Exhibit 10.4

 

 

 

 

OTELCO INC.

 

LONG-TERM INCENTIVE PLAN

 

 

 

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TABLE OF CONTENTS

 

1.

PURPOSE OF PLAN

 

 

 

 

2.

PARTICIPATION

 

 

 

 

3.

CREDITS UNDER THE PLAN

 

 

 

 

 

3.1

Calculation of Incentive Pool

 

 

 

 

 

 

3.2

Conversion of Incentive Pool Amount

 

 

 

 

 

 

3.3

Allocation of IDS Units

 

 

 

 

 

4.

ACCOUNTS

 

 

 

 

 

 

4.1

IDS Unit Accounts

 

 

 

 

 

 

4.2

Dividend and Interest Equivalents Accounts

 

 

 

 

 

 

4.3

Accounts Not Funded; No Rights as Holders of IDSs

 

 

 

 

 

 

4.4

Reduction in Accounts

 

 

 

 

 

5.

VESTING

 

 

 

 

 

 

5.1

IDS Unit Account

 

 

 

 

 

 

5.2

Dividend and Interest Equivalents Account

 

 

 

 

 

 

5.3

Acceleration of Vesting Upon Retirement

 

 

 

 

 

6.

DISTRIBUTIONS

 

 

 

 

 

 

6.1

Payment of IDS Units

 

 

 

 

 

 

6.2

Payment of Dividend and Interest Equivalents

 

 

 

 

 

 

6.3

Payment Election

 

 

 

 

 

 

6.4

Distribution Upon Termination of Employment

 

 

 

 

 

 

6.5

Distribution Upon a Change in Control Event

 

 

 

 

 

 

6.6

Section 162(m) Limitation

 

 

 

 

 

7.

ADMINISTRATION

 

 

 

 

 

 

7.1

Committee

 

 

 

 

 

 

7.2

Committee Action

 

 

 

 

 

 

7.3

Powers and Duties of the Committee

 

 

 

 

 

 

7.4

Construction and Interpretation

 

 

 

 

 

 

7.5

Information

 

 

 

 

 

 

7.6

Compensation, Expenses and Indemnity

 

 

 

 

 

 

7.7

Annual Statements

 

 

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8.

MISCELLANEOUS

 

 

 

 

 

 

8.1

Unsecured General Creditor

 

 

 

 

 

 

8.2

Trust Arrangement

 

 

 

 

 

 

8.3

Restriction Against Assignment

 

 

 

 

 

 

8.4

Withholding

 

 

 

 

 

 

8.5

Amendment, Modification, Suspension or Termination

 

 

 

 

 

 

8.6

Governing Law; Severability

 

 

 

 

 

 

8.7

Receipt or Release

 

 

 

 

 

 

8.8

Payments on Behalf of Persons Under Incapacity

 

 

 

 

 

 

8.9

No Right to Employment

 

 

 

 

 

 

8.10

Compliance with Laws

 

 

 

 

 

 

8.11

Plan Construction

 

 

 

 

 

 

8.12

Headings, etc. Not Part of Agreement

 

 

 

 

 

 

8.13

Claims Procedure

 

 

 

 

 

9.

ADJUSTMENTS IN CASE OF CHANGES IN IDS OR COMMON STOCK

 

 

 

 

 

10.

DEFINITIONS

 

 

 

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OTELCO INC.

LONG-TERM INCENTIVE PLAN

 

1.                                      PURPOSE OF PLAN

 

The purpose of this Plan is to promote the success of the Company by rewarding a
select group of management and highly compensated employees for exemplary
performance as an additional means to attract, motivate and retain such
employees and to further align the interests of participants with those of the
holders of the Company’s securities generally.  Only Eligible Employees (as
defined herein) may participate in this Plan.

 

2.                                      PARTICIPATION

 

The Committee shall select from the class of Eligible Employees those particular
Eligible Employees who may be eligible to receive IDS Units in accordance with
Section 3.  If the Committee determines in its sole discretion that a
Participant no longer qualifies as a member of a select group of management or
highly compensated employees, as membership in such group is determined in
accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, or that the
inclusion of any Eligible Employee in this Plan could violate any applicable law
or jeopardize the status of this Plan as a plan intended to be “unfunded” and
“maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees”
within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1), the
Committee shall have the right, in its sole discretion, to (i) immediately
distribute the Participant’s then vested IDS Units and Dividend and Interest
Equivalents and (other than the payment when vested of any of the Participant’s
unvested IDS Units and Dividend and Interest Equivalents) terminate the
Participant’s participation in this Plan, and/or (ii) take such further
reasonable action that the Committee deems appropriate in the circumstances.

 

3.                                      CREDITS UNDER THE PLAN

 

3.1                               Calculation of Incentive Pool.  Before the
start of each Plan Year during the term of this Plan, the Company shall
establish a target level of EBITDA (“Target EBITDA”) for such Plan Year.  At the
close of a Plan Year, the Company’s audited financial statements shall be used
to calculate the Company’s actual level of EBITDA (“Actual EBITDA”) for such
Plan Year.  An “Incentive Pool Amount” shall be established for each Plan Year
based on the amount, if any, by which Actual EBITDA exceeds Target EBITDA
(“Excess EBITDA”) for such Plan Year.  The Incentive Pool Amount shall equal:
(i) fifteen percent (15%) of the first $1,000,000, or any portion thereof, of
Excess EBIDTA, plus (ii) twenty percent (20%) of the amount, if any, by which
Excess EBITDA exceeds $1,000,000.  If Actual EBITDA does not exceed Target
EBITDA for a Plan Year, no Incentive Pool Amount shall be established for such
Plan Year.

 

3.2                               Conversion of Incentive Pool Amount.   The
Incentive Pool Amount for a Plan Year, if any, shall be divided by the Fair
Market Value of an IDS on December 31 of such Plan Year (the “Determination
Date”), and the resulting amount shall be the number of IDS Units credited under
this Plan for such Plan Year.

 

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3.3                               Allocation of IDS Units.  The number of IDS
Units for a Plan Year determined in accordance with Section 3.2 above shall be
allocated among Participants, in the sole discretion of the Committee, based on
the Participant’s contribution to the overall financial results of the Company
or such other factors as the Committee deems relevant, on or as soon as
administratively practicable after May 1 following the close of such Plan Year
(the “Crediting Date”).

 

4.                                      ACCOUNTS

 

4.1                               IDS Unit Accounts.  The Committee shall
establish and maintain an IDS Unit Account for each Participant to whom IDS
Units are allocated pursuant to Section 3.3.

 

4.1.1                     Crediting of IDS Units.  On the applicable Crediting
Date, the Committee shall credit the Participant’s IDS Units Account with the
number of IDS Units, if any, allocated to such Participant in accordance with
Section 3.3.

 

4.1.2                     Subaccounts.  The Committee shall establish separate
vested and unvested subaccounts under a Participant’s IDS Unit Account.  25% of
the IDS Units credited to a Participant on any Crediting Date shall be initially
credited to the Participant’s vested subaccount, and the remainder shall be
initially credited to the Participant’s unvested subaccount.

 

4.2                               Dividend and Interest Equivalents Accounts. 
The Committee shall establish and maintain a Dividend and Interest Equivalents
Account for each Participant to whom IDS Units are allocated pursuant to
Section 3.3.

 

4.2.1                     Crediting of Dividend and Interest Equivalents.  On or
as soon as administratively practicable after the date on which the Company pays
a dividend or makes a payment of interest on its IDSs (a “Dividend or Interest
Payment Date”), the Participant’s Dividend and Interest Equivalents Account
shall be credited with an amount equal to the amount of the Dividend and
Interest Equivalents representing cash dividends or interest paid with respect
to that number of IDSs equal to the aggregate number of IDS Units in the
Participant’s IDS Unit Account at the start of business as of the relevant
record date for such dividend or interest payment.  A Participant’s Dividend and
Equivalents Account shall continue to be credited with Dividend and Interest
Equivalents pursuant to this Section 4.2.1, until the number of IDS Units
credited to such Participant’s IDS Unit Account (after reduction pursuant to
Section 5.4) reaches zero.

 

4.2.2                     Subaccounts.  The Committee shall establish separate
vested and unvested subaccounts under a Participant’s Dividend and Interest
Equivalents Account.  Dividend and Interest Equivalents attributable to vested
IDS Units shall initially be credited to the Participant’s vested subaccount,
and Dividend and Interest Equivalents attributable to unvested IDS Units shall
initially be credited to the Participant’s unvested subaccount.

 

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4.3                               Accounts Not Funded; No Rights as Holders of
IDSs.  A Participant’s Accounts shall be memorandum accounts on the books of the
Company.  The IDS Units credited to a Participant’s IDS Unit Account, and the
Dividend and Interest Equivalents credited to a Participant’s Dividend and
Interest Equivalents Account, shall be used solely as a device for the
determination of the payment to be eventually distributed to such Participant in
accordance with this Plan.  The IDS Units and Dividend and Interest Equivalents
shall not be treated as property or (subject to Section 8.2) as a trust fund of
any kind.  No Participant shall be entitled to any voting or other rights as a
holder of IDSs with respect to IDS Units or Dividend and Interest Equivalents
credited under this Plan.  The IDS Units and Dividend and Interest Equivalents
credited (and the payment to which the Participant is entitled under this Plan)
shall be subject to adjustment in accordance with Section 9 of this Plan.

 

4.4                               Reduction in Accounts.  A Participant’s
Accounts shall be reduced by the number of IDS Units, and the amount of Dividend
and Interest Equivalents, as applicable, with respect to which payment is made,
in the case of IDS Units, which are extinguished, or in either case are credited
to the Deferred Compensation Plan.

 

5.                                      VESTING

 

5.1                               IDS Unit Account.  IDS Units credited to a
Participant’s IDS Unit Account on a Crediting Date pursuant to Section 4.1.1
shall initially be entirely unvested, and shall become 100% vested on the third
anniversary of such Crediting Date.  On each Crediting Date, the vested
subaccount of the Participant’s IDS Unit Account shall be increased by the IDS
Units (if any) that became vested as of such Crediting Date, and the unvested
subaccount of the Participant’s IDS Unit Account shall be reduced by those IDS
Units.

 

5.2                               Dividend and Interest Equivalents Account. 
Dividend and Interest Equivalents credited to a Participant’s Dividend and
Interest Equivalents Account on a Dividend or Interest Payment Date pursuant to
Section 4.2.1 with respect to then-vested IDS Units shall be fully vested on
such Dividend or Interest Payment Date.  Dividend and Interest Equivalents
credited with respect to unvested IDS Units shall initially be credited to the
unvested subaccount of a Participant’s Dividend and Interest Equivalents
Account, and such amounts shall become vested at the time the corresponding IDS
Units become vested as set forth in Section 5.1.  The vested subaccount of the
Participant’s Dividend and Interest Equivalents Account shall be increased by
any Dividend and Interest Equivalents that become vested as of a Crediting Date,
and the unvested subaccount of the Participant’s Dividend and Interest
Equivalents Account shall be reduced by those Dividend and Interest Equivalents.

 

5.3                               Acceleration of Vesting Upon Retirement. 
Notwithstanding the foregoing, a Participant shall become fully vested as to all
IDS Units credited to his or her IDS Unit Account, and all Dividend and Interest
Equivalents credited to his or her Dividend and Interest Equivalents Account, if
while an employee of the Company or a Subsidiary, the Participant (i) dies,
(ii) becomes totally and permanently

 

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disabled or (iii) reaches the Participant’s Retirement Date.  Total and
permanent disability shall be determined by the Committee in its discretion, and
if the Company maintains a long term disability plan that covers the
Participant, the Committee’s discretion shall be guided by the standard set
forth in such plan.

 

6.                                      DISTRIBUTIONS

 

6.1                               Payment of IDS Units.  On or as soon as
administratively practicable after the first business day in June following the
close of a Plan Year (the “IDS Unit Distribution Date”), the Company shall make
a cash payment to a Participant (or in the event of his or her death, to his or
her Beneficiary) in an amount equal to the (i) number of IDS Units in the vested
subaccount of the Participant’s IDS Unit Account that had been credited to the
Participant’s IDS Unit Account for at least one (1) year as of the IDS Unit
Distribution Date, multiplied by (ii) the Fair Market Value of an IDS as of the
first business day immediately preceding the IDS Unit Distribution Date.

 

6.2                               Payment of Dividend and Interest Equivalents. 
On or as soon as administratively practicable after June 30, or the first
business day thereafter, following the close of a Plan Year (the “Dividend and
Interest Equivalent Distribution Date”), the Company shall make a cash payment
to a Participant (or in the event of his or her death, to his or her
Beneficiary) in an amount equal to the aggregate amount of Dividend and Interest
Equivalents that are credited to the vested subaccount of the Participant’s
Dividend and Interest Equivalents Account as of and on the Dividend and Interest
Equivalent Distribution Date.

 

6.3                               Payment Election.  No later than June 30 of
each Plan Year (or such earlier date established by the Committee consistent
with the election requirements imposed under Code Section 409A), the Committee
may permit each participant to elect that in lieu of the payments provided in
Sections 6.1 and 6.2, the amounts that otherwise would have been paid with
respect to the IDS Units and corresponding Dividend and Interest Equivalents
with respect to such Plan Year shall be credited to the Deferred Compensation
Plan.  Any such election must provide for payment pursuant to the terms of the
Deferred Compensation Plan and the requirements of Code Section 409A.

 

6.4                               Distribution Upon Termination of Employment.

 

6.4.1                     Termination of Unvested IDS Units and Dividend and
Interest Equivalents.  Upon a Participant’s Termination Date, IDS Units credited
to the unvested subaccount of such Participant’s IDS Unit Account, and Dividend
and Interest Equivalents credited to the unvested subaccount of such
Participant’s Dividend and Interest Equivalents Account, shall immediately
terminate and the Participant shall have no rights with respect thereto.

 

6.4.2                     Payment of IDS Units Upon Termination of Employment. 
Within thirty (30) days after a Participant’s Termination Date, the Company
shall make a cash payment to a Participant (or in the event of his or her death,
to his or her Beneficiary) in an amount equal to the (i) number of IDS Units in
the vested subaccount of the Participant’s IDS Unit Account as of the

 

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Termination Date, multiplied by (ii) the Fair Market Value of an IDS as of the
first business day immediately preceding the Termination Date.  No such payment
shall be credited to the Deferred Compensation Plan.

 

6.4.3                     Payment of Dividend and Interest Equivalents Upon
Termination of Employment.  Within thirty (30) days after a Participant’s
Termination Date, the Company shall make a cash payment to a Participant (or in
the event of his or her death, to his or her Beneficiary) in an amount equal to
the aggregate amount of Dividend and Interest Equivalents credited to the vested
subaccount of the Participant’s Dividend and Interest Equivalents Account as of
the Termination Date.  No such payment shall be credited to the Deferred
Compensation Plan.

 

6.4.4                     Payments to Key Employees.  Notwithstanding anything
contained herein to the contrary, the Termination Date of a Participant who is a
Key Employee of a Participating Affiliate shall be deemed to be the date that is
six (6) months after it would otherwise be without this Section 6.3.4 (or if
earlier, the date of the Participant’s death).

 

6.5                               Distribution Upon a Change in Control Event.

 

6.5.1                     Acceleration Upon a Change in Control Event.  Upon a
Change in Control Event, IDS Units credited to a Participant’s IDS Unit Account,
and Dividend and Interest Equivalents credited to a Participant’s Dividend and
Interest Equivalents Account, that are not then fully vested, shall
automatically become fully vested and credited to the applicable vested
subaccounts upon the occurrence of such event.

 

6.5.2                     Payment of IDS Units Upon Change in Control Event. 
Within thirty (30) days after a Change in Control Event, the Company shall make
a cash payment to a Participant (or in the event of his or her death, to his or
her Beneficiary) in an amount equal to the (i) number of IDS Units in the
Participant’s IDS Unit Account that are fully vested as of the effective date of
the Change in Control Event (after giving effect to any accelerated vesting
pursuant to Section 6.5.1), multiplied by (ii) the Fair Market Value of an IDS
as of the first business day immediately preceding the effective date of the
Change in Control Event.  No such payment shall be credited to the Deferred
Compensation Plan.

 

6.5.3                     Payment of Dividend and Interest Equivalents Upon
Change in Control Event.  Within thirty (30) days after a Change in Control
Event, the Company shall make a cash payment to a Participant (or in the event
of his or her death, to his or her Beneficiary) in an amount equal to aggregate
amount of Dividend and Interest Equivalents that are fully vested as of the
effective date of the Change in Control Event (after giving effect to any
accelerated vesting pursuant to Section 6.5.1).  No such payment shall be
credited to the Deferred Compensation Plan.

 

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6.6                               Section 162(m) Limitation.  Notwithstanding
anything herein to the contrary, if the Committee determines in good faith that
there is a reasonable likelihood that any benefits paid to a Participant for a
taxable year of the respective Participating Affiliate would not be deductible
by the Participating Affiliate solely by reason of the limitation under
Section 162(m) of the Code, then, to the extent reasonably deemed necessary by
the Committee to ensure that the entire amount of any distribution to the
Participant pursuant to this Plan is deductible, the Committee shall defer all
or any portion of a distribution under this Plan.  The amounts so deferred shall
be distributed to the Participant or his or her Beneficiary (in the event of the
Participant’s death) at the earliest possible date, as determined by the
Committee in good faith, on which the deductibility of compensation paid or
payable to the Participant for the taxable year of the Participating Affiliate
during which the distribution is made will not be limited by Section 162(m) of
the Code.

 

7.                                      ADMINISTRATION

 

7.1                               Committee.  The Committee shall be appointed
by, and serve at the pleasure of, the Board of Directors.  The number of members
comprising the Committee shall be determined by the Board, which may from time
to time vary the number of members.  A member of the Committee may resign by
delivering a written notice of resignation to the Board.  The Board may remove
any member by delivering a certified copy of its resolution of removal to such
member.  Vacancies in the membership of the Committee shall be filled promptly
by the Board.

 

7.2                               Committee Action.  The Committee shall act at
meetings by affirmative vote of a majority of the members of the Committee.  Any
action permitted to be taken at a meeting may be taken without a meeting if,
prior to such action, a written consent to the action is signed by all members
of the Committee and such written consent is filed with the minutes of the
proceedings of the Committee.  A member of the Committee shall not vote or act
upon any matter which relates solely to himself or herself as a Participant. 
The Chairman or any other member or members of the Committee designated by the
Chairman may execute any certificate or other written direction on behalf of the
Committee.

 

7.3                               Powers and Duties of the Committee.  The
Committee, on behalf of the Participants and their Beneficiaries, shall enforce
this Plan in accordance with its terms, shall be charged with the general
administration of this Plan, and shall have all powers necessary to accomplish
its purposes, including, but not by way of limitation, the following:

 

(a)           To construe and interpret the terms and provisions of this Plan;

 

(b)           To compute and certify to each Participating Affiliate and to any
Trustee the amount and kind of benefits payable to Participants and their
Beneficiaries, and to determine the time and manner in which such benefits are
paid;

 

(c)           To maintain all records that may be necessary for the
administration of this Plan;

 

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(d)           To provide for the disclosure of all information and the filing or
provision of all reports and statements to Participants, Beneficiaries or
governmental agencies as shall be required by law;

 

(e)           To make and publish such rules for the regulation of this Plan and
procedures for the administration of this Plan as are not inconsistent with the
terms hereof;

 

(f)            To appoint a plan administrator or any other agent, and to
delegate to them such powers and duties in connection with the administration of
this Plan as the Committee may from time to time prescribe;

 

(g)           To authorize all disbursements by a Participating Affiliate and
any Trustee pursuant to this Plan and any Trust; and

 

(h)           To direct each Trustee concerning the performance of various
duties and responsibilities under the related Trust.

 

7.4                               Construction and Interpretation.  The
Committee shall have full discretion to construe and interpret the terms and
provisions of this Plan, which interpretation or construction shall be final and
binding on all parties, including but not limited to Participating Affiliates
and any Participant or Beneficiary.  The Committee shall administer such terms
and provisions in a uniform and nondiscriminatory manner and in full accordance
with any and all laws applicable to this Plan.

 

7.5                               Information.  To enable the Committee to
perform its functions, each Participating Affiliate shall supply full and timely
information to the Committee on all matters relating to the compensation of all
Participants, their death or other cause of termination, and such other
pertinent facts as the Committee may require.

 

7.6                               Compensation, Expenses and Indemnity.

 

7.6.1                     No Compensation.  The members of the Committee shall
serve without compensation for their services hereunder.

 

7.6.2                     Legal Counsel; Administrative Expenses.  The Committee
is authorized at the expense of the Company to employ such legal counsel as it
may deem advisable to assist in the performance of its duties hereunder. 
Expenses and fees in connection with the administration of this Plan shall be
paid by the Company.

 

7.6.3                     Indemnification.  To the extent permitted by
applicable state law, the Company and each of the other Participating Affiliates
shall indemnify and save harmless the Committee and each member thereof, the
Board of Directors and any delegate of the Committee who is an employee of a
Participating Affiliate against any and all expenses, liabilities and claims,
including legal fees to defend against such liabilities and claims arising out
of their discharge in good faith of responsibilities under or incident to this
Plan, other than expenses and liabilities arising out of willful misconduct.

 

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This indemnity shall not preclude such further indemnities as may be available
under insurance purchased by a Participating Affiliate or provided by a
Participating Affiliate under any bylaw, agreement or otherwise, as such
indemnities are permitted under state law.

 

7.7                               Annual Statements.  Under procedures
established by the Committee, a Participant shall receive a statement with
respect to such Participant’s Accounts on no less than an annual basis.

 

8.                                      MISCELLANEOUS

 

8.1                               Unsecured General Creditor.  Participants and
their Beneficiaries, heirs, successors, and assigns shall have no legal or
equitable rights, claims, or interest in any specific property or assets of any
Participating Affiliate.  No assets of any Participating Affiliate shall be held
under any trust (except as provided in Section 8.2), or held in any way as
collateral security for the fulfilling of the obligations of any Participating
Affiliate under this Plan.  Any and all of each Participating Affiliate’s assets
shall be, and remain, the general unpledged, unrestricted assets of the
Company.  Each Participating Affiliate’s obligations under this Plan shall be
merely that of an unfunded and unsecured promise of the Participating Affiliate
to pay money in the future to those persons to whom the Participating Affiliate
has a benefit obligation under this Plan (as determined in accordance with the
terms hereof), and the respective rights of the Participants and Beneficiaries
shall be no greater than those of unsecured general creditors.

 

8.2                               Trust Arrangement.  Notwithstanding
Section 8.1, a Participating Affiliate may at any time transfer assets
representing all or any portion of a Participant’s Accounts to a Trust to be
held and invested and reinvested by the Trustee pursuant to the terms of the
Trust Agreement.  However, to the extent provided in the Trust Agreement only,
such transferred amounts shall remain subject to the claims of general creditors
of the Participating Affiliate that established the Trust.  To the extent that
assets representing a Participant’s Accounts are held in a Trust when his or her
benefits under this Plan become payable, the Participating Affiliate that is
liable for the payment of such benefits may direct the Trustee to pay such
benefits to the Participant from the assets of the Trust.

 

8.3                               Restriction Against Assignment.  The
respective Participating Affiliate shall pay all amounts payable hereunder only
to the person or persons designated by this Plan and not to any other person or
corporation.  No part of a Participant’s Accounts shall be liable for the debts,
contracts, or engagements of any Participant, his or her Beneficiary, or
successors in interest, nor shall a Participant’s Accounts be subject to
execution by levy, attachment, or garnishment or by any other legal or equitable
proceeding, nor shall any such person have any right to alienate, anticipate,
commute, pledge, encumber, or assign any benefits or payments hereunder in any
manner whatsoever.  If any Participant, Beneficiary or successor in interest is
adjudicated bankrupt or purports to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge any distribution or payment from this Plan,
voluntarily or involuntarily, the Committee, in its discretion, may cancel such

 

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distribution or payment (or any part thereof) to or for the benefit of such
Participant, Beneficiary or successor in interest in such manner as the
Committee shall direct.

 

8.4                               Withholding.

 

8.4.1                     Employment Taxes Upon Vesting.  The Company (or any
Subsidiary by which the Participant is or was employed) may, in its reasonable
discretion, satisfy any state or federal employment tax withholding obligation
with respect to the vesting of IDS Units credited to the Participant’s IDS Unit
Account and Dividend and Interest Equivalents credited to the Participant’s
Dividend and Interest Equivalents Account by either (a) deducting such amounts
from any compensation payable by the Company (or a Subsidiary) to the
Participant, or (b) reducing the vested portion of the Participant’s IDS Unit
Account or Dividend and Interest Equivalents Account, as applicable, by the
amount necessary to satisfy such withholding obligation.

 

8.4.2                     Distributions.  There shall be deducted from each
payment or distribution made under this Plan, or any other compensation payable
to the Participant (or Beneficiary), all taxes which are required to be withheld
by the Company (or a Subsidiary) in respect to such payment or distribution or
this Plan.  The Company (or the Subsidiary by which the Participant is or was
employed) shall have the right to reduce any payment or distribution (or other
compensation) by the amount of cash sufficient to provide the amount of said
taxes.  If the Company (or a Subsidiary), for any reason, elects not to (or
cannot) satisfy the withholding obligation from the amounts otherwise payable
under this Plan, the Participant shall pay or provide for payment in cash of the
amount of any taxes which the Company (or a Subsidiary) may be required to
withhold with respect to the benefits hereunder.

 

8.5                               Amendment, Modification, Suspension or
Termination.  The Board or the Committee may amend, modify, suspend or terminate
this Plan in whole or in part, except that no amendment, modification,
suspension or termination shall have any retroactive effect to reduce any
amounts allocated to a Participant’s Accounts.  Notwithstanding the foregoing,
the Committee may terminate prospectively or reduce prospectively the crediting
of Dividend and Interest Equivalents and increases in Appreciated Value.

 

8.6                               Governing Law; Severability.  This Plan shall
be construed, governed and administered in accordance with the laws of the State
of Alabama.  If any provisions of this instrument shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.

 

8.7                               Receipt or Release.  Any payment to a
Participant or the Participant’s Beneficiary in accordance with the provisions
of this Plan shall, to the extent thereof, be in full satisfaction of all claims
against the Committee, the Company and its Subsidiaries, and the Trustee.  The
Committee may require such Participant or Beneficiary, as a

 

9

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condition precedent to such payment, to execute a receipt and release to such
effect.

 

8.8                               Payments on Behalf of Persons Under
Incapacity.  In the event that any amount becomes payable under this Plan to a
person who, in the sole judgment of the Committee, is considered by reason of
physical or mental condition to be unable to give a valid receipt therefore, the
Committee may direct that such payment be made to any person found by the
Committee, in its sole judgment, to have assumed the care of such person. Any
payment made pursuant to such determination shall constitute a full release and
discharge of the Committee, the Company and its Subsidiaries.

 

8.9                               No Right to Employment.  Participation in this
Plan shall not give any person the right to continued employment or service or
any rights or interests other than as herein provided.  No Participant shall
have any right to any payment or benefit hereunder except to the extent provided
in this Plan.

 

8.10                        Compliance with Laws.  This Plan and the payment of
money under this Plan are subject to compliance with all applicable federal and
state laws, rules and regulations (including but not limited to state and
federal securities law) and to such approvals by any listing, agency or any
regulatory or governmental authority as may, in the opinion of counsel for the
Company or a Subsidiary, be necessary or advisable in connection therewith.  Any
securities delivered under this Plan shall be subject to such restrictions, and
the person acquiring such securities shall, if requested by the Company or a
Subsidiary, provide such assurances and representations to the Company or the
Subsidiary as the Company or the Subsidiary may deem necessary or desirable to
assure compliance with all applicable legal requirements.

 

8.11                        Plan Construction.

 

8.11.1              Rule 16b-3.  It is the intent of the Company that
transactions pursuant to this Plan satisfy and be interpreted in a manner that
satisfies the applicable requirements of Rule 16b-3 promulgated under the
Exchange Act (“Rule 16b-3”) so that, the crediting of IDS Units and Dividend and
Interest Equivalents and any other event with respect to IDS Units and Dividend
and Interest Equivalents under this Plan will be entitled to the benefits of
Rule 16b-3 or other exemptive rules under Section 16 of the Exchange Act and
will not be subjected to avoidable liability thereunder.

 

8.11.2              Section 409A.  This Plan shall be construed and interpreted
to comply with Section 409A of the Code to the extent required to preserve the
intended tax consequences of this Plan.  The Company reserves the right to amend
this Plan to the extent it reasonably determines is necessary in order to
preserve the intended tax consequences of this Plan in light of Section 409A of
the Code and any regulations or other guidance promulgated thereunder.

 

10

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8.12                        Headings, etc. Not Part of Agreement.  Headings and
subheadings in this Plan are inserted for convenience of reference only and are
not to be considered in the construction of the provisions hereof.

 

8.13                        Claims Procedure.

 

8.13.1              Presentation of Claim.  Any Participant or Beneficiary of a
deceased Participant (such Participant or Beneficiary being referred to below as
a “Claimant”) may deliver to the Committee a written claim for a determination
with respect to the benefits payable to such Claimant pursuant to this Plan.  If
such a claim relates to the contents of a notice received by the Claimant, the
claim must be made within sixty (60) days after such notice was received by the
Claimant.  All other claims must be made within one hundred eighty (180) days of
the date on which the event that caused the claim to arise occurred.  The claim
must state with particularity the determination desired by the Claimant.

 

8.13.2              Notification of Decision.  The Committee shall consider a
Claimant’s claim within a reasonable time, but no later than ninety (90) days
after receiving the claim.  If the Committee determines that special
circumstances require an extension of time for processing the claim, written
notice of the extension shall be furnished to the Claimant prior to the
termination of the initial ninety (90) day period.  In no event shall such
extension exceed a period of ninety (90) days from the end of the initial
period.  The extension notice shall indicate the special circumstances requiring
an extension of time and the date by which the Committee expects to render the
benefit determination.  The Committee shall notify the Claimant in writing:

 

(a)           that the Claimant’s requested determination has been made, and
that the claim has been allowed in full; or

 

(b)           that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant’s requested determination, and such notice must set
forth in a manner calculated to be understood by the Claimant:

 

(i)            the specific reason(s) for the denial of the claim, or any part
of it;

 

(ii)           specific reference(s) to pertinent provisions of this Plan upon
which such denial was based;

 

(iii)          a description of any additional material or information necessary
for the Claimant to perfect the claim, and an explanation of why such material
or information is necessary;

 

(iv)          an explanation of the claim review procedure set forth in
Section 8.13.3; and

 

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(v)           a statement of the Claimant’s right to bring an arbitration
pursuant to Section 8.13.6 or, to the extent required by law, a civil action
under ERISA Section 502(a) following an adverse benefit determination on review.

 

8.13.3              Review of a Denied Claim.  On or before sixty (60) days
after receiving a notice from the Committee that a claim has been denied, in
whole or in part, a Claimant (or the Claimant’s duly authorized representative)
may file with the Committee a written request for a review of the denial of the
claim.  The Claimant (or the Claimant’s duly authorized representative):

 

(a)           may, upon request and free of charge, have reasonable access to,
and copies of, all documents, records and other information relevant to the
claim for benefits;

 

(b)           may submit written comments or other documents; and/or

 

(c)           may request a hearing, which the Committee, in its sole
discretion, may grant.

 

8.13.4              Decision on Review.  The Committee shall render its decision
on review promptly, and no later than sixty (60) days after the Committee
receives the Claimant’s written request for a review of the denial of the
claim.  If the Committee determines that special circumstances require an
extension of time for processing the claim, written notice of the extension
shall be furnished to the Claimant prior to the termination of the initial sixty
(60) day period.  In no event shall such extension exceed a period of sixty (60)
days from the end of the initial period.  The extension notice shall indicate
the special circumstances requiring an extension of time and the date by which
the Committee expects to render the benefit determination.  In rendering its
decision, the Committee shall take into account all comments, documents, records
and other information submitted by the Claimant relating to the claim, without
regard to whether such information was submitted or considered in the initial
benefit determination.  The decision must be written in a manner calculated to
be understood by the Claimant, and it must contain:

 

(a)                                  specific reasons for the decision;

 

(b)                                 specific reference(s) to the pertinent Plan
provisions upon which the decision was based;

 

(c)                                  a statement that the Claimant is entitled
to receive, upon request and free of charge, reasonable access to and copies of,
all documents, records and other information relevant (as defined in applicable
ERISA regulations) to the Claimant’s claim for benefits; and

 

(d)                                 a statement of the Claimant’s right to bring
a civil action under ERISA Section 502(a).

 

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8.13.5              Pre and Post-Change in Control Procedures.  With respect to
claims made prior to the occurrence of a Change in Control Event, a Claimant’s
compliance with the foregoing provisions of this Section 8.13 is a mandatory
prerequisite to a Claimant’s right to commence arbitration pursuant to
Section 8.13.6 with respect to any claim for benefits under this Plan.  With
respect to claims made upon and after the occurrence of a Change in Control
Event, the Claimant may proceed directly to arbitration in accordance with
Section 8.13.6 and need not first satisfy the foregoing provisions of this
Section 8.13.

 

8.13.6              Arbitration of Claims.  All claims or controversies arising
out of or in connection with this Plan, that the Company or any Subsidiary may
have against any Claimant, or that any Claimant may have against the Company or
any Subsidiary or against any of their respective officers, directors, employees
or agents acting in their capacity as such, shall, subject to the initial review
provided for in the foregoing provisions of this Section 8.13 that are effective
with respect to claims brought prior to the occurrence of a Change in Control
Event, be resolved through arbitration as provided in this Section 8.13.6.  The
decision of an arbitrator on any issue, dispute, claim or controversy submitted
for arbitration, shall be final and binding upon the Company, any Participating
Affiliate and the Claimant and that judgment may be entered on the award of the
arbitrator in any court having proper jurisdiction.  With respect to claims
arising upon or following the occurrence of a Change in Control Event (but not
with respect to any determination made by the Committee prior to the Change in
Control Event), the arbitrator shall review de novo any claim previously
considered by the Committee pursuant to this Section 8.13.

 

Except as otherwise provided in this procedure or by mutual agreement of the
parties, any arbitration shall be conducted in Orange County, California before
a sole arbitrator selected from Judicial Arbitration and Mediation
Services, Inc., Atlanta, Georgia, or its successor (“JAMS”), or if JAMS is no
longer able to supply the arbitrator, such arbitrator shall be selected from the
American Arbitration Association, and shall be conducted in accordance with the
provisions of Alabama Code of Civil Practice §§ 6 et seq. as the exclusive forum
for the resolution of such dispute.  The party desiring to initiate arbitration
shall do so by sending written notice of an intention to arbitrate to the other
party, which notice shall include a description of the nature of all claims or
controversies asserted and a description of the facts upon which such claims are
based.  Pursuant to Alabama Code of Civil Practice § 6-6-500, provisional
injunctive relief may, but need not, be sought by either party to this Agreement
in a court of law while arbitration proceedings are pending, and any provisional
injunctive relief granted by such court shall remain effective until the matter
is finally determined by the arbitrator.  Final resolution of any dispute
through arbitration may include any remedy or relief which the arbitrator deems
just and equitable, including any and all remedies provided by applicable state
or federal statutes.  At the conclusion of the

 

13

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arbitration, the arbitrator shall issue a written decision that sets forth the
essential findings and conclusions upon which the arbitrator’s award or decision
is based.  Any award or relief granted by the arbitrator hereunder shall be
final and binding on the parties hereto and may be enforced by any court of
competent jurisdiction.  The parties acknowledge and agree that they are hereby
waiving any rights to trial by jury in any action, proceeding or counterclaim
brought by either of the parties against the other in connection with any matter
whatsoever arising out of or in any way connected with this Plan.

 

All forum costs of the arbitration (including, but not limited to, the fees and
expenses of the arbitrator) shall be advanced and borne by the Company. 
Further, the fees and expenses of the counsel for the Claimant as to any claim
arising upon or after a Change in Control Event shall be advanced and borne by
the Company; provided, however, that if it is determined by the arbitrator that
the Claimant did not commence the arbitration in good faith and had no
reasonable basis therefore, the Claimant shall repay to the Company all amounts
advanced by the Company to cover the Claimant’s fees and expenses of counsel and
shall reimburse the Company for its reasonable legal fees and expenses (other
than forum costs) in connection with the arbitration.

 

The arbitrator shall interpret this Plan, any applicable Company policy or
rules and regulations, any applicable substantive law (and the law of remedies,
if applicable) of the state in which the claim arose or applicable federal law
(any such law to be applicable only to the extent consistent with Section 8.6). 
In reaching his or her decision, the arbitrator shall have no authority to
change or modify any lawful Company policy, rule or regulation, or this Plan. 
The arbitrator, and not any federal, state or local court or agency, shall have
exclusive and broad authority to resolve any dispute relating to the
interpretation, applicability, enforceability or formation of this Plan,
including but not limited to, any claim that all or any part of this Plan is
voidable.

 

The arbitrator shall have authority to entertain a motion to dismiss and/or
motion for summary judgment by any party and shall apply the standards governing
such motions under the Federal Rules of Civil Procedure.

 

9.                                      ADJUSTMENTS IN CASE OF CHANGES IN IDS OR
COMMON STOCK

 

Upon the occurrence of an Event (as defined below), the Committee shall make
adjustments as it deems appropriate in the number and kind of securities or
other consideration that may become payable with respect to the IDS Units or
Dividend and Interest Equivalents credited under this Plan.  If an Event shall
occur and any IDS Units or Dividend and Interest Equivalents have not been fully
vested and paid upon such Event or prior thereto, such IDS Units and Dividend
and Interest Equivalents may, in the sole discretion of the Committee, become
payable in securities or other consideration (the “Restricted Property”) rather
than in the cash otherwise payable in respect of such IDS Units or Dividend and
Interest Equivalents.  Such

 

14

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Restricted Property shall become payable at such time or times (if any) as the
related IDS Units or Dividend and Interest Equivalents become payable in
accordance with this Plan and shall be subject to the same vesting conditions as
such related IDS Units or Dividend and Interest Equivalents.  Notwithstanding
the foregoing, to the extent that the Restricted Property includes any cash, the
commitment hereunder shall become an unsecured promise to pay an amount equal to
such cash (with earnings attributable thereto as if such amount had been
invested, pursuant to policies established by the Committee, in interest
bearing, FDIC insured (subject to applicable insurance limits) deposits of a
depository institution selected by the Committee) at such times and in such
proportions as the related IDS Units or Dividend and Interest Equivalents become
payable in accordance with this Plan.  Notwithstanding the foregoing, the IDS
Units or Dividend and Interest Equivalents and any cash or other securities or
property payable in respect of the IDS Units or Dividend and Interest
Equivalents shall continue to be subject to proportionate and equitable
adjustments (if any) under this Section 9 consistent with the effect of such
events on holders of IDSs or the Common Stock generally (but without duplication
of benefits if Dividend and Interest Equivalents are credited), as the Committee
determines to be necessary or appropriate, and in the amount of cash or the
number, kind and/or character of securities or other property and/or rights
payable in respect of IDS Units or Dividend and Interest Equivalents granted
under this Plan.  For purposes of this Section 9, “Event” means a liquidation,
dissolution, Change in Control Event, merger, consolidation, or other
combination or reorganization, or a recapitalization, reclassification,
extraordinary dividend or other distribution (including a split up or a spin off
of the Company or any significant Subsidiary), or a sale or other distribution
of substantially all the assets of the Company as an entirety.

 

10.                               DEFINITIONS

 

Whenever the following words and phrases are used in this Plan, with the first
letter capitalized, they shall have the meanings specified below.

 

“Accounts” shall mean a Participant’s IDS Unit Account and Dividend and Interest
Equivalents Account.

 

“Actual EBITDA” shall have the meaning set forth in Section 3.1.

 

“Beneficiary” or “Beneficiaries” as to a Participant shall mean the person or
persons, including a trustee, personal representative or other fiduciary, last
designated in writing by a Participant in accordance with the procedures
established by the Committee to receive the benefits specified hereunder in the
event of the Participant’s death.  No beneficiary designation shall become
effective until it is filed with the Committee, and no beneficiary designation
of someone other than the Participant’s spouse shall be effective unless such
designation is consented to by the Participant’s spouse on a form provided by
and in accordance with the procedures established by the Committee.  If there is
no Beneficiary designation in effect, of there is no surviving designated
Beneficiary, then the Participant’s surviving spouse shall be the Beneficiary. 
If there is no surviving spouse to receive any benefits payable in accordance
with the preceding sentence, the duly appointed and currently acting personal
representative of the Participant’s estate (which shall include either the
Participant’s probate estate or living trust) shall be the Beneficiary.  In any
case where there is no such personal representative of the Participant’s estate
duly appointed and acting in that capacity within ninety (90) days after the
Participant’s death (or such extended period as the Committee determines is
reasonably necessary to allow

 

15

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such personal representative to be appointed, but not to exceed one hundred
eighty (180) days after the Participant’s death), then the Participant’s
Beneficiary shall be deemed to be the person or persons who can verify by court
order that they are legally entitled to receive the benefits specified
hereunder.  If the Committee has any doubt as to the proper Beneficiary to
receive payments pursuant to this Plan, the Committee shall have the right,
exercisable in its reasonable discretion, to cause the Participating Affiliate
that employs the Participant to withhold such payments until this matter is
resolved to the Committee’s reasonable satisfaction.  The payment of benefits
under this Plan to a Beneficiary shall fully and completely discharge all
Participating Affiliates and the Committee from all further obligations under
this Plan with respect to the Participant.

 

“Board of Directors” or “Board” shall mean the Board of Directors of the
Company.

 

“Change in Control Event” shall mean any of the following:

 

(a)                                  The acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
(a “Person”)) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either (1) the
then-outstanding IDSs of the Company (the “Outstanding Company IDSs”), (2) the
then-outstanding shares of common stock of the Company (the “Outstanding Company
Common Stock”) or (3) the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the election of
directors of the Company (the “Outstanding Company Voting Securities”);
provided, however, that, for purposes of this definition, the following
acquisitions shall not constitute a Change in Control Event; (A) any acquisition
directly from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any affiliate of the Company or a successor, or
(D) any acquisition by any entity pursuant to a transaction that complies with
clauses (c)(1), (2) and (3) below;

 

(b)                                 Individuals who, as of the date this Plan is
adopted by the Board (the “Adoption Date”), constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director of the Company
subsequent to the Adoption Date whose election, or nomination for election by
the Company’s stockholders, was approved by a vote of at least two-thirds (2/3)
of the directors of the Company then comprising the Incumbent Board (including
for these purposes, the new members whose election or nomination was so
approved, without counting the member and his predecessor twice) shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors of the Company or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board;

 

(c)                                  Consummation of a reorganization, merger,
statutory share exchange or consolidation or similar corporate transaction
involving the Company or any of its

 

16

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Subsidiaries, a sale or other disposition of all or substantially all of the
assets of the Company, or the acquisition of assets or stock of another entity
by the Company or any of its Subsidiaries (each, a “Business Combination”), in
each case unless, following such Business Combination, (1) all or substantially
all of the individuals and entities that were the beneficial owners of the
Outstanding Company IDSs, the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
then-outstanding income deposit securities, the then-outstanding shares of
common stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the entity resulting from such Business Combination (including,
without limitation, an entity that, as a result of such transaction, owns the
Company or all or substantially all of the Company’s assets directly or through
one or more subsidiaries (a “Parent”)) in substantially the same proportions as
their ownership immediately prior to such Business Combination of the
Outstanding Company IDSs, the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (2) no Person
(excluding any entity resulting from such Business Combination or a Parent or
any employee benefit plan (or related trust) of the Company or such entity
resulting from such Business Combination or Parent) beneficially owns, directly
or indirectly, 30% or more of, respectively, the then-outstanding income deposit
securities, the then-outstanding shares of common stock of the entity resulting
from such Business Combination or the combined voting power of the
then-outstanding voting securities of such entity, except to the extent that the
ownership in excess of 30% existed prior to the Business Combination, and (3) at
least a majority of the members of the board of directors or trustees of the
entity resulting from such Business Combination or a Parent were members of the
Incumbent Board at the time of the execution of the initial agreement or of the
action of the Board providing for such Business Combination; or

 

(d)                                 Approval by the stockholders of the Company
of a complete liquidation or dissolution of the Company other than in the
context of a transaction that does not constitute a Change in Control Event
under clause (c) above.

 

“Code” shall mean the Internal Revenue Code of 1986, as amended.

 

“Committee” shall mean the Compensation Committee of the Board, which shall
administer this Plan in accordance with Section 7 of this Plan.

 

“Common Stock” shall mean the Class A common stock of the Company, par value
$0.01 per share, subject to adjustment pursuant to Section 9 of this Plan.

 

“Company” shall mean Otelco Inc., and any successor corporation.

 

“Crediting Date” shall have the meaning set forth in Section 3.3.

 

“Deferred Compensation Plan” shall mean the nonqualified deferred compensation
plan of the Company or a Subsidiary designated by the Committee.

 

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“Determination Date” shall have the meaning set forth in Section 3.2.

 

“Dividend and Interest Equivalent” shall mean the amount of cash dividends,
payments of interest or other cash distributions paid by the Company with
respect to that number of IDSs equal to the aggregate number of IDS Units
credited to a Participant’s IDS Unit Account as of the applicable record date
for the dividend, interest payment or other distribution.  Such amount shall be
credited to the Participant’s Dividend and Interest Equivalents Account in
accordance with Section 4.2 and shall be payable in cash in accordance with
Section 6.2.

 

“Dividend and Interest Equivalent Distribution Date” shall have the meaning set
forth in Section 6.2.

 

“Dividend and Interest Equivalents Account” shall mean the account established
for each Participant pursuant to Section 4.2.

 

“Dividend or Interest Payment Date” shall have the meaning set forth in
Section 4.2.1.

 

“EBITDA” shall mean, with respect to a Plan Year, the Company’s consolidated net
income (or loss, as applicable), plus interest expense, depreciation and
amortization (including write-down of goodwill), income taxes and certain
non-recurring fees, expenses or charges, as set forth in the indenture governing
the Company’s Senior Subordinated Notes.

 

“Eligible Employee” shall mean any officer or salaried key employee of a
Participating Affiliate.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.

 

“Excess EBITDA” shall have the meaning set forth in Section 3.1.

 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from
time to time.

 

“Fair Market Value” on any date means (a) if the IDSs are listed or admitted to
trade on a national securities exchange, the closing price of an IDS on the
Composite Tape, as published in the Western Edition of The Wall Street Journal,
of the principal national securities exchange on which the IDSs are so listed or
admitted to trade, on such date, or, if there is no trading of the IDS on such
date, then the closing price of an IDS as quoted on such Composite Tape on the
next preceding date on which there was trading in such securities; (b) if the
IDSs are not listed or admitted to trade on a national securities exchange, the
last/closing price for an IDS on such date, as furnished by the National
Association of Securities Dealers, Inc. (“NASD”) through the NASDAQ National
Market Reporting System or a similar organization if the NASD is no longer
reporting such information; (c) if the IDSs are not listed or admitted to trade
on a national securities exchange and are not reported on the National Market
Reporting System, the mean between the bid and asked price for an IDS on such
date, as furnished by the NASD or a similar organization; or (d) if the IDSs are
not listed or admitted to trade on a national securities exchange, are not
reported on the National Market Reporting System and if bid and asked prices for
the IDSs are not furnished by the NASD or a similar organization, the value as
reasonably established by the Committee at such time for purposes of this Plan. 
Any determination as to fair market value made pursuant to this Plan shall be
conclusive and binding on all persons.  The

 

18

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Committee may, however, provide that the Fair Market Value shall equal the last
closing price of an IDS as reported on the composite tape for securities listed
on a national securities exchange or as furnished by the NASD and available on
the date in question or the average of the high and low prices of an IDS as
reported on the composite tape for securities listed on a national securities
exchange or as furnished by the NASD for the date in question or the most recent
trading day.

 

“Incentive Pool Amount” shall have the meaning set forth in Section 3.1.

 

“IDS” shall mean the Company’s Income Deposit Securities.  Each IDS shall
initially represent (a) one (1) share of the Company’s Common Stock, and (b) one
(1) thirteen percent (13%) senior subordinated note of the Company with a
principal amount of $7.50 (the “Senior Subordinated Notes”).

 

“IDS Unit” shall mean, solely for purposes of this Plan, a non-voting unit of
measurement which is deemed solely for bookkeeping purposes to be equivalent to
one outstanding IDS (subject to Section 9).  IDS Units may be credited to a
Participant’s IDS Unit Account pursuant to Section 4.1.

 

“IDS Unit Account” shall mean the account established and maintained for each
Participant pursuant to Section 4.1.

 

“IDS Unit Distribution Date” shall have the meaning set forth in Section 6.1.

 

“Key Employee” shall mean a “key employee” of the Company within the meaning of
Section 416(i) of the Code (without regard to paragraph (5) thereof).

 

“Participant” shall mean any Eligible Employee who is selected for participation
in this Plan and who is allocated IDS Units in accordance with Section 3.3.

 

“Participating Affiliate” shall mean the Company or a Subsidiary that elects to
adopt this Plan for the benefit of its employees.  “Participating Affiliates”
means, collectively, the Company and such Subsidiaries that have elected to
adopt this Plan.

 

“Plan” shall mean this Otelco Inc. Long-Term Incentive Plan as set forth herein
and as amended from time to time.

 

“Plan Year” shall mean the twelve (12) consecutive month period beginning
January 1 each year.

 

“Restricted Property” shall have the meaning set forth in Section 9.

 

“Retirement Date” shall mean the date of a Participant’s voluntary termination
of employment from a Participating Affiliate (i) on or after attaining age 65
with ten (10) years of service, or (ii) on or after attaining age 55 with
fifteen (15) years of service.

 

“Separation From Service” shall mean a “separation from service” within the
meaning of Section 409A (or other applicable section) of the Code and any
applicable guidance promulgated thereunder.

 

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“Subsidiary” shall mean each corporation, which is a member of a controlled
group of corporations (within the meaning of Section 414(b) of the Code) of
which the Company is a component member.

 

“Target EBITDA” shall have the meaning set forth in Section 3.1.

 

“Termination Date” with respect to a Participant shall mean the first date that,
for any reason, the Participant is no longer employed by the Company or one of
its Subsidiaries and, if applicable, is no longer a member of the Board of
Directors.

 

“Trust” means a grantor trust maintained under the terms of the related Trust
Agreement.

 

“Trust Agreement” means a trust agreement entered into by and between a
Participating Affiliate and the related Trustee with respect to this Plan, as
amended from time to time.

 

“Trustee” means the entity, which has entered into the related Trust Agreement
as trustee of the Trust thereunder, and any duly appointed successor.

 

20

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IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly
authorized officer effective as of May 12, 2005.

 

 

OTELCO INC.

 

 

 

 

 

By:

    /s/ Michael D. Weaver

 

 

 

 

 

Print Name:

    Michael D. Weaver

 

 

 

 

 

 

Its:

      President and CEO

 

 

21

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