** **

**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 ofthe Company by rewarding a select group of management and highly compensatedemployees for exemplary performance as an additional means to attract, motivateand retain such employees and to further align the interests of participantswith 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 EligibleEmployees those particular Eligible Employees who may be eligible to receive IDSUnits in accordance with Section 3. If the Committee determines in its sole discretion that a Participant nolonger qualifies as a member of a select group of management or highlycompensated employees, as membership in such group is determined in accordancewith Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, or thatthe inclusion of any Eligible Employee in this Plan could violate anyapplicable 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 deferredcompensation 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), theCommittee shall have the right, in its sole discretion, to (i) immediatelydistribute the Participant’s then vested IDS Units and Dividend and InterestEquivalents and (other than the payment when vested of any of the Participant’sunvested IDS Units and Dividend and Interest Equivalents) terminate theParticipant’s participation in this Plan, and/or (ii) take such furtherreasonable 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 theterm of this Plan, the Company shall establish a target level of EBITDA (“TargetEBITDA”) for such Plan Year.  At theclose of a Plan Year, the Company’s audited financial statements shall be usedto calculate the Company’s actual level of EBITDA (“Actual EBITDA”) for suchPlan Year.  An “Incentive Pool Amount”shall be established for each Plan Year based on the amount, if any, by whichActual EBITDA exceeds Target EBITDA (“Excess EBITDA”) for such Plan Year.  The Incentive Pool Amount shall equal: (i) fifteenpercent (15%) of the first $1,000,000, or any portion thereof, of ExcessEBIDTA, plus (ii) twenty percent (20%) of the amount, if any, by whichExcess EBITDA exceeds $1,000,000.  IfActual EBITDA does not exceed Target EBITDA for a Plan Year, no Incentive PoolAmount 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 theresulting amount shall be the number of IDS Units credited under this Plan forsuch 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 3.2above shall be allocated among Participants, in the sole discretion of theCommittee, based on the Participant’s contribution to the overall financialresults of the Company or such other factors as the Committee deems relevant,on or as soon as administratively practicable after May 1 following theclose 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 eachParticipant to whom IDS Units are allocated pursuant to Section 3.3.

 

**4.1.1****                    **Creditingof IDS Units.  On the applicableCrediting Date, the Committee shall credit the Participant’s IDS Units Accountwith the number of IDS Units, if any, allocated to such Participant inaccordance with Section 3.3.

 

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

 

**4.2****                               *Dividend and Interest Equivalents Accounts***.  The Committee shall establish and maintain aDividend and Interest Equivalents Account for each Participant to whom IDSUnits are allocated pursuant to Section 3.3.

 

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

 

**4.2.2****                    **Subaccounts.  The Committee shall establish separate vestedand unvested subaccounts under a Participant’s Dividend and InterestEquivalents Account.  Dividend andInterest Equivalents attributable to vested IDS Units shall initially becredited to the Participant’s vested subaccount, and Dividend and InterestEquivalents attributable to unvested IDS Units shall initially be credited tothe 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 memorandumaccounts on the books of the Company. The IDS Units credited to a Participant’s IDS Unit Account, and the Dividendand Interest Equivalents credited to a Participant’s Dividend and InterestEquivalents Account, shall be used solely as a device for the determination ofthe payment to be eventually distributed to such Participant in accordance withthis Plan.  The IDS Units and Dividendand Interest Equivalents shall not be treated as property or (subject to Section 8.2)as a trust fund of any kind.  NoParticipant shall be entitled to any voting or other rights as a holder of IDSswith respect to IDS Units or Dividend and Interest Equivalents credited underthis Plan.  The IDS Units and Dividendand Interest Equivalents credited (and the payment to which the Participant isentitled 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 respectto which payment is made, in the case of IDS Units, which are extinguished, orin 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 CreditingDate pursuant to Section 4.1.1 shall initially be entirely unvested, andshall become 100% vested on the third anniversary of such Crediting Date.  On each Crediting Date, the vested subaccountof the Participant’s IDS Unit Account shall be increased by the IDS Units (ifany) that became vested as of such Crediting Date, and the unvested subaccountof 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 toa Participant’s Dividend and Interest Equivalents Account on a Dividend orInterest Payment Date pursuant to Section 4.2.1 with respect tothen-vested IDS Units shall be fully vested on such Dividend or InterestPayment Date.  Dividend and InterestEquivalents credited with respect to unvested IDS Units shall initially becredited to the unvested subaccount of a Participant’s Dividend and InterestEquivalents Account, and such amounts shall become vested at the time thecorresponding IDS Units become vested as set forth in Section 5.1.  The vested subaccount of the Participant’sDividend and Interest Equivalents Account shall be increased by any Dividendand Interest Equivalents that become vested as of a Crediting Date, and theunvested subaccount of the Participant’s Dividend and Interest EquivalentsAccount shall be reduced by those Dividend and Interest Equivalents.

 

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

 

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disabled or (iii) reaches the Participant’s RetirementDate.  Total and permanent disabilityshall be determined by the Committee in its discretion, and if the Companymaintains a long term disability plan that covers the Participant, theCommittee’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 businessday in June following the close of a Plan Year (the “IDS Unit DistributionDate”), the Company shall make a cash payment to a Participant (or in the eventof his or her death, to his or her Beneficiary) in an amount equal to the (i) numberof IDS Units in the vested subaccount of the Participant’s IDS Unit Account thathad been credited to the Participant’s IDS Unit Account for at least one (1) yearas of the IDS Unit Distribution Date, multiplied by (ii) the Fair MarketValue of an IDS as of the first business day immediately preceding the IDS UnitDistribution Date.

 

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

 

**6.3****                               *Payment Election. ***Nolater than June 30 of each Plan Year (or such earlier date established bythe Committee consistent with the election requirements imposed under Code Section 409A),the Committee may permit each participant to elect that in lieu of the paymentsprovided in Sections 6.1 and 6.2, the amounts that otherwise would have beenpaid with respect to the IDS Units and corresponding Dividend and InterestEquivalents with respect to such Plan Year shall be credited to the DeferredCompensation Plan.  Any such electionmust provide for payment pursuant to the terms of the Deferred CompensationPlan and the requirements of Code Section 409A.

 

**6.4****                               *Distribution Upon Termination of Employment***.

 

**6.4.1****                    **Terminationof Unvested IDS Units and Dividend and Interest Equivalents.  Upon a Participant’s Termination Date, IDSUnits credited to the unvested subaccount of such Participant’s IDS UnitAccount, and Dividend and Interest Equivalents credited to the unvestedsubaccount of such Participant’s Dividend and Interest Equivalents Account, shallimmediately terminate and the Participant shall have no rights with respectthereto.

 

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

 

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

 

**6.4.3****                    **Paymentof Dividend and Interest Equivalents Upon Termination of Employment.  Within thirty (30) days after a Participant’sTermination Date, the Company shall make a cash payment to a Participant (or inthe event of his or her death, to his or her Beneficiary) in an amount equal tothe aggregate amount of Dividend and Interest Equivalents credited to thevested subaccount of the Participant’s Dividend and Interest EquivalentsAccount as of the Termination Date.  Nosuch payment shall be credited to the Deferred Compensation Plan.

 

**6.4.4****                    **Paymentsto Key Employees.  Notwithstandinganything contained herein to the contrary, the Termination Date of aParticipant who is a Key Employee of a Participating Affiliate shall be deemedto be the date that is six (6) months after it would otherwise be withoutthis 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****                    **AccelerationUpon a Change in Control Event.  Upona 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 andInterest Equivalents Account, that are not then fully vested, shallautomatically become fully vested and credited to the applicable vestedsubaccounts upon the occurrence of such event.

 

**6.5.2****                    **Paymentof IDS Units Upon Change in Control Event. Within thirty (30) days after a Change in Control Event, the Companyshall make a cash payment to a Participant (or in the event of his or herdeath, to his or her Beneficiary) in an amount equal to the (i) number ofIDS Units in the Participant’s IDS Unit Account that are fully vested as of theeffective date of the Change in Control Event (after giving effect to anyaccelerated vesting pursuant to Section 6.5.1), multiplied by (ii) theFair Market Value of an IDS as of the first business day immediately precedingthe effective date of the Change in Control Event.  No such payment shall be credited to theDeferred Compensation Plan.

 

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

 

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**6.6****                               *Section 162(m) Limitation***.  Notwithstanding anything herein to thecontrary, if the Committee determines in good faith that there is a reasonablelikelihood that any benefits paid to a Participant for a taxable year of therespective Participating Affiliate would not be deductible by the ParticipatingAffiliate solely by reason of the limitation under Section 162(m) of theCode, then, to the extent reasonably deemed necessary by the Committee toensure that the entire amount of any distribution to the Participant pursuantto this Plan is deductible, the Committee shall defer all or any portion of adistribution under this Plan.  Theamounts 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, asdetermined by the Committee in good faith, on which the deductibility ofcompensation paid or payable to the Participant for the taxable year of theParticipating Affiliate during which the distribution is made will not belimited by Section 162(m) of the Code.

 

**7.****                                      ADMINISTRATION**

 

**7.1****                               *Committee***.  TheCommittee shall be appointed by, and serve at the pleasure of, the Board ofDirectors.  The number of memberscomprising the Committee shall be determined by the Board, which may from timeto time vary the number of members.  Amember of the Committee may resign by delivering a written notice ofresignation to the Board.  The Board mayremove any member by delivering a certified copy of its resolution of removalto such member.  Vacancies in themembership 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 ofthe members of the Committee.  Any actionpermitted to be taken at a meeting may be taken without a meeting if, prior tosuch action, a written consent to the action is signed by all members of theCommittee and such written consent is filed with the minutes of the proceedingsof the Committee.  A member of theCommittee shall not vote or act upon any matter which relates solely to himselfor herself as a Participant.  TheChairman or any other member or members of the Committee designated by theChairman may execute any certificate or other written direction on behalf ofthe Committee.

 

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

 

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

 

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

 

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

 

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(d)           Toprovide for the disclosure of all information and the filing or provision ofall reports and statements to Participants, Beneficiaries or governmentalagencies as shall be required by law;

 

(e)           Tomake and publish such rules for the regulation of this Plan and proceduresfor the administration of this Plan as are not inconsistent with the termshereof;

 

(f)            Toappoint a plan administrator or any other agent, and to delegate to them suchpowers and duties in connection with the administration of this Plan as theCommittee may from time to time prescribe;

 

(g)           Toauthorize all disbursements by a Participating Affiliate and any Trusteepursuant to this Plan and any Trust; and

 

(h)           To directeach Trustee concerning the performance of various duties and responsibilitiesunder the related Trust.

 

**7.4****                               *Construction and Interpretation***.  The Committee shall have full discretion toconstrue and interpret the terms and provisions of this Plan, whichinterpretation or construction shall be final and binding on all parties,including but not limited to Participating Affiliates and any Participant orBeneficiary.  The Committee shalladminister such terms and provisions in a uniform and nondiscriminatory mannerand in full accordance with any and all laws applicable to this Plan.

 

**7.5****                               *Information***.  Toenable the Committee to perform its functions, each Participating Affiliateshall supply full and timely information to the Committee on all mattersrelating to the compensation of all Participants, their death or other cause oftermination, and such other pertinent facts as the Committee may require.

 

**7.6****                               *Compensation, Expenses and Indemnity***.

 

**7.6.1****                    **NoCompensation.  The members of theCommittee shall serve without compensation for their services hereunder.

 

**7.6.2****                    **LegalCounsel; Administrative Expenses. The Committee is authorized at the expense of the Company to employ suchlegal counsel as it may deem advisable to assist in the performance of itsduties hereunder.  Expenses and fees inconnection with the administration of this Plan shall be paid by the Company.

 

**7.6.3****                    **Indemnification.  To the extent permitted by applicable statelaw, the Company and each of the other Participating Affiliates shall indemnifyand save harmless the Committee and each member thereof, the Board of Directorsand any delegate of the Committee who is an employee of a ParticipatingAffiliate against any and all expenses, liabilities and claims, including legalfees to defend against such liabilities and claims arising out of theirdischarge 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 furtherindemnities as may be available under insurance purchased by a ParticipatingAffiliate or provided by a Participating Affiliate under any bylaw, agreementor otherwise, as such indemnities are permitted under state law.

 

**7.7****                               *Annual Statements***. Under procedures established by the Committee, a Participant shallreceive a statement with respect to such Participant’s Accounts on no less thanan 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, orinterest in any specific property or assets of any Participating Affiliate.  No assets of any Participating Affiliateshall be held under any trust (except as provided in Section 8.2), or heldin any way as collateral security for the fulfilling of the obligations of anyParticipating 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 obligationsunder this Plan shall be merely that of an unfunded and unsecured promise ofthe Participating Affiliate to pay money in the future to those persons to whomthe Participating Affiliate has a benefit obligation under this Plan (asdetermined in accordance with the terms hereof), and the respective rights ofthe Participants and Beneficiaries shall be no greater than those of unsecuredgeneral creditors.

 

**8.2****                               *Trust Arrangement***. Notwithstanding Section 8.1, a Participating Affiliate may at anytime transfer assets representing all or any portion of a Participant’sAccounts to a Trust to be held and invested and reinvested by the Trusteepursuant to the terms of the Trust Agreement. However, to the extent provided in the Trust Agreement only, suchtransferred amounts shall remain subject to the claims of general creditors ofthe Participating Affiliate that established the Trust.  To the extent that assets representing aParticipant’s Accounts are held in a Trust when his or her benefits under thisPlan become payable, the Participating Affiliate that is liable for the paymentof such benefits may direct the Trustee to pay such benefits to the Participantfrom the assets of the Trust.

 

**8.3****                               *Restriction Against Assignment***.  The respective Participating Affiliate shallpay all amounts payable hereunder only to the person or persons designated bythis Plan and not to any other person or corporation.  No part of a Participant’s Accounts shall beliable for the debts, contracts, or engagements of any Participant, his or herBeneficiary, or successors in interest, nor shall a Participant’s Accounts besubject to execution by levy, attachment, or garnishment or by any other legalor equitable proceeding, nor shall any such person have any right to alienate,anticipate, commute, pledge, encumber, or assign any benefits or paymentshereunder in any manner whatsoever.  Ifany Participant, Beneficiary or successor in interest is adjudicated bankruptor purports to anticipate, alienate, sell, transfer, assign, pledge, encumberor charge any distribution or payment from this Plan, voluntarily orinvoluntarily, the Committee, in its discretion, may cancel such

 

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

 

**8.4****                               *Withholding***.

 

**8.4.1****                    **EmploymentTaxes Upon Vesting.  The Company (orany Subsidiary by which the Participant is or was employed) may, in itsreasonable discretion, satisfy any state or federal employment tax withholdingobligation with respect to the vesting of IDS Units credited to the Participant’sIDS Unit Account and Dividend and Interest Equivalents credited to theParticipant’s Dividend and Interest Equivalents Account by either (a) deductingsuch amounts from any compensation payable by the Company (or a Subsidiary) tothe Participant, or (b) reducing the vested portion of the Participant’s IDSUnit Account or Dividend and Interest Equivalents Account, as applicable, bythe amount necessary to satisfy such withholding obligation.

 

**8.4.2****                    **Distributions.  There shall be deducted from each payment ordistribution made under this Plan, or any other compensation payable to theParticipant (or Beneficiary), all taxes which are required to be withheld bythe Company (or a Subsidiary) in respect to such payment or distribution orthis Plan.  The Company (or theSubsidiary by which the Participant is or was employed) shall have the right toreduce any payment or distribution (or other compensation) by the amount ofcash sufficient to provide the amount of said taxes.  If the Company (or a Subsidiary), for anyreason, elects not to (or cannot) satisfy the withholding obligation from theamounts otherwise payable under this Plan, the Participant shall pay or providefor payment in cash of the amount of any taxes which the Company (or aSubsidiary) 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 toreduce any amounts allocated to a Participant’s Accounts.  Notwithstanding the foregoing, the Committeemay terminate prospectively or reduce prospectively the crediting of Dividendand Interest Equivalents and increases in Appreciated Value.

 

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

 

**8.7****                               *Receipt or Release***. Any payment to a Participant or the Participant’s Beneficiary inaccordance with the provisions of this Plan shall, to the extent thereof, be infull satisfaction of all claims against the Committee, the Company and itsSubsidiaries, and the Trustee.  TheCommittee may require such Participant or Beneficiary, as a

 

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condition precedent to such payment, to execute areceipt and release to such effect.

 

**8.8****                               *Payments on Behalf of Persons Under Incapacity***.  In the event that any amount becomes payableunder this Plan to a person who, in the sole judgment of the Committee, isconsidered by reason of physical or mental condition to be unable to give avalid receipt therefore, the Committee may direct that such payment be made toany person found by the Committee, in its sole judgment, to have assumed thecare of such person. Any payment made pursuant to such determination shallconstitute a full release and discharge of the Committee, the Company and itsSubsidiaries.

 

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

 

**8.10****                        *Compliance with Laws***. This Plan and the payment of money under this Plan are subject tocompliance with all applicable federal and state laws, rules andregulations (including but not limited to state and federal securities law) andto such approvals by any listing, agency or any regulatory or governmentalauthority as may, in the opinion of counsel for the Company or a Subsidiary, benecessary or advisable in connection therewith. Any securities delivered under this Plan shall be subject to suchrestrictions, and the person acquiring such securities shall, if requested bythe Company or a Subsidiary, provide such assurances and representations to theCompany or the Subsidiary as the Company or the Subsidiary may deem necessaryor 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 thattransactions pursuant to this Plan satisfy and be interpreted in a manner thatsatisfies the applicable requirements of Rule 16b-3 promulgated under theExchange Act (“Rule 16b-3”) so that, the crediting of IDS Units and Dividendand Interest Equivalents and any other event with respect to IDS Units and Dividendand Interest Equivalents under this Plan will be entitled to the benefits of Rule 16b-3or other exemptive rules under Section 16 of the Exchange Act andwill not be subjected to avoidable liability thereunder.

 

**8.11.2****             **Section 409A.  This Plan shall be construed and interpretedto comply with Section 409A of the Code to the extent required to preservethe intended tax consequences of this Plan. The Company reserves the right to amend this Plan to the extent itreasonably determines is necessary in order to preserve the intended taxconsequences of this Plan in light of Section 409A of the Code and anyregulations or other guidance promulgated thereunder.

 

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

 

**8.13****                        *Claims Procedure***.

 

**8.13.1****             **Presentationof Claim.  Any Participant orBeneficiary of a deceased Participant (such Participant or Beneficiary beingreferred to below as a “Claimant”) may deliver to the Committee a written claimfor a determination with respect to the benefits payable to such Claimantpursuant to this Plan.  If such a claimrelates to the contents of a notice received by the Claimant, the claim must bemade within sixty (60) days after such notice was received by theClaimant.  All other claims must be madewithin one hundred eighty (180) days of the date on which the event that causedthe claim to arise occurred.  The claim muststate with particularity the determination desired by the Claimant.

 

**8.13.2****             **Notificationof Decision.  The Committee shallconsider a Claimant’s claim within a reasonable time, but no later than ninety(90) days after receiving the claim.  Ifthe Committee determines that special circumstances require an extension oftime for processing the claim, written notice of the extension shall befurnished to the Claimant prior to the termination of the initial ninety (90)day period.  In no event shall suchextension exceed a period of ninety (90) days from the end of the initialperiod.  The extension notice shallindicate the special circumstances requiring an extension of time and the dateby which the Committee expects to render the benefit determination.  The Committee shall notify the Claimant inwriting:

 

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

 

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

 

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

 

(ii)           specificreference(s) to pertinent provisions of this Plan upon which such denial wasbased;

 

(iii)          adescription of any additional material or information necessary for theClaimant to perfect the claim, and an explanation of why such material orinformation is necessary;

 

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

 

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

 

**8.13.3****             **Review of aDenied Claim.  On or before sixty(60) days after receiving a notice from the Committee that a claim hasbeen denied, in whole or in part, a Claimant (or the Claimant’s duly authorizedrepresentative) may file with the Committee a written request for a review ofthe 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, alldocuments, records and other information relevant to the claim for benefits;

 

(b)           maysubmit written comments or other documents; and/or

 

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

 

**8.13.4****             **Decision onReview.  The Committee shall renderits decision on review promptly, and no later than sixty (60) days afterthe Committee receives the Claimant’s written request for a review of thedenial of the claim.  If the Committeedetermines that special circumstances require an extension of time forprocessing the claim, written notice of the extension shall be furnished to theClaimant prior to the termination of the initial sixty (60) day period.  In no event shall such extension exceed aperiod of sixty (60) days from the end of the initial period.  The extension notice shall indicate thespecial circumstances requiring an extension of time and the date by which theCommittee expects to render the benefit determination.  In rendering its decision, the Committeeshall take into account all comments, documents, records and other informationsubmitted by the Claimant relating to the claim, without regard to whether suchinformation was submitted or considered in the initial benefitdetermination.  The decision must bewritten in a manner calculated to be understood by the Claimant, and it mustcontain:

 

(a)                                  specificreasons for the decision;

 

(b)                                 specificreference(s) to the pertinent Plan provisions upon which the decision wasbased;

 

(c)                                  astatement that the Claimant is entitled to receive, upon request and free ofcharge, reasonable access to and copies of, all documents, records and otherinformation relevant (as defined in applicable ERISA regulations) to theClaimant’s claim for benefits; and

 

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

 

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**8.13.5****             **Pre andPost-Change in Control Procedures. With respect to claims made prior to the occurrence of a Change inControl Event, a Claimant’s compliance with the foregoing provisions of this Section 8.13is a mandatory prerequisite to a Claimant’s right to commence arbitrationpursuant to Section 8.13.6 with respect to any claim for benefits underthis Plan.  With respect to claims madeupon and after the occurrence of a Change in Control Event, the Claimant mayproceed directly to arbitration in accordance with Section 8.13.6 and neednot first satisfy the foregoing provisions of this Section 8.13.

 

**8.13.6****             **Arbitration of Claims.  All claims or controversies arising out of orin connection with this Plan, that the Company or any Subsidiary may haveagainst any Claimant, or that any Claimant may have against the Company or anySubsidiary or against any of their respective officers, directors, employees oragents acting in their capacity as such, shall, subject to the initial reviewprovided for in the foregoing provisions of this Section 8.13 that areeffective with respect to claims brought prior to the occurrence of a Change inControl 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 andbinding upon the Company, any Participating Affiliate and the Claimant and thatjudgment may be entered on the award of the arbitrator in any court havingproper jurisdiction.  With respect toclaims 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 theChange in Control Event), the arbitrator shall review *de novo* any claim previously considered bythe Committee pursuant to this Section 8.13.

 

Except as otherwise provided in this procedure or by mutual agreementof the parties, any arbitration shall be conducted in Orange County, Californiabefore a sole arbitrator selected from Judicial Arbitration and MediationServices, Inc., Atlanta, Georgia, or its successor (“JAMS”), or if JAMS isno longer able to supply the arbitrator, such arbitrator shall be selected fromthe American Arbitration Association, and shall be conducted in accordance withthe provisions of Alabama Code of Civil Practice §§ 6 et seq. as theexclusive forum for the resolution of such dispute.  The party desiring to initiate arbitrationshall do so by sending written notice of an intention to arbitrate to the otherparty, which notice shall include a description of the nature of all claims orcontroversies asserted and a description of the facts upon which such claimsare based.  Pursuant to Alabama Code ofCivil 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 arbitrationproceedings are pending, and any provisional injunctive relief granted by suchcourt shall remain effective until the matter is finally determined by thearbitrator.  Final resolution of anydispute through arbitration may include any remedy or relief which thearbitrator deems just and equitable, including any and all remedies provided byapplicable state or federal statutes.  Atthe conclusion of the

 

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arbitration, the arbitrator shall issue a written decision that setsforth the essential findings and conclusions upon which the arbitrator’s awardor decision is based.  Any award orrelief granted by the arbitrator hereunder shall be final and binding on theparties hereto and may be enforced by any court of competent jurisdiction.  The parties acknowledge and agree that theyare hereby waiving any rights to trial by jury in any action, proceeding orcounterclaim brought by either of the parties against the other in connectionwith any matter whatsoever arising out of or in any way connected with thisPlan.

 

All forum costs of the arbitration (including, but not limited to, thefees and expenses of the arbitrator) shall be advanced and borne by theCompany.  Further, the fees and expensesof the counsel for the Claimant as to any claim arising upon or after a Changein 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 commencethe arbitration in good faith and had no reasonable basis therefore, theClaimant shall repay to the Company all amounts advanced by the Company tocover the Claimant’s fees and expenses of counsel and shall reimburse theCompany for its reasonable legal fees and expenses (other than forum costs) inconnection with the arbitration.

 

The arbitrator shall interpret this Plan, any applicable Company policyor rules and regulations, any applicable substantive law (and the law ofremedies, if applicable) of the state in which the claim arose or applicablefederal law (any such law to be applicable only to the extent consistent with Section 8.6).  In reaching his or her decision, thearbitrator shall have no authority to change or modify any lawful Companypolicy, 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 theinterpretation, applicability, enforceability or formation of this Plan,including but not limited to, any claim that all or any part of this Plan isvoidable.

 

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

 

**9.****                                      ADJUSTMENTS IN CASE OF CHANGES IN IDSOR COMMON STOCK**

 

Upon the occurrence of an Event (as defined below), theCommittee shall make adjustments as it deems appropriate in the number and kindof securities or other consideration that may become payable with respect tothe IDS Units or Dividend and Interest Equivalents credited under thisPlan.  If an Event shall occur and any IDSUnits or Dividend and Interest Equivalents have not been fully vested and paidupon such Event or prior thereto, such IDS Units and Dividend and InterestEquivalents may, in the sole discretion of the Committee, become payable insecurities or other consideration (the “Restricted Property”) rather than inthe cash otherwise payable in respect of such IDS Units or Dividend andInterest Equivalents.  Such

 

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RestrictedProperty shall become payable at such time or times (if any) as the related IDSUnits or Dividend and Interest Equivalents become payable in accordance withthis Plan and shall be subject to the same vesting conditions as such related IDSUnits or Dividend and Interest Equivalents. Notwithstanding the foregoing, to the extent that the RestrictedProperty includes any cash, the commitment hereunder shall become an unsecuredpromise to pay an amount equal to such cash (with earnings attributable theretoas if such amount had been invested, pursuant to policies established by theCommittee, in interest bearing, FDIC insured (subject to applicable insurancelimits) deposits of a depository institution selected by the Committee) at suchtimes and in such proportions as the related IDS Units or Dividend and InterestEquivalents become payable in accordance with this Plan.  Notwithstanding the foregoing, the IDS Unitsor Dividend and Interest Equivalents and any cash or other securities orproperty payable in respect of the IDS Units or Dividend and InterestEquivalents shall continue to be subject to proportionate and equitableadjustments (if any) under this Section 9 consistent with the effect ofsuch events on holders of IDSs or the Common Stock generally (but withoutduplication of benefits if Dividend and Interest Equivalents are credited), asthe Committee determines to be necessary or appropriate, and in the amount ofcash or the number, kind and/or character of securities or other propertyand/or rights payable in respect of IDS Units or Dividend and InterestEquivalents granted under this Plan.  Forpurposes of this Section 9, “Event” means a liquidation, dissolution,Change in Control Event, merger, consolidation, or other combination orreorganization, or a recapitalization, reclassification, extraordinary dividendor other distribution (including a split up or a spin off of the Company or anysignificant Subsidiary), or a sale or other distribution of substantially allthe assets of the Company as an entirety.

 

**10.****                               DEFINITIONS**

 

Whenever the following words and phrases are used inthis Plan, with the first letter capitalized, they shall have the meaningsspecified below.

 

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

 

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

 

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

 

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

 

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

 

“Change in Control Event” shall mean any of thefollowing:

 

(a)                                  Theacquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or14(d)(2) of the Exchange Act (a “Person”)) of beneficial ownership (withinthe meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% ormore of either (1) the then-outstanding IDSs of the Company (the “OutstandingCompany IDSs”), (2) the then-outstanding shares of common stock of theCompany (the “Outstanding Company Common Stock”) or (3) the combinedvoting power of the then-outstanding voting securities of the Company entitledto vote generally in the election of directors of the Company (the “OutstandingCompany Voting Securities”); provided, however, that, for purposes of thisdefinition, the following acquisitions shall not constitute a Change in ControlEvent; (A) any acquisition directly from the Company, (B) anyacquisition by the Company, (C) any acquisition by any employee benefitplan (or related trust) sponsored or maintained by the Company or any affiliateof the Company or a successor, or (D) any acquisition by any entitypursuant to a transaction that complies with clauses (c)(1), (2) and (3) below;

 

(b)                                 Individualswho, 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 constituteat least a majority of the Board; provided, however, that any individualbecoming a director of the Company subsequent to the Adoption Date whoseelection, or nomination for election by the Company’s stockholders, was approvedby a vote of at least two-thirds (2/3) of the directors of the Company thencomprising the Incumbent Board (including for these purposes, the new memberswhose election or nomination was so approved, without counting the member andhis predecessor twice) shall be considered as though such individual were amember of the Incumbent Board, but excluding, for this purpose, any suchindividual whose initial assumption of office occurs as a result of an actualor threatened election contest with respect to the election or removal ofdirectors of the Company or other actual or threatened solicitation of proxiesor consents by or on behalf of a Person other than the Board;

 

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

 

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Subsidiaries, a sale or other disposition of all or substantially allof the assets of the Company, or the acquisition of assets or stock of anotherentity by the Company or any of its Subsidiaries (each, a “Business Combination”),in each case unless, following such Business Combination, (1) all orsubstantially all of the individuals and entities that were the beneficialowners of the Outstanding Company IDSs, the Outstanding Company Common Stockand the Outstanding Company Voting Securities immediately prior to suchBusiness Combination beneficially own, directly or indirectly, more than 50% ofthe then-outstanding income deposit securities, the then-outstanding shares ofcommon stock and the combined voting power of the then-outstanding votingsecurities entitled to vote generally in the election of directors, as the casemay be, of the entity resulting from such Business Combination (including,without limitation, an entity that, as a result of such transaction, owns theCompany or all or substantially all of the Company’s assets directly or throughone or more subsidiaries (a “Parent”)) in substantially the same proportions astheir ownership immediately prior to such Business Combination of theOutstanding Company IDSs, the Outstanding Company Common Stock and theOutstanding Company Voting Securities, as the case may be, (2) no Person(excluding any entity resulting from such Business Combination or a Parent orany employee benefit plan (or related trust) of the Company or such entityresulting from such Business Combination or Parent) beneficially owns, directlyor indirectly, 30% or more of, respectively, the then-outstanding incomedeposit securities, the then-outstanding shares of common stock of the entityresulting from such Business Combination or the combined voting power of thethen-outstanding voting securities of such entity, except to the extent thatthe ownership in excess of 30% existed prior to the Business Combination, and (3) atleast a majority of the members of the board of directors or trustees of theentity resulting from such Business Combination or a Parent were members of theIncumbent Board at the time of the execution of the initial agreement or of theaction of the Board providing for such Business Combination; or

 

(d)                                 Approvalby the stockholders of the Company of a complete liquidation or dissolution ofthe Company other than in the context of a transaction that does not constitutea 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 ofthe Board, which shall administer this Plan in accordance with Section 7of this Plan.

 

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

 

“Company” shall mean Otelco Inc., and any successorcorporation.

 

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

 

“Deferred Compensation Plan” shall mean thenonqualified deferred compensation plan of the Company or a Subsidiarydesignated by the Committee.

 

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

 

“Dividend and Interest Equivalent” shall mean theamount of cash dividends, payments of interest or other cash distributions paidby the Company with respect to that number of IDSs equal to the aggregatenumber of IDS Units credited to a Participant’s IDS Unit Account as of theapplicable record date for the dividend, interest payment or otherdistribution.  Such amount shall becredited to the Participant’s Dividend and Interest Equivalents Account inaccordance with Section 4.2 and shall be payable in cash in accordancewith 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 meanthe account established for each Participant pursuant to Section 4.2.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Fair Market Value” on any date means (a) if theIDSs are listed or admitted to trade on a national securities exchange, theclosing price of an IDS on the Composite Tape, as published in the WesternEdition of The Wall Street Journal, of the principal national securitiesexchange 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 ofan IDS as quoted on such Composite Tape on the next preceding date on whichthere was trading in such securities; (b) if the IDSs are not listed oradmitted to trade on a national securities exchange, the last/closing price foran IDS on such date, as furnished by the National Association of SecuritiesDealers, Inc. (“NASD”) through the NASDAQ National Market Reporting Systemor a similar organization if the NASD is no longer reporting such information; (c) ifthe IDSs are not listed or admitted to trade on a national securities exchangeand are not reported on the National Market Reporting System, the mean betweenthe bid and asked price for an IDS on such date, as furnished by the NASD or asimilar organization; or (d) if the IDSs are not listed or admitted totrade on a national securities exchange, are not reported on the NationalMarket Reporting System and if bid and asked prices for the IDSs are notfurnished by the NASD or a similar organization, the value as reasonablyestablished by the Committee at such time for purposes of this Plan.  Any determination as to fair market valuemade pursuant to this Plan shall be conclusive and binding on all persons.  The

 

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Committeemay, however, provide that the Fair Market Value shall equal the last closingprice of an IDS as reported on the composite tape for securities listed on anational securities exchange or as furnished by the NASD and available on thedate in question or the average of the high and low prices of an IDS asreported on the composite tape for securities listed on a national securitiesexchange or as furnished by the NASD for the date in question or the mostrecent trading day.

 

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

 

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

 

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

 

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

 

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

 

“Key Employee” shall mean a “key employee” of theCompany within the meaning of Section 416(i) of the Code (withoutregard to paragraph (5) thereof).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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“Subsidiary” shall mean each corporation, which is amember of a controlled group of corporations (within the meaning of Section 414(b) ofthe 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 shallmean the first date that, for any reason, the Participant is no longer employedby the Company or one of its Subsidiaries and, if applicable, is no longer amember of the Board of Directors.

 

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

 

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

 

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

 

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IN WITNESS WHEREOF, the Company has caused this Planto 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 |   |
|        |                  |  |  |  |  |

 

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