Commitments and Contingencies

(a) Leases

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

(b) Legal Proceedings

From time to time, the Company is involved in litigation and regulatory proceedings arising out of its operations. The Company’s management believes that it is not currently a party to any legal or regulatory proceedings, the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on the Company’s financial position or results of operations. Notwithstanding that the Company emerged from Chapter 11 protection on the Effective Date, five of the Chapter 11 Cases are still being resolved. On October 15, 2012, the Company filed a motion in the Bankruptcy Court for final decree closing four of the five remaining Chapter 11 Cases, subject to Bankruptcy Court approval.

The Company’s Northern New England operations are subject to certain retail service quality requirements under separate SQI plans in Maine and Vermont. Effective August 10, 2012, the SQI penalty plan in New Hampshire was eliminated. The Company’s actual operating performance is measured by certain metrics set forth in the respective SQI plans and failure to meet the stated benchmarks for those performance metrics may result in the assessment of penalties under the respective plans. The Merger Orders or subsequent regulation plan in each state provide that any penalties assessed under the plans be paid by the Company in the form of credits applied to retail customer bills. However, as the result of separate orders in New Hampshire and Vermont issued in 2012, certain previously assessed penalties under the SQI plans in each respective state may be used for expansion of broadband services to unserved and underserved areas in those states as described below.

As of September 30, 2012 and December 31, 2011, the Company has an estimated liability of $4.8 million and $7.5 million, respectively, for service quality penalties based on the Company’s actual results relative to the benchmarks for the performance metrics set forth in the respective SQI plans. Of the estimated December 31, 2011 liability, $3.9 million was included in other accrued liabilities, while the remainder was included in the Claims Reserve. None of the liability is recorded in the Claims Reserve as of September 30, 2012.

All penalties incurred under Maine’s SQI plan through the plan year ended July 31, 2011 have been issued as credits to residential customers. For the plan year ended July 31, 2012, Maine SQI penalties of $1.7 million were incurred and will be issued in the form of credits applied to retail customers' bills in the amount of $0.48 per access line per month for twelve months beginning in December 2012.

During the quarter ended March 31, 2012, the Vermont Public Service Board (“VPSB”) approved the Company’s request to use $2.5 million of the Amended Retail Service Quality Plan penalties to deploy broadband into unserved areas. Approximately $1.1 million of this amount is a pre-bankruptcy liability and, therefore, was included in the Claims Reserve as of December 31, 2011 and has subsequently been reclassified to other accrued liabilities.

In New Hampshire, as the result of a New Hampshire PUC (“NHPUC”) recommendation and the approval by the governor and executive council of New Hampshire of a certain broadband expansion agreement, the Company has received authorization to move forward with the next phase of developing a detailed engineering plan for use of $2.8 million in penalties incurred under the New Hampshire SQI penalty plan in 2009, 2010 and 2011, together with another $0.5 million of Company funds, to build out broadband connections to customers in rural areas beyond the commitments made in the Merger Order in New Hampshire. This plan must be filed with the NHPUC by November 1, 2012 and was timely filed. Until final approval of the detailed project plan, these SQI penalties will be classified as a SQI liability in other accrued liabilities.

Based on the Company’s current estimate of its service quality penalties in the Northern New England operations, changes in the accrual impacting revenue and payments are as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30, 2012			Two Hundred Forty-Nine Days Ended September 30, 2011			Predecessor Company
	2012			2011			Nine Months Ended September 30, 2012			Two Hundred Forty-Nine Days Ended September 30, 2011			Twenty-Four Days Ended January 24, 2011
Increase (decrease) in liability recorded as a reduction (increase) to revenue	$	471		$	2,030		$	(90	)	$	(517	)	$	401
SQI penalties paid out in the form of customer rebates	$	(89	)	$	(2,396	)	$	(89	)	$	(6,598	)	$	(631	)

(d) Performance Assurance Plan Credits

As part of the Merger Orders, the Company adopted a PAP that measures the Company’s performance in the provision of wholesale services to CLECs in Maine, New Hampshire and Vermont. Failure to meet specified performance standards as defined in the provisions of the separate plans in each state may result in penalties being incurred and, in general, issued in the form of credits applied to affected CLEC bills. However, as a result of a Vermont order in 2012, certain previously assessed penalties under the PAP in Vermont will be used for expansion of broadband services to unserved areas of Vermont as described below.

As of September 30, 2012 and December 31, 2011, the Company has recorded a reserve of $0.7 million and $4.9 million, respectively, for the estimated amount of PAP penalties incurred that have not yet been credited to CLECs. Penalties assessed in Maine and New Hampshire are recorded as a reduction to accounts receivable since they are paid by the Company in the form of credits applied to CLEC bills. Penalties for Vermont are recorded as liabilities since a significant portion of these penalty amounts are paid to the VUSF, while the remaining credits assessed in Vermont are paid by the Company in the form of credits applied to CLEC bills. At December 31, 2011, $4.1 million of the total reserve was recorded in the Claims Reserve. None of the reserve is recorded in the Claims Reserve as of September 30, 2012.

During the quarter ended March 31, 2012, the VPSB approved the Company’s request to use $4.1 million of certain accrued PAP penalties to deploy broadband into unserved areas. These accrued PAP penalties were pre-bankruptcy penalties designated to be paid into the VUSF and, therefore, were included in the Claims Reserve as of December 31, 2011 and have subsequently been reclassified to other accrued liabilities.

Based on the Company’s current estimate of its PAP credits in the Northern New England operations, changes in the accrual impacting revenue and payments are as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30, 2012			Two Hundred Forty-Nine Days Ended September 30, 2011			Predecessor Company
	2012			2011			Nine Months Ended September 30, 2012			Two Hundred Forty-Nine Days Ended September 30, 2011			Twenty-Four Days Ended January 24, 2011
Increase (decrease) in estimated reserve recorded as a reduction (increase) to revenue	$	787		$	351		$	1,529		$	195		$	629
PAP credits paid out	$	(788	)	$	(1,183	)	$	(1,562	)	$	(4,107	)	$	(531	)

During early 2011, the NHPUC ordered an audit of the Company’s existing PAP in the state of New Hampshire, which commenced in October 2011 and is ongoing. The existing PAP in Maine and Vermont may also be subject to audit, as determined by the Maine PUC and the VPSB, respectively.

(e) Capital Expenditure Obligations

Under a regulatory settlement in New Hampshire, the Company is required to make certain capital expenditures in New Hampshire. Beginning from the date of the Merger, the Company is required to spend $350.4 million through March 31, 2015 in New Hampshire, of which approximately $311.4 million has been spent as of September 30, 2012. The Company expects to timely satisfy the expenditure requirements.