Otelco Completes IPO and Secondary Offering

On December 21, 2004, Alabama-based Otelco Inc., together with certain affiliates who were existing equity investors, completed an initial public offering and secondary offering of 8,659,000 income deposit securities (IDSs), as well as a concurrent separate public offering of US$8,500,000 aggregate principal amount of senior subordinated notes. After the over-allotment option, granted by certain of the existing equity investors, was exercised on January 6, 2005 for an additional 672,513 IDSs, the total gross proceeds were US$150,338,997. Each IDS represen-ted one share of class A common stock of Otelco and US$7.50 principal amount of 13 per cent senior subordinated notes of Otelco.

This offering by Otelco was the second IDS offering in Canada, and is the first offering of IDSs in Canada consisting of an initial public offering by an issuer and a concurrent direct secondary offering by existing equity investors.

IDS, and the related equity income securities, belong to a class of securities called equity income hybrid securities, which are yield-oriented securities that represent shares of an individual company’s common stock and debt paired together into a single unit for trading purposes. The IDS structure is designed to provide monthly distributions, similar to those provided by income funds, in the form of dividends on the common stock component of each IDS and interest on the note component of each IDS.

The offering of IDSs was underwritten by a syndicate of underwriters that was led by CIBC World Markets Inc., and included RBC Dominion Securities Inc., UBS Securities LLC, Deutsche Bank Securities Inc., BMO Nesbitt Burns Inc., KeyBanc Capital Markets, a division of McDonald Investments Inc., and Raymond James Ltd. The concurrent separate offering of US$8,500,000 aggregate principal amount of senior subordinated notes was underwritten by CIBC World Markets Inc.

Otelco and those certain existing investors were represented in Canada by Goodmans LLP with a team that included Allan Goodman, Victor Liu and Catherine Youdan (securities) and Maureen Berry (tax); and in the US by O’Melveny & Myers LLP with a team that included Richard Boehmer, Steven Khadavi and Eric Tajcher.

The underwriters were represented in Canada by Torys LLP with a team that included Kevin Morris, Phil Brown and Tanya Baytor (securities) and Ann Marie McGovern (tax); and in the US by Skadden, Arps, Slate, Meagher & Flom LLP with a team that included Richard Muglia, Darrell Bridgers and Scott Hendler (corporate finance), Warren Lavey (communi-cations) and Charles Morgan and Gordon Appell (tax).

Lawyer(s)

Tanya E.A. Baytor Eric Tajcher Charles Morgan Gordon S. Appell Kevin M. Morris Catherine Youdan Richard Boehmer Darrell Bridgers Victor Liu Allan J. Goodman Steven Khadavi Ann Marie McGovern Richard L. Muglia Maureen Berry

Firm(s)

Goodmans LLP O'Melveny & Myers LLP Torys LLP Skadden, Arps, Slate, Meagher & Flom LLP