mean, for each Performance Period, each (i) Covered Employee and (ii) each other executive officer or key employee of the Company or a Subsidiary whom the Committee has selected to participate in the Plan.

“Performance Period” shall mean the Company’s fiscal year or any other period designated by the Committee with respect to which an Award may be granted.  Performance Periods may not overlap.

“Plan” shall mean this FairPoint Communications, Inc. Annual Incentive Plan, as amended from time to time.

“Stock Incentive Plans” shall mean the FairPoint Communications, Inc. 2005 Stock Incentive Plan and any future equity compensation plans approved by the shareholders of the Company.

“Subsidiary” shall mean any entity that is directly or indirectly controlled by the Company or any entity, in which the Company has at least a 50% equity interest.

SECTION 3
ADMINISTRATION

The Plan shall be administered by the Committee, which shall have full authority to interpret the Plan, to establish rules and regulations relating to the operation of the Plan, to select Participants, to determine the amounts of any Awards and to make all determinations and take all other actions necessary or appropriate for the proper administration of the Plan.  The Committee’s interpretation of the Plan, and all actions taken within the scope of its authority, shall be final and binding on the Company, its stockholders, Participants, and former Participants and their respective successors and assigns.  The Committee may delegate its authority hereunder; provided that the Committee shall in no event delegate its authority with respect to the compensation of any Covered Employee and any other individual whose compensation the Board or Committee reasonably believes may become subject to Section 162(m) of the Code.  No member of the Committee shall be eligible to participate in the Plan.

SECTION 4
DETERMINATION OF AWARDS

(a)           Establishment of Target Award.  Prior to the beginning of each Performance Period, or at such later time as may be permitted by applicable provisions of the Code, the Committee shall establish: (A) the Covered Employees and other employees who will be Participants in the Plan; (B) each Participant’s target Award for such Performance Period; and (C) the applicable performance objective or objectives for such Performance Period.

(b)           Performance Criteria.  Any performance objective established pursuant to SECTION 4(a) will be based upon the achievement of one or more of the following criteria, as determined by the Committee: (i) revenue growth; (ii) earnings before interest, taxes, depreciation and amortization; (iii) earnings before interest, taxes and amortization; (iv) operating income; (v) pre- or after-tax income; (vi) cash flow; (vii) cash flow per share; (viii) net earnings; (ix) earnings per share; (x) return on equity; (xi) return on invested capital; (xii) return on assets; (xiii) economic value added (or an equivalent metric); (xiv) share price performance; (xv) total shareholder return; (xvi) improvement in or attainment of expense levels; (xvii) improvement in or attainment of working capital levels; (xviii) debt reduction; or (xix) any other criteria the Committee in its sole discretion deems appropriate.  Any of the performance objectives set forth above may measure performance on a Company-wide basis or with respect to one or more business

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units, divisions or Subsidiaries, and either in absolute terms, relative to the performance of one or more similarly situated companies, relative to the performance of an index covering a peer group of companies, or other external measures of the selected performance criteria.  Any performance objective may measure performance on an individual basis, as appropriate.

(c)           Adjustments.  In the application of performance objectives to Award determinations under the Plan, the Committee may (i) make adjustments it deems advisable in order to give consideration to changes made in accounting rules, principles or methods, or extraordinary events, and make adjustments to financial performance measures in recognition of such occurrences and (ii) exclude special charges, restructuring charges, discontinued operations and unusual or infrequent accounting adjustments, restatements or reclassifications which they deem significant; provided that such adjustments are identified in the Company’s financial statements or management’s discussion and analysis of financial condition and results of operations contained in the Company’s most recent annual report filed with the U.S. Securities and Exchange Commission pursuant to the Exchange Act; and provided, further, that any such adjustments or exclusions are stated and taken into account at the time the performance objectives for a particular Performance Period are determined in accordance with Section 4(a) hereof.

(d)           Certification by Committee.  Except as otherwise provided for herein, no payments shall be made hereunder in respect of any Performance Period, unless the Committee shall certify in writing following the end of each such Performance Period that the performance objectives applicable to such Performance Period have been satisfied.

(e)           Partial Year Participation.  If an employee becomes a Participant with respect to any Performance Period after the beginning of such Performance Period, the Committee may provide at the time such person becomes a Participant that such Participant shall receive, if and when payments with respect to Awards for such Performance Period are made under Section 5 hereof, a payment equal to a pro rata portion of such Participant’s Award (if any) with respect to such Performance Period.  Notwithstanding the foregoing, in the case of a newly hired Participant, the Committee may provide for a guaranteed bonus, or a bonus that would exceed the bonus that would otherwise be payable in the Plan.

(f)            Termination of Employment.  Unless otherwise determined by the Committee in its sole discretion at the time the performance criteria are selected for a particular Performance Period in accordance with Section 4(a), if a Participant’s employment terminates for any reason prior to the date on which the Peformance Period ends hereunder, such Participant shall forfeit all rights to any and all Awards which have

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not yet been paid under the Plan; provided that if a Participant’s employment terminates as a result of death, disability or retirement (as defined under any retirement plan of the Company or a Subsidiary) the Committee shall give consideration at its sole discretion to the payment of a partial bonus with regard to the portion of the Performance Period worked.  Notwithstanding the foregoing, if a Participant’s employment terminates for any reason prior to the date on which the Award is paid hereunder, the Committee, in its discretion, may waive any forfeiture pursuant to Section 4 in whole or in part.

(g)           Maximum Amount Payable.  The maximum award payable hereunder for any Performance Period shall in no event exceed $3 million.

SECTION 5
PAYMENT OF AWARDS

Each Participant shall be eligible to receive, as soon as practicable after the amount of such Participant’s Award for a Performance Period has been determined in accordance with the terms of the Plan, payment of the Award in cash, stock, options, other stock-based awards or any combination thereof determined by the Committee subject to such restrictions and/or vesting or deferred requirements as the Committee shall have determined prior to the commencement of the applicable Performance Period (and communicated to the Participant).  Equity or equity-based awards shall be granted under the terms and conditions of one or more of the Company’s Stock Incentive Plans.  Payment of the award may be deferred in accordance with a written election by the Participant pursuant to procedures established by the Committee.

SECTION 6
EFFECTIVENESS OF PLAN, AMENDMENT AND TERMINATION

The Plan shall be effective as of January 1, 2005.  The Committee may amend, suspend, discontinue or terminate the Plan at any time and from time to time.  No action under this section which adversely affects a Participant’s rights to, or interest in, an Award granted prior to the date of such action shall be effective unless the Participant shall have agreed thereto in writing.  Unless earlier terminated, the Plan shall terminate on the day immediately prior to the first meeting of the stockholders of the Company in 2009 at which directors will be elected.

SECTION 7
OTHER PROVISIONS

(a)           No Right to Awards.  No Participant or other person shall have any claim or right to be granted an Award under this Plan until such Award is actually granted.  Neither the establishment of this Plan, nor any action taken hereunder, shall be construed as giving any Participant any right to be retained in the employ of the Company.  Nothing contained in this Plan shall limit the ability of the Company to make payments or awards to Participants under any other plan, agreement or arrangement.

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(b)           Non-transferability.  The rights and benefits of a Participant hereunder are personal to the Participant and, except for payments made following a Participant’s death, shall not be subject to any voluntary or involuntary alienation, assignment, pledge, transfer, encumbrance, attachment, garnishment or other disposition.

(c)           No Impact on Benefits.  Awards under this Plan shall not constitute compensation for the purpose of determining participation or benefits under any other plan of the Company unless specifically included as compensation in such plan.

(d)           Withholding Taxes.  The Company shall have the right to deduct from Awards any taxes or other amounts required to be withheld by law.

(e)           No Limitation on Corporation Action.  Nothing contained in the Plan shall be construed to prevent the Company or any Subsidiary from taking any corporate action which is deemed by it to be appropriate or in its best interest, whether or not such action would have an adverse effect on any awards made under the Plan.  No Participant or other person shall have any claim against the Company or any Subsidiary as a result of any such action.

(f)            Governing Law.  The Plan shall be construed in accordance with and governed by the laws of the State of Delaware.

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EX-10.36

Exhibit 10.36

FORM OF RESTRICTED STOCK AGREEMENT

This Restricted Stock Agreement, dated as of the Grant Date set forth on the signature page hereof, between FairPoint Communications, Inc., a Delaware corporation (the “Company”), and the grantee whose name appears on Schedule A hereto (the “Grantee”), is being entered into pursuant to the FairPoint Communications, Inc. 2005 Stock Incentive Plan (the “Plan”).  Capitalized terms used herein without definition have the meaning given in the Plan.

1.  Grant of Restricted Stock.  The Company hereby evidences and confirms its grant to the Grantee, effective as of the date hereof (the “Grant Date”), of the number of Shares specified on Schedule A hereto under the heading “Restricted Stock.”  All Shares received by the Grantee under this Agreement are subject to the restrictions contained herein and are referred to as “Restricted Stock.”  This Agreement is subordinate to, and the terms and conditions of the Restricted Stock granted hereunder are subject to, the terms and conditions of the Plan, which are incorporated by reference herein.  If there is any inconsistency between the terms hereof and the terms of the Plan, the terms of the Plan shall govern.

2.  Vesting of Restricted Stock.

(a)  Restricted Period.  Except for transfers to Permitted Transferees approved by the Committee and transfers by will or by the laws of descent and distribution, the Restricted Stock granted hereby may not be sold, assigned, transferred, pledged, hypothecated or otherwise directly or indirectly encumbered or disposed of until the end of the Period of Restriction.  Subject to the Grantee’s continuous employment with the Company or a Subsidiary, and except as provided in Section 2(b)(i) or Article IX of the Plan, the Period of Restriction shall lapse, and the Restricted Stock shall become vested, according to the schedule set forth below:

Date	% of Restricted Stock Becoming Vested
April 1, 2006	25%
April 1, 2007	25%
April 1, 2008	25%
April 1, 2009	25%

(b)  Termination of Employment.  Notwithstanding anything contained in this Agreement to the contrary, (i) if the Grantee’s employment is terminated by reason of a Qualifying Termination of Employment during the Period of Restriction, a pro rata portion of any Shares underlying the Restricted Stock shall become vested and nonforfeitable, based upon the percentage of which the numerator is the portion of the Period of Restriction that expired prior to the Grantee’s termination and the denominator is the number of days in the Period of Restriction., and the remaining Restricted Stock for

which the Period of Restriction has not then expired shall be forfeited and canceled as of the date of such termination, and (ii) if the Grantee’s employment is terminated for any other reason during the Period of Restriction, any Restricted Stock held by the Grantee for which the Period of Restriction has not then expired shall be forfeited and canceled as of the date of such termination.

(c)  Committee Discretion.  Notwithstanding anything contained in this Agreement to the contrary, the Committee, in its sole discretion, may accelerate the expiration date of the Period of Restriction with respect to any Restricted Stock under this Agreement, at such times and upon such terms and conditions as the Committee shall determine.

3.  Grantee’s Representations, Warranties and Covenants.

(a)  Investment Intention.  The Grantee represents and warrants that the Restricted Stock has been, and any Shares will be, acquired by the Grantee solely for the Grantee’s own account for investment and not with a view to or for sale in connection with any distribution thereof.  The Grantee further understands, acknowledges and agrees that the Restricted Stock, and any Shares, may not be transferred, sold, pledged, hypothecated or otherwise disposed of except to the extent expressly permitted hereby and at all times in compliance with the U.S. Securities Act of 1933, as amended, and the rules and regulations of the Securities Exchange Commission thereunder, and in compliance with applicable state securities or “blue sky” laws and non-U.S. securities laws.

4.  Grantee’s Rights with Respect to Restricted Stock.

(a)  Rights as Stockholder.  The Grantee shall have, with respect to all Restricted Stock, the right to vote such Restricted Stock, but shall otherwise enjoy none of the rights of a stockholder (including the right to receive dividends and Dividend Equivalents) unless and until the expiration of the Period of Restriction with respect to such Restricted Stock.  Any securities issued to or received by the Grantee with respect to Restricted Stock as a result of a stock split, a combination of shares or any other change or exchange of the Restricted Stock for other securities, by reclassification, reorganization, distribution, liquidation, merger, consolidation, or otherwise, shall have the same status, be subject to the same restrictions and bear the same legend as the Shares of Restricted Stock such securities are issued for, and shall be held by the Company for as long as the Shares of  Restricted Stock such securities are issued for are so held, unless otherwise determined by the Committee.

(b)  Legend.  Until the expiration of the Period of Restriction, each certificate evidencing Shares subject to the Grantee’s Restricted Stock shall be registered in the Grantee’s name and shall bear the following legend: “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS

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(INCLUDING FORFEITURE) CONTAINED IN THE FAIRPOINT COMMUNICATIONS, INC. 2005 STOCK INCENTIVE PLAN AND A RESTRICTED STOCK AGREEMENT ENTERED INTO THEREUNDER, AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED BY IT ARE ASSIGNABLE OR OTHERWISE TRANSFERABLE EXCEPT IN ACCORDANCE WITH SUCH PLAN AND AGREEMENT, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY.”

5.  Change in Control.  In the event of a Change in Control, all of the Grantee’s Shares of Restricted Stock shall be treated in accordance with the provisions of Article IX of the Plan.

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

7.  Miscellaneous.

(a) Binding Effect; Benefits.  This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns.  Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.

(b)  Amendment.  This Agreement may not be amended, modified or supplemented orally, but only by a written instrument executed by the Grantee and the Company.

(c)  Assignability.  Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Company or Grantee without the prior written consent of the other party; provided that the Company may assign all or any portion of its rights or obligations under this Agreement to one or more persons or other entities designated by it.

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(d)  Applicable Law.  This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without reference to principles of conflict of laws which would require application of the law of another jurisdiction, except to the extent that the corporate law of the State of Delaware specifically and mandatorily applies.

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

(f)  Consent to Electronic Delivery.  By executing this Agreement, Grantee hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Grantee pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, and the Restricted Stock via Company web site or other electronic delivery.

(g)  Section and Other Headings, etc.  The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

(h)  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

— Signature page follows —

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IN WITNESS WHEREOF, the Company and Grantee have executed this Agreement as of the Grant Date.

FAIRPOINT COMMUNICATIONS, INC.
By:
	Name:
	Title:
GRANTEE
Name:

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Schedule A

Grantee

Grantee’s Address

Grant Date

Total Number of Shares of Restricted

Stock Which Have Been Granted

6

STOCK POWER

FOR VALUE RECEIVED, the undersigned,                                                                                              ,

hereby assigns and transfers to the Secretary of FairPoint Communications, Inc., a Delaware corporation (the “Company”), ____ shares of common stock, par value $.01 per share, of the Company, standing in the undersigned’s name on the books of the Company, represented by Certificate No. ____ herewith and does hereby irrevocably constitute and appoint the Secretary of the Company attorney to transfer said stock on the books of the Company with full power of substitution in the premises.

Dated:	,
		By:

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EX-21.1

Exhibit 21.1

FAIRPOINT COMMUNICATIONS, INC.

(formerly known as MJD Communications, Inc.)

SUBSIDIARIES

Name	Jurisdiction of Incorporation
ST Enterprises, Ltd.	Kansas
STE/NE Acquisition Corp. (d/b/a Northland
Telephone Co. of Vermont)	Delaware
Sunflower Telephone Company, Inc.	Kansas
Northland Telephone Company of Maine, Inc.	Maine
ST Computer Resources, Inc.	Kansas
ST Long Distance, Inc.	Delaware
MJD Ventures, Inc.	Delaware
Marianna and Scenery Hill Telephone Company	Pennsylvania
Marianna Tel, Inc.	Pennsylvania
The Columbus Grove Telephone Company	Ohio
Quality One Technologies, Inc.	Ohio
C-R Communications, Inc.	Illinois
C-R Telephone Company	Illinois
C-R Long Distance, Inc.	Illinois
Taconic Telephone Corp.	New York
Taconic Cellular Corp.	New York
Taconic Technology Corp.	New York
Taconic TelCom Corp.	New York
Taconet Wireless Corp.	New York
Taconet Corp.	New York
Ellensburg Telephone Company	Washington
Elltel Long Distance Corp.	Delaware
Sidney Telephone Company	Maine
Utilities, Inc.	Maine
Standish Telephone Company	Maine
China Telephone Company	Maine
Maine Telephone Company	Maine
UI Long Distance, Inc.	Maine
UI Communications, Inc.	Maine
UI Telecom, Inc.	Maine
Telephone Service Company	Maine
Chouteau Telephone Company	Oklahoma
Chouteau Telecommunications & Electronics, Inc.	Oklahoma
Chautauqua and Erie Telephone Corporation	New York
Chautauqua & Erie Communications, Inc.
(d/b/a C& E Teleadvantage)	New York
Chautauqua & Erie Network, Inc.	New York
C & E Communications, Ltd.	New York

Western New York Cellular, Inc.	New York
Chautauqua Cable, Inc.	New York
The Orwell Telephone Company	Ohio
Orwell Communications, Inc.	Ohio
GTC Communications, Inc. (f/k/a TPG Communications, Inc.)	Delaware
St. Joe Communications, Inc.	Florida
GTC, Inc.	Florida
GTC Finance Corporation (f/k/a TPGC Finance
Corporation)	Delaware
Peoples Mutual Telephone Company	Virginia
Peoples Mutual Services Company	Virginia
Peoples Mutual Long Distance Company	Virginia
Fremont Telcom Co.	Idaho
Fremont Broadband, LLC	Delaware
Fretel Communications, LLC	Idaho
Comerco, Inc.	Washington
YCOM Networks, Inc.	Washington
FairPoint Berkshire Corporation	New York
Community Service Telephone Co.	Maine
Commtel Communications Inc.	Maine
MJD Services Corp.	Delaware
Bluestem Telephone Company	Delaware
Big Sandy Telecom, Inc.	Delaware
Odin Telephone Exchange, Inc.	Illinois
Columbine Telecom Company (f/k/a Columbine Acquisition Corp.)	Delaware
Ravenswood Communications, Inc.	Illinois
The El Paso Telephone Company	Illinois
El Paso Long Distance Company	Illinois
Yates City Telephone Company	Illinois
FairPoint Carrier Services, Inc.	Delaware
(f/k/a FairPoint Communications Solutions Corp., f/k/a FairPoint Communications Corp.)
FairPoint Communications Solutions Corp. — New York	Delaware
FairPoint Communications Solutions Corp. — Virginia	Virginia
FairPoint Broadband, Inc.	Delaware
MJD Capital Corp.	South Dakota

EX-23.1

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
FairPoint Communications, Inc.:

        We consent to the use of our report dated March 12, 2004, except as to note 19, which is as of January 28, 2005, with respect to the consolidated balance sheets of FairPoint Communications, Inc. and subsidiaries as of December 31, 2002 and 2003, and the related consolidated statements of operations, stockholders' equity (deficit), comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2003, included herein, and to the reference to our firm under the heading "Experts" and "Selected Financial Data" in the prospectus. Our report refers to the Company's adoption of SFAS No. 142, Goodwill and Other Intangible Assets, as required for goodwill and intangible assets effective January 1, 2002 and to the Company's adoption of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity effective July 1, 2003.

/s/ KPMG LLP

Omaha, Nebraska
January 28, 2005

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

EX-23.2

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Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

        We consent to the use in this Amendment No. 9 to Registration Statement No. 333-113937 of FairPoint Communications, Inc. on Form S-1 of our report dated February 23, 2004 (relating to the financial statements of Orange County—Poughkeepsie Limited Partnership as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003), appearing in the Prospectus, which is part of this Registration Statement.

        We also consent to the reference to us under the heading "Experts" in such Prospectus.

/s/ Deloitte & Touche LLP
New York, New York
January 27, 2005

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Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

EX-23.3

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Exhibit 23.3

Consent of Independent Registered Public Accounting Firm

We consent to the inclusion of our reports dated March 1, 2003 on the financial statements of Illinois Valley Cellular RSA 2-I as of December 31, 2002 and 2001 and for each of the three years in the period ended December 31, 2002 and the financial statements of Illinois Valley Cellular RSA 2-III as of December 31, 2002 and 2001 and for each of the three years in the period ended December 31, 2002 in Amendment No. 9 to Registration Statement on Form S-1 of Fairpoint Communications, Inc. for the registration of common stock and to the reference to our Firm under the caption "Experts" in the Registration Statement.

Kiesling Associates LLP

Madison, Wisconsin
January 28, 2005

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Exhibit 23.3

Consent of Independent Registered Public Accounting Firm

EX-23.5

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Exhibit 23.5

Consent of Nominee for Director of FairPoint Communications, Inc.

        The undersigned hereby consents to the disclosure under the caption "Management" in the Registration Statement on Form S-1 of FairPoint Communications, Inc. ("FairPoint") originally filed on March 25, 2004 and related prospectus, and any and all amendments thereto, that the undersigned has been elected and appointed as a director of FairPoint effective upon the offering of common stock as contemplated by the Registration Statement.

Date: January 28, 2005

/s/  PATRICIA GARRISON-CORBIN Name: Patricia Garrison-Corbin

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Exhibit 23.5

EX-23.6

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Exhibit 23.6

Consent of Nominee for Director of FairPoint Communications, Inc.

        The undersigned hereby consents to the disclosure under the caption "Management" in the Registration Statement on Form S-1 of FairPoint Communications, Inc. ("FairPoint") originally filed on March 25, 2004 and related prospectus, and any and all amendments thereto, that the undersigned has been elected and appointed as a director of FairPoint effective upon the offering of common stock as contemplated by the Registration Statement.

Date: January 28, 2005

/s/  DAVID L. HAUSER Name: David L. Hauser

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Exhibit 23.6

EX-23.7

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Exhibit 23.7

Consent of Nominee for Director of FairPoint Communications, Inc.

        The undersigned hereby consents to the disclosure under the caption "Management" in the Registration Statement on Form S-1 of FairPoint Communications, Inc. ("FairPoint") originally filed on March 25, 2004 and related prospectus, and any and all amendments thereto, that the undersigned has been elected and appointed as a director of FairPoint effective upon the offering of common stock as contemplated by the Registration Statement.

Date: January 28, 2005

/s/  CLAUDE C. LILLY Name: Claude C. Lilly

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Exhibit 23.7