OTELCO INC. LONG-TERM INCENTIVE PLAN

TABLE OF CONTENTS

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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