As filed with the Securities and Exchange Commission on November 20, 2008

Registration No. 333-      

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

CENTURYTEL, INC.

(Exact name of registrant as specified in its charter)

 

 

100 CenturyTel Drive

Monroe, LA 71203

(318) 388-9000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

Stacey W. Goff, Esq.

CenturyTel, Inc.

100 CenturyTel Drive

Monroe, LA 71203

(318) 388-9000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

 

Approximate date of commencement of the proposed sale of the securities to the public:  As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed document.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

PRELIMINARY— SUBJECT TO COMPLETION — DATED NOVEMBER 20, 2008

 

 

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

The board of directors of CenturyTel, Inc. and the board of directors of Embarq Corporation have agreed to a strategic combination of the two companies under the terms of the Agreement and Plan of Merger, dated as of October 26, 2008, which is referred to as the merger agreement. Upon completion of the merger of a direct, wholly owned subsidiary of CenturyTel with and into Embarq, CenturyTel will acquire Embarq, and Embarq will become a direct, wholly owned subsidiary of CenturyTel.

 

If the merger is completed, Embarq stockholders will have the right to receive 1.37 shares of CenturyTel common stock for each share of Embarq common stock, with cash paid in lieu of fractional shares. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to closing of the merger. Based on the closing price of CenturyTel common stock on the New York Stock Exchange, or the NYSE, on October 24, 2008, the last trading day before public announcement of the merger, the 1.37 exchange ratio represented approximately $40.42 in value for each share of Embarq common stock. Based on such price on          , the latest practicable date before the date of this document, the 1.37 exchange ratio represented approximately $      in value for each share of Embarq common stock. CenturyTel shareholders will continue to own their existing CenturyTel shares.

 

Based on the estimated number of Embarq common shares outstanding on the record date for the shareholder meetings, CenturyTel expects to issue approximately [195,000,000] CenturyTel common shares to Embarq stockholders in the merger. Upon completion of the merger, we estimate that current CenturyTel shareholders will own approximately 34% of the combined company and former Embarq stockholders will own approximately 66% of the combined company. CenturyTel common stock and Embarq common stock are both traded on the NYSE under the symbols CTL and EQ, respectively.

 

At the special meeting of CenturyTel shareholders, CenturyTel shareholders will be asked to vote on the issuance of CenturyTel common stock to Embarq stockholders, which is necessary to effect the merger, and two amendments to the Amended and Restated Articles of Incorporation of CenturyTel to eliminate certain special ten-vote voting rights of long-term CenturyTel shareholders and to increase the number of shares of authorized CenturyTel common stock, neither of which are conditions to completion of the merger. At the special meeting of Embarq stockholders, Embarq stockholders will be asked to vote on the approval and adoption of the merger agreement.

 

We cannot complete the merger unless the shareholders of both of our companies approve the respective proposals related to the merger. Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend your shareholder meeting in person, please vote your shares as promptly as possible by (1) accessing the Internet website specified on your proxy card, (2) calling the toll-free number specified on your proxy card, or (3) signing and returning all proxy cards that you receive in the postage-paid envelope provided, so that your shares may be represented and voted at the CenturyTel or Embarq special meeting, as applicable. If you are an Embarq stockholder, please note that a failure to vote your shares is the equivalent of a vote against the merger. If you are a CenturyTel shareholder, please note that a failure to vote your shares may result in a failure to establish a quorum for the CenturyTel special meeting.

 

The CenturyTel board of directors unanimously recommends that the CenturyTel shareholders vote “FOR” the proposal to issue shares of CenturyTel common stock in the merger, and “FOR” both proposals to amend the CenturyTel charter. The Embarq board of directors, by a unanimous vote of the directors present, recommends that the Embarq stockholders vote “FOR” the proposal to adopt the merger agreement.

 

The obligations of CenturyTel and Embarq to complete the merger are subject to the satisfaction or waiver of several conditions set forth in the merger agreement. More information about CenturyTel, Embarq and the merger is contained in this joint proxy statement-prospectus. CenturyTel and Embarq encourage you to read this entire joint proxy statement-prospectus carefully, including the section entitled “Risk Factors” beginning on page 14.

 

We look forward to the successful combination of CenturyTel and Embarq.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement-prospectus or determined that this joint proxy statement-prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

This joint proxy statement-prospectus is dated          ,          and is first being mailed to the shareholders of CenturyTel and stockholders of Embarq on or about          ,          .

 

CenturyTel, Inc.

100 CenturyTel Drive

Monroe, LA 71203

(318) 388-9000

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On          ,

 

Dear Shareholders of CenturyTel, Inc.:

 

We are pleased to invite you to attend the special meeting of shareholders of CenturyTel, Inc., a Louisiana corporation, which will be held at          , on          , at          , local time, for the following purposes:

 

 

Please refer to the attached joint proxy statement-prospectus for further information with respect to the business to be transacted at the CenturyTel special meeting.

 

Holders of record of shares of CenturyTel common stock or voting preferred stock at the close of business on          , are entitled to vote at the special meeting and any adjournment or postponement of the special meeting. A list of these shareholders will be available for inspection by any CenturyTel shareholder, for any purpose germane to the CenturyTel special meeting at such meeting.

 

The issuance of CenturyTel common stock to Embarq stockholders requires the affirmative vote of holders of a majority of the votes cast on the proposal by holders of CenturyTel common stock and voting preferred stock, voting as a single class. Approval of each charter amendment requires the affirmative vote of holders of two-thirds of the total voting power present or represented at the CenturyTel special meeting attributable to the outstanding CenturyTel common stock and voting preferred stock, voting together as a single class. In addition, the charter amendment proposal to eliminate special ten-vote voting rights of long-term shareholders requires the affirmative vote of holders of two-thirds of the total voting power present or represented at the CenturyTel special meeting attributable to the outstanding CenturyTel common stock, voting as a separate class.

 

Your vote is important. Whether or not you expect to attend in person, we urge you to vote your shares as promptly as possible by (1) accessing the Internet website specified on your proxy card; (2) calling the toll-free number specified on your proxy card; or (3) signing and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the CenturyTel special meeting. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished by the record holder. In lieu of receiving a proxy card, participants in CenturyTel’s benefit plans have been furnished with voting instruction cards. The reverse side of this notice describes CenturyTel’s voting provisions in greater detail.

 

By Order of the Board of Directors,

 

Stacey W. Goff

Senior Vice President, General Counsel and Secretary

 

Monroe, Louisiana

          ,

CenturyTel Shareholders

 

Record Shareholders.  In general, shares registered in the name of any natural person or estate that are represented by certificates dated as of or prior to May 30, 1987 are presumed to have ten votes per share and all other shares are presumed to have one vote per share. However, CenturyTel’s charter (the relevant provisions of which are reproduced below) set forth a list of circumstances in which the foregoing presumptions may be refuted. If you believe that the voting information set forth on your CenturyTel proxy card is incorrect or a presumption made with respect to your shares should not apply, please send a letter to CenturyTel briefly describing the reasons for your belief. Marking the proxy card or contacting CenturyTel in any other manner will not be sufficient notification that you believe the voting information thereon is incorrect.

 

Beneficial Shareholders.  All shares held through a broker, bank or other nominee are presumed to have one vote per share. CenturyTel’s charter sets forth a list of circumstances in which this presumption may be refuted by the person who has held since May 30, 1987 all of the attributes of beneficial ownership referred to in Article III(C)(2) reproduced below. If you believe that some or all of your shares are entitled to ten votes, you may follow one of two procedures. First, you may write a letter to CenturyTel describing the reasons for your belief. The letter should contain your name (unless you prefer to remain anonymous), the name of the brokerage firm, bank or other nominee holding your shares, your account number with such nominee and the number of shares you have beneficially owned continuously since May 30, 1987. Alternatively, you may ask your broker, bank or other nominee to write a letter CenturyTel on your behalf stating your account number and indicating the number of shares that you have beneficially owned continuously since May 30, 1987. In either case, your letter should indicate how you wish to have your shares voted.

 

Other.  CenturyTel will consider all letters received prior to the date of the CenturyTel special meeting and, when a return address is provided in the letter, will advise the party furnishing such letter of its decision, although in many cases CenturyTel will not have time to inform an owner or nominee of its decision prior to the time the shares are voted. In limited circumstances, CenturyTel may require additional information before making a determination. If you have any questions about CenturyTel’s voting procedures, please call CenturyTel at (318) 388-9500.

 

Participants in CenturyTel’s Benefit Plans

 

Participants in CenturyTel’s Dollars & Sense Plan or Union 401(k) Plan have received voting instruction cards in lieu of a proxy card. Only the trustees of these plans, in their capacity as directed trustees, can vote the plan shares at the CenturyTel special meeting. However, if you are a participating current or former CenturyTel employee, you are designated as a “Named Fiduciary” for voting purposes, which entitles you, on a confidential basis, to instruct the trustees how to cast the votes attributable to the shares allocated to your plan account, as well as a proportionate number of plan shares for which properly executed instructions are not timely received. By signing and returning your voting instruction card, you are accepting your designation under the plans as a “Named Fiduciary,” and you therefore are required to exercise your voting rights prudently and in the interest of all plan participants. If you elect not to vote the shares allocated to your accounts, your shares will be voted in accordance with voting instructions received by the trustees from those plan participants who do vote.

 

* * * *

 

Excerpts from CenturyTel’s Charter

 

Paragraph C of Article III of CenturyTel’s charter provides as follows:

 

(1) Each share of Common Stock ... which has been beneficially owned continuously by the same person since May 30, 1987 will entitle such person to ten votes with respect to such share on each matter properly submitted to the shareholders of the Corporation for their vote, consent, waiver, release or other action ...

 

(2) (a) For purposes of this paragraph C, a change in beneficial ownership of a share of the Corporation’s stock will be deemed to have occurred whenever a change occurs in any person or group of persons who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares (i) voting power, which includes the power to vote, or to direct the voting of such share; (ii) investment power, which includes the power to direct the sale or other disposition of such share; (iii) the right to receive or retain the proceeds of any sale or other disposition of such share; or (iv) the right to receive distributions, including cash dividends, in respect to such share.

 

(b) In the absence of proof to the contrary provided in accordance with the procedures referred to in subparagraph (4) of this paragraph C, a change in beneficial ownership will be deemed to have occurred whenever a share of stock is transferred of record into the name of any other person.

 

(c) In the case of a share of Common Stock ... held of record in the name of a corporation, general partnership, limited partnership, voting trustee, bank, trust company, broker, nominee or clearing agency, or in any other name except a natural person, if it has not been established pursuant to the procedures referred to in subparagraph (4) that such share was beneficially owned continuously since May 30, 1987 by the person who possesses all of the attributes of beneficial ownership referred to in clauses (i) through (iv) of subparagraph (2)(a) of this paragraph C with respect to such share of Common Stock ... then such share of Common Stock ... will carry with it only one vote regardless of when record ownership of such share was acquired.

 

(d) In the case of a share of stock held of record in the name of any person as trustee, agent, guardian or custodian under the Uniform Gifts to Minors Act, the Uniform Transfers to Minors Act or any comparable statute as in effect in any state, a change in beneficial ownership will be deemed to have occurred whenever there is a change in the beneficiary of such trust, the principal of such agent, the ward of such guardian or the minor for whom such custodian is acting.

 

(3) Notwithstanding anything in this paragraph C to the contrary, no change in beneficial ownership will be deemed to have occurred solely as a result of:

 

(a) any event that occurred prior to May 30, 1987, including contracts providing for options, rights of first refusal and similar arrangements, in existence on such date to which any holder of shares of stock is a party;

 

(b) any transfer of any interest in shares of stock pursuant to a bequest or inheritance, by operation of law upon the death of any individual, or by any other transfer without valuable consideration, including a gift that is made in good faith and not for the purpose of circumventing this paragraph C;

 

(c) any change in the beneficiary of any trust, or any distribution of a share of stock from trust, by reason of the birth, death, marriage or divorce of any natural person, the adoption of any natural person prior to age 18 or the passage of a given period of time or the attainment by any natural person of a specified age, or the creation or termination of any guardianship or custodian arrangement; or

 

(d) any appointment of a successor trustee, agent, guardian or custodian with respect to a share of stock.

 

(4) For purposes of this paragraph C, all determinations concerning changes in beneficial ownership, or the absence of any such change, will be made by the Corporation. Written procedures designed to facilitate such determinations will be established by the Corporation and refined from time to time. Such procedures will provide, among other things, the manner of proof of facts that will be accepted and the frequency with which such proof may be required to be renewed. The Corporation and any transfer agent will be entitled to rely on all information concerning beneficial ownership of a share of stock coming to their attention from any source and in any manner reasonably deemed by them to be reliable, but neither the Corporation nor any transfer agent will be charged with any other knowledge concerning the beneficial ownership of a share of stock.

 

* * * *

 

(8) Shares of Common Stock held by the Corporation’s employee benefit plans will be deemed to be beneficially owned by such plans regardless of how such shares are allocated to or voted by participants, until the shares are actually distributed to participants.

 

* * * *

 

Embarq Corporation

5454 West 110th Street

Overland Park, KS 66211

(913) 323-4637

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On          ,

 

Dear Stockholders of Embarq Corporation:

 

A special meeting of stockholders of Embarq Corporation will be held at          , local time, on          , at           in order:

 

 

Only stockholders of record at the close of business on          are entitled to notice of, and may vote at, the special meeting and at any adjournment of the meeting. A complete list of stockholders of record of Embarq entitled to vote at the special meeting will be available for the 10 days before the special meeting at our executive offices and principal place of business at 5454 West 110th Street, Overland Park, Kansas for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.

 

In connection with our solicitation of proxies for the special meeting, we are making available this joint proxy statement-prospectus and proxy card on or about          . Please vote in one of the following ways: (1) Use the toll-free number shown on your proxy card; (2) Visit the Internet website specified on your proxy card and follow the instructions there to vote via the Internet; (3) Complete, sign, date and return your proxy card in the enclosed postage-paid envelope; or (4) Vote in person at the meeting.

 

Adoption of the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of common stock entitled to vote on the proposal.

 

Your vote is very important. Please vote using one of the methods above to ensure that your vote will be counted. Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in the accompanying joint proxy statement-prospectus.

 

By order of the Board of Directors,

 

Claudia S. Toussaint

General Counsel and Corporate Secretary

 

Overland Park, Kansas

          ,

ADDITIONAL INFORMATION

 

This document incorporates important business and financial information about CenturyTel and Embarq from other documents that are not included in or delivered with this document. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this document by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

 

Investors may also consult CenturyTel’s or Embarq’s website for more information concerning the merger described in this document. CenturyTel’s website is www.CenturyTel.com. Embarq’s website is www.EMBARQ.com. Information included on either website is not incorporated by reference into this document.

 

If you would like to request any documents, please do so by          in order to receive them before the shareholder meetings.

 

For more information, see “Where You Can Find More Information” beginning on page 107.

 

ABOUT THIS DOCUMENT

 

This document, which forms part of a registration statement on Form S-4 filed with the SEC by CenturyTel (File No. 333-          ), constitutes a prospectus of CenturyTel under Section 5 of the Securities Act of 1933, as amended, which we refer to as the Securities Act, with respect to the CenturyTel common shares to be issued to Embarq stockholders as required by the merger agreement. This document also constitutes a joint proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. It also constitutes a notice of meeting with respect to the special meeting of CenturyTel shareholders, at which CenturyTel shareholders will be asked to vote upon a proposal to authorize the issuance of CenturyTel common shares required to be issued to Embarq stockholders pursuant to the merger agreement and two proposals to amend the CenturyTel charter to eliminate certain special ten-vote voting rights of long-term CenturyTel shareholders and to increase the number of shares of authorized CenturyTel common stock, and a notice of meeting with respect to the special meeting of Embarq stockholders, at which Embarq stockholders will be asked to vote upon a proposal to adopt the merger agreement.

 

You should rely only on the information contained or incorporated by reference into this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document. This document is dated          , 2008. You should not assume that the information contained in, or incorporated by reference into, this document is accurate as of any date other than that date. Neither our mailing of this document to CenturyTel shareholders or Embarq stockholders nor the issuance by CenturyTel of common stock in connection with the merger will create any implication to the contrary.

 

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this document regarding CenturyTel has been provided by CenturyTel and information contained in this document regarding Embarq has been provided by Embarq.

TABLE OF CONTENTS

 

 

 

The following are some questions that you, as a shareholder of CenturyTel or stockholder of Embarq, may have regarding the merger and the other matters being considered at the shareholder meetings and the answers to those questions. CenturyTel and Embarq urge you to read carefully the remainder of this document because the information in this section does not provide all the information that might be important to you with respect to the merger and the other matters being considered at the shareholder meetings. Additional important information is also contained in the annexes to and the documents incorporated by reference into this document.

 

 

 

 

SUMMARY

 

The Companies

 

The Merger and the Merger Agreement

	•	the merger is not consummated by July 26, 2009, subject to a three-month extension under certain circumstances;
	•	a court or other governmental entity issues a final and nonappealable order prohibiting the merger;
	•	CenturyTel shareholders fail to approve the issuance of CenturyTel common stock in connection with the merger;
	•	Embarq stockholders fail to adopt the merger agreement; or
	•	the other party breaches the merger agreement in a way that would entitle the party seeking to terminate the agreement not to consummate the merger, subject to the right of the breaching party to cure the breach.

 

The Special Meetings

	•	to vote on a proposal to approve the issuance of CenturyTel common stock in connection with the merger;
	•	to vote on a proposal to amend the CenturyTel charter to eliminate the rights of persons who have continuously owned shares of CenturyTel common stock since May 30, 1987 to ten votes per share of such stock and to provide instead that all holders of common stock will be entitled to one vote per share;
	•	to vote on a proposal to amend the CenturyTel charter to increase the authorized number of shares of CenturyTel common stock from 350,000,000 to 800,000,000;
	•	to vote upon an adjournment of the CenturyTel special meeting, if necessary, to solicit additional proxies if there are not sufficient votes for the proposal to issue CenturyTel common stock in connection with the merger; and
	•	to transact any other business that may properly be brought before the CenturyTel special meeting or any adjournments or postponements thereof.

	•	The issuance of CenturyTel common stock to Embarq stockholders requires approval by the affirmative vote of holders of a majority of the votes cast on the proposal by holders of CenturyTel common stock and voting preferred stock, voting as a single class.
	•	Each of the two CenturyTel charter amendment proposals requires approval by the affirmative vote of holders of two-thirds of the total voting power present or represented at the CenturyTel special meeting attributable to the outstanding CenturyTel common stock and voting preferred stock, voting together as a single class, and, with respect to the proposal to eliminate the special ten-vote voting rights of CenturyTel’s long-term shareholders by the affirmative vote of holders of two-thirds of the total voting power present or represented at the CenturyTel special meeting attributable to the outstanding CenturyTel common stock, voting as a separate class.
	•	Approval of any proposal to adjourn the CenturyTel special meeting, if necessary, for the purpose of soliciting additional proxies requires that the affirmative vote of holders of a majority of the total voting power present or represented at the CenturyTel special meeting.

	•	to adopt the Agreement and Plan of Merger, dated as of October 26, 2008, among CenturyTel, Cajun Acquisition Company, a wholly owned subsidiary of CenturyTel, and Embarq pursuant to which Cajun Acquisition Company will be merged with and into Embarq and each outstanding share of common stock of Embarq will be converted into the right to receive 1.37 shares of common stock of CenturyTel, with cash paid in lieu of fractional shares; and
	•	to transact any other business that may properly be brought before the Embarq special meeting or any adjournments or postponements thereof.

 

Recent Developments

 

Selected Historical Financial Data of CenturyTel

		Nine Months Ended September 30,								Year Ended December 31,
		2008				2007				2007				2006				2005				2004				2003
		(Unaudited)
		(In millions, except per share amounts)
Selected Statement of Operations Data
Operating revenues		$	1,957			$	2,000			$	2,656			$	2,448			$	2,479			$	2,407			$	2,368
Operating income		$	545			$	624			$	793			$	666			$	736			$	754			$	750
Net income		$	266			$	303			$	418			$	370			$	334			$	337			$	345
Earnings per common share
Basic		$	2.57			$	2.77			$	3.82			$	3.17			$	2.55			$	2.45			$	2.40
Diluted		$	2.55			$	2.68			$	3.72			$	3.07			$	2.49			$	2.41			$	2.35
Dividends per common share		$	1.4675			$	0.195			$	0.26			$	0.25			$	0.24			$	0.23			$	0.22
Average basic shares outstanding			103.4				109.5				109.4				116.7				130.8				137.2				143.6
Average diluted shares outstanding			104.1				114.1				113.1				122.2				136.1				142.1				148.8

		September 30,								December 31,
		2008				2007				2007				2006				2005				2004				2003
		(Unaudited)
		(Dollars in millions)
Selected Balance Sheet Data
Net property, plant and equipment		$	2,915			$	3,145			$	3,108			$	3,109			$	3,304			$	3,341			$	3,455
Goodwill		$	4,010			$	3,997			$	4,011			$	3,431			$	3,433			$	3,434			$	3,425
Total assets		$	8,273			$	8,233			$	8,185			$	7,441			$	7,763			$	7,797			$	7,896
Long-term debt		$	3,299			$	2,748			$	2,734			$	2,413			$	2,376			$	2,762			$	3,109
Shareholders’ equity		$	3,196			$	3,364			$	3,409			$	3,191			$	3,617			$	3,410			$	3,479
Selected Operating Data (unaudited):
Telephone access lines			2,040,000				2,170,000				2,140,000				2,090,000				2,210,000				2,310,000				2,380,000
High-speed Internet customers			630,000				530,000				560,000				370,000				250,000				140,000				80,000

 

Selected Historical Financial Data of Embarq

		Nine Months Ended September 30,								Year Ended December 31,
		2008				2007				2007				2006				2005(2)				2004				2003(2)
		(Unaudited)
		(In millions, except per share amounts)
Selected Statement of Operations Data
Net operating revenues		$	4,645			$	4,788			$	6,365			$	6,363			$	6,254			$	6,139			$	6,159
Operating income		$	1,215			$	1,134			$	1,504			$	1,544			$	1,552			$	1,590			$	1,616
Net income		$	578			$	493			$	683			$	784			$	878			$	917			$	1,554
Earnings per common share(1)
Basic		$	3.92			$	3.25			$	4.50			$	5.26				—				—				—
Diluted		$	3.88			$	3.21			$	4.44			$	5.21				—				—				—
Dividends per common share(1)		$	2.06			$	1.75			$	2.38			$	1.00				—				—				—
Average basic shares outstanding(1)			147.4				151.6				151.9				149.2				—				—				—
Average diluted shares outstanding(1)			149.0				153.5				153.9				150.4				—				—				—

		September 30,								December 31,
		2008				2007				2007				2006				2005				2004				2003
		(Unaudited)
																										(Unaudited)
		(Dollars in millions)
Selected Balance Sheet Data
Net property, plant and equipment		$	7,508			$	7,761			$	7,748			$	7,988			$	7,804			$	7,977			$	7,979
Goodwill		$	27			$	27			$	27			$	27			$	27			$	27			$	27
Total assets		$	8,694			$	8,871			$	8,901			$	9,119			$	9,221			$	9,329			$	9,268
Long-term debt		$	5,838			$	5,774			$	5,779			$	6,421			$	1,123			$	1,125			$	1,239
Stockholders’ equity		$	68			$	122			$	264			$	(468	)		$	4,852			$	4,960			$	4,889
Selected Operating Data (unaudited):
Telephone access lines(3)			5,850,000				6,400,000				6,310,000				6,750,000				7,210,000				7,530,000				7,760,000
High-speed Internet customers			1,390,000				1,220,000				1,280,000				1,020,000				690,000				490,000				300,000

(1)		Before the spin-off on May 17, 2006, Embarq was a wholly owned subsidiary of Sprint Nextel. As such, Embarq did not have any common shares publicly outstanding prior to that date. Average basic and diluted shares outstanding for the year ended December 31, 2006 reflect the shares issued at spin-off and the potentially dilutive shares at spin-off as if they were outstanding and dilutive from January 1, 2006 through May 17, 2006.
(2)		In 2005, Embarq adopted FASB Interpretation No. 47, an interpretation of Statement of Financial Accounting Standard No. 143, Accounting for Asset Retirement Obligations, which required the recognition of a liability for legal obligations to perform an asset retirement activity that are conditioned on a future event. Upon adoption, Embarq recognized a cumulative effect of change in accounting principle, which increased net income by $16 million. In 2003, Embarq adopted Statement of Financial Accounting Standard No. 143, Accounting for Asset Retirement Obligations. In connection with this adoption, Embarq recognized a cumulative effect of change in accounting principle, which increased net income by $258 million. Additionally, in 2003, Embarq recognized an after tax gain of $375 million related to the sale of the directory publishing business.
(3)		Beginning in 2008, Embarq no longer includes in its access line counts those lines that support internal administrative and operational activities. Accordingly, the access line counts for periods prior to 2008 were adjusted to reflect this change.

 

Summary Unaudited Pro Forma Combined Condensed Financial Information

		Year Ended				Nine Months Ended
		December 31,				September 30,
		2007				2008
		(Unaudited)
		(In millions, except per share amounts)
Statement of Operations Data
Net Operating revenues		$	9,021			$	6,602
Operating income			2,134				1,638
Net income			953				733
Basic earnings per common share			3.00				2.40
Diluted earnings per common share			2.95				2.38

		September 30, 2008
Summary Balance Sheet
Net property, plant and equipment		$	10,423
Goodwill			7,874
Total assets			22,018
Long-term debt			8,225
Shareholders’ equity			8,184

 

Equivalent and Comparative Per Share Information

		CenturyTel								Embarq
						Pro Forma								Pro Forma
		Historical				Combined				Historical				Equivalent
Basic earnings per common share
Nine months ended September 30, 2008		$	2.57			$	2.40			$	3.92			$	3.29
Year ended December 31, 2007			3.82				3.00				4.50				4.11
Diluted earnings per common share
Nine months ended September 30, 2008			2.55				2.38				3.88				3.26
Year ended December 31, 2007			3.72				2.95				4.44				4.04
Cash dividends declared per common share
Nine months ended September 30, 2008			1.47				1.47				2.06				2.01
Year ended December 31, 2007			0.26				0.26				2.38				0.36
Book value per common share
As of September 30, 2008			31.96				27.74				0.48				38.00

 

In addition to the other information included and incorporated by reference into this document, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote for adoption and approval of the merger agreement, in the case of Embarq stockholders, or for the issuance of shares of CenturyTel common stock in the merger and the CenturyTel charter amendments, in the case of CenturyTel shareholders. In addition, you should read and consider the risks associated with each of the businesses of CenturyTel and Embarq because these risks will also affect the combined company. These risks can be found in CenturyTel’s and Embarq’s respective Annual Reports on Form 10-K for fiscal year 2007, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC and incorporated by reference into this document. You should also read and consider the other information in this document and the other documents incorporated by reference into this document. See the section entitled “Where You Can Find More Information” beginning on page 107.

 

The exchange ratio is fixed and will not be adjusted in the event of any change in either CenturyTel’s or Embarq’s stock price.

 

Upon closing of the merger, each share of Embarq common stock will be converted into the right to receive 1.37 shares of CenturyTel common stock with cash paid in lieu of fractional shares. This exchange ratio was fixed in the merger agreement and will not be adjusted for changes in the market price of either CenturyTel common stock or Embarq common stock. Changes in the price of CenturyTel common stock prior to the merger will affect the market value that Embarq stockholders will receive on the date of the merger. Stock price changes may result from a variety of factors (many of which are beyond our control), including the following factors:

 

 

The price of CenturyTel common stock at the closing of the merger may vary from its price on the date the merger agreement was executed, on the date of this document and on the date of the shareholder meetings of CenturyTel and Embarq. As a result, the market value represented by the exchange ratio will also vary. For example, based on the range of closing prices of CenturyTel common stock during the period from October 24, 2008, the last trading day before public announcement of the merger, through          , the latest practicable date before the date of this document, the exchange ratio represented a market value ranging from a low of $      to a high of $      for each share of Embarq common stock.

 

Because the date that the merger is completed will be later than the date of the shareholder meetings, at the time of your shareholder meeting, you will not know the exact market value of the CenturyTel common stock that Embarq stockholders will receive upon completion of the merger. You should consider the following two risks:

 

 

 

Our ability to complete the merger is subject to the receipt of consents and approvals from government entities, which may impose conditions that could have an adverse effect on CenturyTel or Embarq or could cause us to abandon the merger.

 

We are unable to complete the merger until after the applicable waiting period under the HSR Act expires or terminates and we receive approvals from the FCC and various state governmental entities. In deciding whether to grant some of these approvals, the relevant governmental entity will make a determination of whether, among other things, the merger is in the public interest. Regulatory entities may impose certain requirements or obligations as conditions for their approval.

 

The merger agreement may require us to accept conditions from these regulators that could adversely impact the combined company without either of us having the right to refuse to close the merger on the basis of those regulatory conditions. We can provide no assurance that we will obtain the necessary approvals or that any required conditions will not have a material adverse effect on CenturyTel following the merger. In addition, we can provide no assurance that these conditions will not result in the abandonment of the merger. See “The Issuance of CenturyTel Shares and the Merger — Regulatory Approvals Required for the Merger” beginning on page 69 and “The Issuance of CenturyTel Shares and the Merger — Conditions to Completion of the Merger” beginning on page 74.

 

Failure to complete the merger could negatively impact the stock prices and the future business and financial results of Embarq and CenturyTel.

 

If the merger is not completed, the ongoing businesses of Embarq or CenturyTel may be adversely affected and Embarq and CenturyTel will be subject to several risks, including the following:

 

 

in each case, without realizing any of the benefits of having the merger completed. If the merger is not completed, Embarq and CenturyTel cannot assure their shareholders that these risks will not materialize and will not materially affect the business, financial results and stock prices of Embarq or CenturyTel.

 

The merger agreement contains provisions that could discourage a potential competing acquiror of either Embarq or CenturyTel or could result in any competing proposal being at a lower price than it might otherwise be.

 

The merger agreement contains “no shop” provisions that, subject to limited exceptions, restrict Embarq’s and CenturyTel’s ability to solicit, encourage, facilitate or discuss competing third-party proposals to acquire all or a significant part of Embarq or CenturyTel. Further, even if the Embarq board of directors or CenturyTel board of directors withdraws or qualifies its recommendation of the merger or the issuance of CenturyTel stock in the merger, respectively, they will still be required to submit the matter to a vote of their respective

shareholders at the special meetings. In addition, the other party generally has an opportunity to offer to modify the terms of our proposed merger in response to any competing acquisition proposals that may be made before such board of directors may withdraw or qualify its recommendation. In some circumstances on termination of the merger agreement, one of the parties may be required to pay a termination fee to the other party. See “The Issuance of CenturyTel Shares and the Merger — No Solicitation of Alternative Proposals” beginning on page 75, “— Termination of the Merger Agreement” beginning on page 76 and “— Expenses and Termination Fees” beginning on page 77.

 

These provisions could discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Embarq or CenturyTel from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than that market value proposed to be received or realized in the merger, or might result in a potential competing acquiror proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

 

If the merger is terminated and either Embarq or CenturyTel determines to seek another business combination, it may not be able to negotiate a transaction with another company on terms comparable to, or better than, the terms of the merger.

 

The pendency of the merger could adversely affect the business and operations of CenturyTel and Embarq.

 

In connection with the pending merger, some customers of each of CenturyTel and Embarq may delay or defer decisions, which could negatively impact revenues, earnings and cash flows of CenturyTel and Embarq, regardless of whether the merger is completed. Similarly, current and prospective employees of CenturyTel and Embarq may experience uncertainty about their future roles with CenturyTel following the merger, which may materially adversely affect the ability of each of CenturyTel and Embarq to attract and retain key personnel during the pendency of the merger.

 

Operational Risks

 

CenturyTel is expected to incur substantial expenses related to the integration of Embarq.

 

CenturyTel is expected to incur substantial expenses in connection with the integration of the business, policies, procedures, operations, technologies and systems of Embarq with those of CenturyTel. There are a large number of systems that must be integrated, including management information, purchasing, accounting and finance, sales, billing, payroll and benefits, fixed asset and lease administration systems and regulatory compliance. While CenturyTel has assumed that a certain level of expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of all of the expected integration expenses. Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. These expenses could, particularly in the near term, exceed the savings that CenturyTel expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings and revenue synergies related to the integration of the businesses following the completion of the merger. These integration expenses likely will result in CenturyTel taking significant charges against earnings following the completion of the merger, but the amount and timing of such charges are uncertain at present.

 

Following the merger, the combined company may be unable to integrate successfully the businesses of CenturyTel and Embarq and realize the anticipated benefits of the merger.

 

The merger involves the combination of two companies which currently operate as independent public companies. The combined company will be required to devote significant management attention and resources to integrating its business practices and operations. Potential difficulties the combined company may encounter in the integration process include the following:

 

 

 

In addition, CenturyTel and Embarq have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the diversion of each company’s management’s attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers and employees or our ability to achieve the anticipated benefits of the merger, or could reduce the earnings or otherwise adversely affect the business and financial results of the combined company.

 

CenturyTel and Embarq may be unable to retain key employees.

 

The success of CenturyTel after the merger will depend in part upon the ability of CenturyTel to retain key Embarq and CenturyTel employees. Key employees may depart either before or after the merger because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with CenturyTel following the merger. Accordingly, no assurance can be given that CenturyTel will be able to retain key employees to the same extent that it or Embarq has been able to do so in the past.

 

If CenturyTel continues to experience access line losses similar to the past several years, CenturyTel’s revenues, earnings and cash flows may be adversely impacted.

 

CenturyTel’s and Embarq’s businesses generate a substantial portion of their revenues by delivering voice and data services over access lines. CenturyTel and Embarq have experienced access line losses over the past several years, due to a number of factors, including increased competition and wireless and broadband substitution. CenturyTel expects to continue to experience access line losses following the merger. CenturyTel’s inability to retain access lines could adversely impact its revenues, earnings and cash flow from operations.

 

CenturyTel faces competition, which CenturyTel expects to intensify and which may reduce market share and lower profits.

 

As a result of various technological, regulatory and other changes, the telecommunications industry has become increasingly competitive. CenturyTel faces competition from (i) wireless telephone services, which CenturyTel expects to increase if wireless providers continue to expand and improve their network coverage, offer fixed-rate calling plans, lower their prices and offer enhanced services and (ii) cable television operators, competitive local exchange carriers and voice-over-Internet protocol, or VoIP, providers. Over time, CenturyTel expects to face additional local exchange competition from electric utility and satellite communications providers and alternative networks or non-carrier systems designed to reduce demand for CenturyTel’s switching or access services. The recent proliferation of companies offering integrated service offerings has intensified competition in Internet, long distance and data services markets, and CenturyTel expects that competition will further intensify in these markets.

 

While CenturyTel expects to achieve benefits from the merger, CenturyTel’s competitive position could be weakened in the future by strategic alliances or consolidation within the communications industry or the development of new technologies. CenturyTel’s ability to compete successfully will depend on how well CenturyTel markets its products and services and on CenturyTel’s ability to anticipate and respond to various

competitive and technological factors affecting the industry, including changes in regulation (which may affect CenturyTel differently from its competitors), changes in consumer preferences or demographics, and changes in the product offerings or pricing strategies of CenturyTel’s competitors.

 

Many of CenturyTel’s current and potential competitors (i) have market presence, engineering, technical and marketing capabilities and financial, personnel and other resources substantially greater than CenturyTel, (ii) own larger and more diverse networks, (iii) conduct operations or raise capital at a lower cost than CenturyTel, (iv) are subject to less regulation, (v) offer greater online content services or (vi) have substantially stronger brand names. Consequently, these competitors may be better equipped to charge lower prices for their products and services, to provide more attractive offerings, to develop and expand their communications and network infrastructures more quickly, to adapt more swiftly to new or emerging technologies and changes in customer requirements, and to devote greater resources to the marketing and sale of their products and services.

 

Competition could adversely impact CenturyTel in several ways, including (i) the loss of customers and market share, (ii) the possibility of customers reducing their usage of CenturyTel’s services or shifting to less profitable services, (iii) reduced traffic on CenturyTel’s networks, (iv) CenturyTel’s need to expend substantial time or money on new capital improvement projects, (v) CenturyTel’s need to lower prices or increase marketing expenses to remain competitive and (vi) CenturyTel’s inability to diversify by successfully offering new products or services.

 

CenturyTel could be harmed by rapid changes in technology.

 

The communications industry is experiencing significant technological changes, particularly in the areas of VoIP, data transmission and wireless communications. Several large electric utilities have announced plans to offer communications services that will compete with local exchange carriers such as CenturyTel and Embarq. Some of CenturyTel’s competitors may enjoy network advantages that will enable them to provide services more efficiently or at lower cost. Rapid changes in technology could result in the development of additional products or services that compete with or displace those offered by traditional local exchange carriers or that enable current customers to reduce or bypass use of CenturyTel’s networks. CenturyTel cannot predict with certainty which technological changes will provide the greatest threat to CenturyTel’s competitive position. CenturyTel may not be able to obtain timely access to new technology on satisfactory terms or incorporate new technology into CenturyTel’s systems in a cost effective manner, or at all. If CenturyTel cannot develop new products to keep pace with technological advances, or if such products are not widely embraced by CenturyTel’s customers, CenturyTel could be adversely impacted.

 

CenturyTel cannot assure you that its diversification efforts will be successful.

 

The telephone industry has recently experienced a decline in access lines and minutes of use, which, coupled with the other changes resulting from competitive, technological and regulatory developments, could materially adversely affect CenturyTel’s core business (including the business of the combined company following the merger) and future prospects. CenturyTel believes that its minutes of use will continue to decline, although the magnitude of such decrease is uncertain.

 

CenturyTel has traditionally sought growth largely through acquisitions of properties similar to those currently operated by it. However, following the merger CenturyTel cannot assure you that properties will be available for purchase on terms attractive to it, particularly if they are burdened by regulations, pricing plans or competitive pressures that are new or different from those historically applicable to the incumbent properties of CenturyTel and Embarq. Moreover, CenturyTel cannot assure you that it will be able to arrange additional financing on terms acceptable to it or to obtain timely federal and state governmental approvals on terms acceptable to it, or at all.

 

CenturyTel continues to broaden its services and products by offering satellite television services and reselling wireless services as part of CenturyTel’s bundled product and service offerings. CenturyTel’s reliance on other companies and their networks to provide these services could constrain its flexibility and limit the profitability of these new offerings. CenturyTel provides facilities-based digital video services to select markets and may initiate other new service or product offerings in the future. CenturyTel anticipates that these new

offerings will generate lower profit margins than many of its traditional services. CenturyTel cannot assure you that its recent or future diversification efforts will be successful.

 

Future deterioration in CenturyTel’s financial performance could adversely impact CenturyTel’s credit ratings, CenturyTel’s cost of capital and CenturyTel’s access to the capital markets.

 

CenturyTel’s future results will suffer if CenturyTel does not effectively adjust to changes in CenturyTel’s industry.

 

The above-described changes in CenturyTel’s industry have placed a higher premium on marketing, technological, engineering and provisioning skills. CenturyTel’s future success depends, in part, on CenturyTel’s ability to retrain its staff to acquire or strengthen these skills, and, where necessary, to attract and retain new personnel who possess these skills.

 

CenturyTel’s future results will suffer if CenturyTel does not effectively manage its expanded operations following the merger.

 

Following the merger, CenturyTel may continue to expand its operations through additional acquisitions, other strategic transactions, and new product and service offerings, some of which involve complex technical, engineering, and operational challenges. CenturyTel’s future success depends, in part, upon CenturyTel’s ability to manage its expansion opportunities, which pose substantial challenges for CenturyTel to integrate new operations into its existing business in an efficient and timely manner, to successfully monitor CenturyTel’s operations, costs, regulatory compliance and service quality, and to maintain other necessary internal controls. CenturyTel cannot assure you that its expansion or acquisition opportunities will be successful, or that CenturyTel will realize its expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.

 

Following the merger, CenturyTel may need to launch branding or rebranding initiatives that are likely to involve substantial costs and may not be favorably received by customers.

 

CenturyTel plans to consult with Embarq about whether to change its name and primary brand in connection with the merger. Prior to the merger, CenturyTel and Embarq will each continue to market their respective products and services using the “CenturyTel” and “Embarq” brand names and logos. Following the merger, CenturyTel plans to market its products and services under “CenturyTel,” “Embarq” or some other name. As a result, CenturyTel will discontinue use of either or both of the “CenturyTel” or “Embarq” brand names and logos in some or all of the markets of the combined company. If CenturyTel retains either its name or Embarq’s, it will nonetheless incur substantial capital and other costs in rebranding its products and services in those markets that previously used a different name. If CenturyTel chooses an entirely new brand, these costs will be even greater, and CenturyTel may not be able to achieve or maintain name recognition or status under its new brand that is comparable to the recognition and status previously enjoyed. The failure of any of these initiatives could adversely affect CenturyTel’s ability to attract and retain customers after the merger, resulting in reduced revenues.

 

CenturyTel’s relationships with other communications companies are material to its operations and their financial difficulties may adversely affect CenturyTel.

 

CenturyTel originates and terminates calls for long distance carriers and other interexchange carriers over CenturyTel’s network in exchange for access charges that represent a significant portion of CenturyTel’s revenues. Should these carriers go bankrupt or experience substantial financial difficulties, CenturyTel’s inability to timely collect access charges from them could have a negative effect on CenturyTel’s business and results of operations.

 

In addition, certain of CenturyTel’s operations carry a significant amount of voice and data traffic for larger communications companies. As these larger communications companies consolidate or expand their networks, it is possible that they could transfer a significant portion of this traffic from CenturyTel’s fiber network to their networks, which could have a negative effect on CenturyTel’s business and results of operations.

Regulatory Risks

 

CenturyTel’s revenues could be materially reduced or its expenses materially increased by changes in regulations, including those recently proposed by the chairman of the FCC.

 

The majority of CenturyTel’s revenues are substantially dependent upon laws and regulations which, if changed, could result in material revenue reductions. Laws and regulations applicable to CenturyTel and its competitors have been and are likely to continue to be challenged in the courts, which could also affect CenturyTel’s revenues.

 

Risk of loss or reduction of network access charge revenues or support fund payments.  CenturyTel is subject to substantial regulation by the FCC. FCC rules and regulations are subject to change in response to industry developments, changes in law, technological changes and political considerations. The FCC regulates tariffs for interstate access and subscriber line charges, both of which are components of CenturyTel’s revenues. The FCC has been considering comprehensive reform of its inter-carrier compensation rules for several years.

 

CenturyTel receives a substantial portion of its revenues from the federal Universal Service Fund, which is referred to as the USF, and, to a lesser extent, intrastate support funds. These governmental programs are reviewed and amended from time to time, and CenturyTel cannot assure you that they will not be changed or impacted in a manner adverse to CenturyTel. For several years, the FCC and a federal-state joint board established by Congress have considered comprehensive reforms of the federal USF contribution and distribution rules. During this period, various parties have objected to the size of the USF or questioned the continued need to maintain the program in its current form. Pending judicial appeals and congressional proposals create additional uncertainty regarding our future receipt of support payments. In addition, the number of eligible telecommunications carriers receiving support payments from this program has increased substantially in recent years, which, coupled with other factors, has placed additional financial pressure on the amount of money that is available to provide support payments to all eligible recipients, including CenturyTel.

 

On November 5, 2008, the FCC issued a document that, among other things, requested public comment on a draft proposal of the FCC chairman designed to comprehensively redefine and reform the FCC’s intercarrier compensation rules and the USF rules. The draft proposes to reduce intrastate and interstate access rates and local reciprocal compensation rates to levels substantially below those currently charged by CenturyTel and Embarq. The draft also proposes changes to USF rules that would mandate broadband deployment, freeze the level of certain USF support payments, and expand various USF programs, the combined effect of which would adversely impact local exchange carriers by limiting the amount of USF revenues available to them and increasing their operating costs. Comments on the draft proposals are due November 26, 2008, with reply comments due December 3, 2008, in anticipation of an FCC vote on December 18, 2008. It is currently unclear what action the FCC may take action with respect to the draft proposals. As previously disclosed by CenturyTel and Embarq, adoption of the chairman’s original proposal, which is published in the November 5, 2008 document, could result in a material adverse impact on the results of operations of both companies.

 

Risks posed by state regulations.  CenturyTel is also subject to the authority of state regulatory commissions which have the power to regulate intrastate rates and services, including local, in-state long-distance and network access services. CenturyTel’s business could be materially adversely affected by the adoption of new laws, policies and regulations or changes to existing state regulations. In particular, CenturyTel cannot assure you that it will succeed in obtaining or maintaining all requisite state regulatory approvals for its operations without the imposition of restrictions on its business, which could have the effect of imposing material additional costs on CenturyTel or limiting its revenues.

 

Risks posed by costs of regulatory compliance.  Regulations continue to create significant compliance costs for CenturyTel. Challenges to CenturyTel’s tariffs by regulators or third parties or delays in obtaining certifications and regulatory approvals could cause CenturyTel to incur substantial legal and administrative expenses, and, if successful, such challenges could adversely affect the rates, terms and conditions of CenturyTel’s service offerings. CenturyTel’s business also may be impacted by legislation and regulation imposing new or greater obligations related to assisting law enforcement, bolstering homeland security, minimizing environmental impacts, or addressing other issues that impact CenturyTel’s business (including

local number portability and customer proprietary network information requirements). For example, existing provisions of the Communications Assistance for Law Enforcement Act require communications carriers to ensure that their equipment, facilities, and services are able to facilitate authorized electronic surveillance. CenturyTel expects its compliance costs to increase if future laws or regulations continue to increase its obligations to assist other governmental agencies.

 

Other Risks

 

Following the merger, CenturyTel will continue to have a substantial amount of indebtedness and may need to incur more in the future.

 

Although CenturyTel’s indebtedness relative to its size is expected to decrease following the merger, the dollar amount of such indebtedness will increase and remain substantial, which could have material adverse consequences for CenturyTel, including (i) hindering CenturyTel’s ability to adjust to changing market, industry or economic conditions, (ii) limiting CenturyTel’s ability to access the capital markets to refinance maturing debt or to fund acquisitions or emerging businesses, (iii) limiting the amount of free cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses, (iv) making CenturyTel more vulnerable to economic or industry downturns, including interest rate increases and (v) placing CenturyTel at a competitive disadvantage to those of CenturyTel’s competitors that have less indebtedness.

 

In connection with executing CenturyTel’s business strategies following the merger, CenturyTel expects to continue to evaluate the possibility of acquiring additional communications assets, and CenturyTel may elect to finance future acquisitions by incurring additional indebtedness. Moreover, to respond to competitive challenges, CenturyTel may be required to raise substantial additional capital to finance new product or service offerings. CenturyTel’s ability to arrange additional financing will depend on, among other factors, CenturyTel’s financial position and performance, as well as prevailing market conditions and other factors beyond CenturyTel’s control. CenturyTel cannot assure you that it will be able to obtain additional financing on terms acceptable to CenturyTel or at all. If CenturyTel is able to obtain additional financing, CenturyTel’s credit ratings could be adversely affected. As a result, CenturyTel’s borrowing costs would likely increase, CenturyTel’s access to capital may be adversely affected and CenturyTel’s ability to satisfy its obligations under its indebtedness could be adversely affected.

 

In connection with the merger, we are planning to refinance a significant amount of indebtedness, and we cannot guarantee that we will be able to obtain the necessary funds on favorable terms or at all.

 

In connection with the merger, CenturyTel plans to refinance a portion of Embarq’s and/or CenturyTel’s indebtedness. While CenturyTel expects that the proceeds of the debt financing committed to by certain banks as described below under “The Merger Agreement — Financing” on page 80, combined with available cash, to be adequate to refinance such indebtedness, the financing commitment is subject to certain conditions and CenturyTel cannot guarantee that such proceeds will be available. If such proceeds are unavailable, the combined company could incur additional debt or issue securities (or a combination of such sources) which, due to prevailing conditions in the credit markets and capital markets, may not be available on favorable terms to the combined company or at all. Alternatively, or in combination with such financing, the combined company could seek waivers or amendments of the terms of the indebtedness to be refinanced to allow such indebtedness to remain outstanding following the merger, but there can be no assurance that creditors would agree to such waivers or amendments without the combined company incurring a substantial expense or at all. Completion of the merger is not conditional on refinancing the indebtedness.

 

CenturyTel cannot assure you that it will be able to continue paying dividends at the current rate.

 

As noted elsewhere in this document, CenturyTel plans to continue its current dividend practices following the merger. However, you should be aware that CenturyTel shareholders may not receive the same dividends following the merger for reasons that may include any of the following factors:

 

 

 

CenturyTel’s common shareholders should be aware that they have no contractual or other legal right to dividends.

 

This document and the documents incorporated by reference into this document contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, revenue enhancements, competitive positions, growth opportunities, plans and objectives of the management of each of CenturyTel, Embarq and the combined company, the merger and the markets for CenturyTel and Embarq common stock and other matters. Statements in this document and the documents incorporated by reference herein that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act, and Section 27A of the Securities Act. These forward-looking statements, including, without limitation, those relating to the future business prospects, revenues and income of CenturyTel and Embarq, wherever they occur in this document or the documents incorporated by reference herein, are necessarily estimates reflecting the best judgment of the respective managements of CenturyTel and Embarq and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in and incorporated by reference into this document.

 

Words such as “estimate,” “project,” “plan,” “intend,” “expect,” “anticipate,” “believe,” “would,” “should,” “could” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this document, including in the section entitled “Risk Factors” beginning on page 14. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include those set forth in CenturyTel’s and Embarq’s filings with the SEC, including their respective Annual Reports on Form 10-K for 2007. These important factors also include those set forth under “Risk Factors,” beginning on page 14, as well as, among others, risks and uncertainties relating to:

 

 

The parties undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

 

CenturyTel, Inc.
100 CenturyTel Drive
Monroe, Louisiana 71203
Telephone: (318) 388-9000

 

CenturyTel, a Louisiana corporation, is an integrated communications company primarily engaged in providing an array of communications services, including local and long distance voice, Internet access and broadband services in 25 states. CenturyTel also provides fiber transport, competitive local exchange carrier, security monitoring, and other communications and business information services in certain local and regional markets. CenturyTel’s incumbent local exchange telephone subsidiaries operate approximately 2.0 million telephone access lines, primarily in rural areas and small to mid-size cities, with over 68% of these lines located in Missouri, Wisconsin, Alabama, Arkansas and Washington. According to published sources, CenturyTel is the seventh largest local exchange telephone company in the United States based on the number of access lines served.

 

Additional information about CenturyTel and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find More Information” on page 107.

 

Embarq Corporation
5454 West 110th Street
Overland Park, Kansas 66211
Telephone: (913) 323-4637

 

Embarq, a Delaware corporation, was formerly a wholly owned subsidiary of Sprint Nextel. On May 17, 2006, Sprint Nextel spun-off its local communications business and product distribution operations, thereby establishing Embarq as a separate stand-alone company.

 

Embarq provides, both directly and through wholesale and sales agency relationships, a suite of integrated communications services, consisting of local and long distance voice, data, high-speed Internet, satellite video, professional services and communications equipment to consumers and business customers primarily in local service territories in 18 states. Embarq also provides access to its local network and other wholesale communications services primarily to other carriers, wireless providers and correctional institutions. Through its Logistics segment, Embarq engages in wholesale product distribution, logistics and configuration services.

 

Additional information about Embarq and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find More Information” on page 107.

 

Cajun Acquisition Company, a wholly owned subsidiary of CenturyTel, is a Delaware corporation formed on October 24, 2008 for the purpose of effecting the merger. Upon completion of the merger, Cajun Acquisition Company will be merged with and into Embarq and the name of the resulting company will be Embarq Corporation.

 

The special meeting of CenturyTel shareholders will be held at          , on          ,          at          , local time.

 

At the CenturyTel special meeting, CenturyTel shareholders will be asked:

 

 

The CenturyTel board of directors unanimously has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement, including the stock issuance, and the CenturyTel charter amendments, are advisable and in the best interests of CenturyTel and its shareholders and has unanimously approved the merger agreement.

 

The CenturyTel board of directors unanimously recommends that the CenturyTel shareholders vote “FOR” the proposal to issue shares of CenturyTel common stock in the merger and the charter amendment proposals.

 

Only holders of record of shares of CenturyTel common stock or voting preferred stock at the close of business on          , the record date for the CenturyTel special meeting, will be entitled to notice of, and to vote at, the CenturyTel special meeting or any adjournments or postponements thereof.

 

On the record date, there were outstanding a total of           shares of CenturyTel common stock entitled to vote at the CenturyTel special meeting and          shares of CenturyTel voting preferred stock entitled to vote at the CenturyTel special meeting. The CenturyTel charter generally provides that holders of CenturyTel common stock that have been beneficially owned continuously since May 30, 1987 are entitled to cast ten votes per share, subject to compliance with certain procedures. Article III of the CenturyTel charter and the voting procedures that CenturyTel has adopted thereunder contain several provisions governing the voting power of the CenturyTel common stock, including a presumption that each share of common stock held by nominees or by any holder other than a natural person or estate entitles such holder to one vote, unless the holder furnishes CenturyTel with proof to the contrary. Applying the presumptions described in Article III and information known to CenturyTel, CenturyTel’s records indicate that          votes are entitled to be cast at the CenturyTel special meeting, of which are attributable to the common stock. Unless otherwise indicated, CenturyTel has calculated all percentages of voting power in this joint proxy statement-prospectus based on this number of votes. CenturyTel shareholders may exercise their votes by voting in person or through the Internet or by telephone or by a properly executed and delivered proxy with respect to the CenturyTel special meeting.

 

On the record date, approximately     % of the outstanding CenturyTel common shares, none of the outstanding shares of CenturyTel voting preferred stock, and approximately     % of the total voting power

of CenturyTel voting shares were held by CenturyTel directors and executive officers and their affiliates. We currently expect that CenturyTel’s directors and executive officers will vote their shares in favor of the issuance of CenturyTel common stock in connection with the merger and in favor of the CenturyTel charter amendment proposals, although none of them has entered into any agreements obligating them to do so.

 

The holders of shares having at least two-thirds of the total voting power of the CenturyTel common stock and voting preferred stock issued and outstanding and entitled to vote at the CenturyTel special meeting must be present or represented by proxy to constitute a quorum for the transaction of business at the special meeting. All shares of CenturyTel common stock or voting preferred stock represented at the CenturyTel special meeting, including abstentions and broker non-votes (shares held by a broker or nominee that are represented at the shareholder meetings, but with respect to which the broker or nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal), will be treated as present for purposes of determining the presence or absence of a quorum for all matters to be considered at the CenturyTel special meeting.

 

The proposals require different percentages of votes in order to approve them:

 

 

If you are a CenturyTel shareholder and fail to vote, fail to instruct your broker or nominee to vote, or vote to abstain, it will have no effect on the proposal to approve the issuance of shares of CenturyTel common stock in the merger, the charter amendment proposals, or any adjournment proposals, assuming a quorum is present. Although abstentions and broker non-votes will be counted as present for purposes of determining whether a quorum is present, they will not be counted as present, represented by proxy, or cast for purposes of determining whether the requisite vote to approve a proposal has been obtained.

 

A proxy card is enclosed for your use. CenturyTel requests that you sign the accompanying proxy and return it promptly in the enclosed postage-paid envelope. When the accompanying proxy is returned properly executed, the shares of CenturyTel common stock or voting preferred stock represented by it will be voted at the CenturyTel special meeting or any adjournment thereof in accordance with the instructions contained in the proxy.

 

If a proxy is returned without an indication as to how the shares of CenturyTel common stock or voting preferred stock represented are to be voted with regard to a particular proposal, the CenturyTel common stock or voting preferred stock represented by the proxy will be voted in favor of each such proposal. At the date hereof, management has no knowledge of any business that will be presented for consideration at the special meeting and which would be required to be set forth in this joint proxy statement-prospectus or the related CenturyTel proxy card other than the matters set forth in CenturyTel’s Notice of Special Meeting of Shareholders. If any other matter is properly presented at the CenturyTel special meeting for consideration, it

is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.

 

Your vote is important. Accordingly, please sign and return the enclosed proxy card whether or not you plan to attend the CenturyTel special meeting in person.

 

Participants in the CenturyTel’s Dollars & Sense Plan or Union 401(k) Plan have received voting instruction cards in lieu of a proxy card. Only the trustees of these plans, in their capacity as directed trustees, can vote the plan shares at the CenturyTel special meeting. However, if you are a participating current or former CenturyTel employee, you are designated as a “Named Fiduciary” for voting purposes, which entitles you, on a confidential basis, to instruct the trustees how to cast the votes attributable to the shares allocated to your plan account, as well as a proportionate number of plan shares for which properly executed instructions are not timely received. By signing and returning your voting instruction card, you are accepting your designation under the plans as a “Named Fiduciary,” and you therefore are required to exercise your voting rights prudently and in the interest of all plan participants. If you elect not to vote the shares allocated to your accounts, your shares will be voted in accordance with voting instructions received by the trustees from those plan participants who do vote.

 

If you hold your shares in a stock brokerage account or if your shares are held by a bank or nominee (that is, in street name), you must provide the record holder of your shares with instructions on how to vote your shares if you wish them to be counted. Please follow the voting instructions provided by your bank or broker. Please note that you may not vote shares held in street name by returning a proxy card directly to CenturyTel or by voting in person at your shareholder meeting unless you provide a “legal proxy,” which you must obtain from your bank or broker. Further, brokers who hold shares of CenturyTel common stock or voting preferred stock on behalf of their customers may not give a proxy to CenturyTel to vote those shares without specific instructions from their customers.

 

If you are a CenturyTel shareholder and you do not instruct your broker on how to vote your shares, your broker may not vote your shares, which will have no effect on any of the proposals to be considered at the CenturyTel special meeting, assuming a quorum is present.

 

You have the power to revoke your proxy at any time before your proxy is voted at the CenturyTel special meeting. You can revoke your proxy in one of three ways:

 

 

If you choose either of the first two methods, your notice of revocation or your new proxy must be received by CenturyTel’s Secretary at 100 CenturyTel Drive, Monroe, Louisiana 71203, no later than the beginning of the CenturyTel special meeting.

 

In accordance with the merger agreement, the cost of proxy solicitation for the CenturyTel special meeting will be borne by CenturyTel. In addition to the use of the mail, proxies may be solicited by officers and directors and regular employees of CenturyTel, without additional remuneration, by personal interview, telephone, facsimile or otherwise. CenturyTel will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record on the record date and will provide customary reimbursement to such firms for the cost of forwarding these materials. CenturyTel has retained Innisfree M&A Incorporated to assist in its solicitation of proxies and has agreed to pay them a fee of approximately $     , plus reasonable expenses, for these services.

 

The special meeting is scheduled to be held at          , on           at          , local time.

 

The special meeting of Embarq stockholders is being held:

 

 

The board of directors of Embarq has determined that the merger agreement is advisable and in the best interests of Embarq and its stockholders, and has approved the merger agreement and the merger.

 

The Embarq board of directors, by a unanimous vote of the directors present, recommends that you vote “FOR” the adoption of the merger agreement.

 

Only stockholders of record at the close of business on          are entitled to notice of, and to vote at, the Embarq special meeting and at any adjournment of the meeting. A complete list of stockholders of record of Embarq entitled to vote at the special meeting will be available for the 10 days before the special meeting at our executive offices and principal place of business at 5454 West 110th Street, Overland Park, Kansas for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.

 

As of the record date for Embarq’s special meeting, the directors and officers of Embarq as a group owned and were entitled to vote            shares of the common stock of Embarq, or less than     % of the outstanding shares of the common stock of Embarq on that date. We currently expect that Embarq’s directors and executive officers will vote their shares in favor of the merger, although none of them has entered into any agreements obligating them to do so.

 

A quorum is necessary to hold a valid special meeting. A quorum will be present at the Embarq special meeting if the holders of a majority of the outstanding shares of the common stock of Embarq entitled to vote on the record date are present, in person or by proxy. If a quorum is not present at the special meeting, we expect the presiding officer to adjourn the special meeting in order to solicit additional proxies. Abstentions and broker non-votes will be counted as present for purposes of determining whether a quorum is present.

 

The adoption of the merger agreement requires the affirmative vote of the holders of at least a majority of the shares of outstanding common stock of Embarq entitled to vote at the special meeting, either in person or by proxy.

 

If you are an Embarq stockholder and fail to vote, fail to instruct your broker or nominee to vote, or vote to abstain, it will have the same effect as a vote against the proposal to adopt the merger agreement.

 

Whether or not you plan to attend the Embarq special meeting, please vote your shares. If your shares are held in your name, you may vote in person at the special meeting or by proxy.

 

If you plan to attend the Embarq special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held in “street name,” which means your shares are held of record by a broker, bank or other nominee, and you wish to vote at the special meeting, you must bring to the special meeting a proxy from the record holder (your broker, bank or nominee) of the shares authorizing you to vote at the special meeting.

 

You should vote your proxy even if you plan to attend the Embarq special meeting. You can always change your vote at the special meeting.

 

Your enclosed proxy card includes specific instructions for voting your shares. Embarq’s electronic voting procedures are designed to authenticate your identity and to ensure that your votes are accurately recorded. When the accompanying proxy is returned properly executed, the shares of Embarq common stock represented by it will be voted at the Embarq special meeting or any adjournment thereof in accordance with the instructions contained in the proxy.

 

If you return your signed proxy card without indicating how you want your shares to be voted, your shares will be voted for the proposal. Proxy cards that are returned without a signature will not be counted as present at the Embarq special meeting and cannot be voted.

 

If your shares are held in an account with a broker, bank or other nominee, you must follow the instructions from your broker, bank or nominee in order to vote. If you are an Embarq stockholder and you do not instruct your broker on how to vote your shares, your broker may not vote your shares, which will have the same effect as a vote against the proposal to approve and adopt the merger agreement.

 

You have the power to revoke your proxy at any time before your proxy is voted at the Embarq special meeting. You can revoke your proxy in one of three ways:

 

 

If you choose either of the first two methods, your notice of revocation or your new proxy must be received by Embarq’s Corporate Secretary at 5454 West 110th Street, Overland Park, Kansas no later than the beginning of the Embarq special meeting.

 

In accordance with the merger agreement, the cost of proxy solicitation for the Embarq special meeting will be borne by Embarq. In addition to the use of the mail, proxies may be solicited by officers and directors and regular employees of Embarq, without additional remuneration, by personal interview, telephone, facsimile or otherwise. Embarq will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record on the record date and will provide customary reimbursement to such firms for the cost of forwarding these materials. Embarq has retained D.F. King & Co. to assist in its solicitation of proxies and has agreed to pay them a fee of approximately $20,000, plus reasonable expenses, for these services.

 

Upon completion of the merger, Cajun Acquisition Company, a wholly owned subsidiary of CenturyTel newly organized to effect the merger, will merge with and into Embarq. Embarq will be the surviving corporation in the merger and will thereby become a wholly owned subsidiary of CenturyTel.

 

In the merger, each outstanding share of Embarq common stock (other than shares owned by Embarq, CenturyTel, or Cajun Acquisition Company, which will be cancelled) will be converted into the right to receive 1.37 shares of CenturyTel common stock for each share of Embarq common stock, with cash paid in lieu of fractional shares. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to closing of the merger. CenturyTel shareholders will continue to hold their existing CenturyTel shares.

 

With both companies being leading communications companies in their respective markets, the managements of CenturyTel and Embarq are generally familiar with each other’s business. In addition, both companies periodically review and assess the industry and strategic alternatives available to enhance shareholder value.

 

On December 27, 2007, Mr. Glen F. Post, III, chairman and chief executive officer of CenturyTel, contacted Mr. Thomas A. Gerke, president and chief executive officer of Embarq, to discuss consolidation in the industry and explained that CenturyTel was reviewing various acquisition opportunities.

 

On February 28, 2008, Embarq received an unsolicited preliminary business combination proposal from a potential strategic partner, which we refer to as Company A. On March 2, 2008, the Embarq board met to consider the unsolicited proposal and advice from Embarq’s financial and legal advisors and determined not to pursue the proposal at that time. The Embarq board determined that it wanted to consider Embarq’s strategic plan and various strategic alternatives at its next regularly scheduled meeting on May 1, 2008 and asked Mr. Gerke to prepare appropriate materials.

 

At the May 1, 2008 meeting, the Embarq board received reports on Embarq’s financial position and operational strategy and considered, among other matters, Embarq’s strategic plan and potential alternatives to maximize stockholder value, including continuing to operate as a stand-alone company, making changes to Embarq’s dividend policy and capital structure and pursuing a potential strategic transaction. At the meeting, Embarq’s financial advisors also presented financial analyses of these alternatives and discussed the possibility of industry consolidation. The board discussed the value and advantages of general discussions with the chief executive officers of peer companies, particularly the companies identified in the strategic discussions.

 

On May 23, 2008, Mr. Gerke and his counterpart at a potential strategic partner, which we refer to as Company B, discussed the industry and the regulatory landscape, and in the course of that conversation discussed the potential for consolidation within the industry, including the strategic advantages of a possible combination of Embarq and Company B.

 

During the first half of 2008, CenturyTel periodically reviewed its available alternatives to improve its strategic position within the industry and to enhance shareholder value, including potential business combinations with Embarq and other industry participants. In connection with certain of these reviews, CenturyTel consulted several financial advisors, including Lehman Brothers, certain assets of which, including its North American investment banking franchise, were subsequently acquired by Barclays Capital and which we refer to as Barclays Capital, and Morgan Stanley. CenturyTel engaged Wachtell, Lipton, Rosen & Katz, which we refer to as Wachtell, Lipton, and Jones, Walker, Waechter, Poitevent, Carrère & Denègre, LLP, which we refer to as Jones Walker, as legal counsel.

 

During this time, CenturyTel had preliminary discussions with Company A as to a possible acquisition of Company A. CenturyTel entered into a mutual confidentiality agreement with Company A under which the parties exchanged limited non-public information. CenturyTel’s board met several times during this period, including a three-day strategic planning session in early June 2008 at which CenturyTel’s operational and strategic goals and alternatives were reviewed and discussed. Following these discussions, the board concluded at the end of this planning session that it was in the best interests of CenturyTel and its shareholders to

achieve its long-term growth through implementing its long-term strategic plans, including pursuing its 700 MHz spectrum, video, broadband, data hosting, and acquisition opportunities.

 

In late June 2008, CenturyTel declared a special dividend and raised its annual dividend rate from $0.27 to $2.80 while continuing to consider other strategic opportunities. Thereafter, the chief executive officer of a potential strategic partner, which we refer to as Company C, contacted Mr. Post to request a meeting to discuss a possible business combination transaction. Mr. Post agreed to a meeting on August 4, 2008 following CenturyTel’s announcement of its second quarter earnings release.

 

At a meeting on July 10, 2008, the CenturyTel board discussed several potential transactions, including a possible acquisition of Company A, a possible business combination with Company C and a possible business combination with Embarq with or without the participation of another potential strategic partner, which we refer to as Company D. The CenturyTel board concluded that CenturyTel should continue to evaluate all of these potential transactions. Company A subsequently advised CenturyTel that it was not prepared to proceed with a transaction with CenturyTel at that time.

 

On July 17, 2008, Mr. Post contacted Mr. Gerke to express CenturyTel’s interest in discussing potential transactions at an appropriate time. In addition, CenturyTel had discussions with Company D regarding the possibility that Company D would participate in an Embarq acquisition directly or through a related transaction.

 

On July 24, 2008, Mr. Gerke met with the chief executive officer of Company C at Company C’s request to discuss a potential business combination transaction. On July 30, 2008, Embarq received a preliminary business combination proposal from Company C for a cash and stock transaction.

 

On July 30 and 31, 2008, the Embarq board met at a regularly scheduled board meeting to consider, among other matters, Embarq’s enterprise risk management program, financial position, declaration of its quarterly dividend, election of corporate officers, strategic plan and potential alternatives to maximize stockholder value. The Embarq board also discussed the proposal received from Company C. Representatives of J.P. Morgan, Embarq’s financial advisor, provided an overview of the industry landscape and a review of strategic opportunities, including the proposal received from Company C. Representatives of Cravath, Swaine & Moore LLP, referred to as Cravath, provided an overview of applicable legal standards in the context of considering a business combination transaction and, in conjunction with a representative of Morris, Nichols, Arsht & Tunnell LLP, referred to as Morris Nichols, participated in a discussion with the board of directors on these matters. Following deliberations and a discussion of J.P. Morgan’s overview, the Embarq board asked Mr. Gerke, working with J.P. Morgan and Embarq’s legal advisors as appropriate, to communicate to Company C the board’s preliminary assessment that Company C’s proposal fell short of the board’s expectations regarding value and transaction certainty. Mr. Gerke communicated this to the chief executive officer of Company C in discussions on August 4 and 5, 2008.

 

On August 4, 2008, the chief executive officer of Company C also met with Mr. Post to discuss the potential acquisition of CenturyTel by Company C and delivered a presentation outlining possible terms of such acquisition. Later that day, the CenturyTel board met to discuss the Company C proposal and concluded that while there were advantages to CenturyTel remaining an independent entity to pursue its long-term strategic plans, CenturyTel management should conduct a further review with CenturyTel’s legal and financial advisors prior to its next scheduled board meeting on August 25, 2008, at which time the board would further consider Company C’s proposal. Following the August 4, 2008 board meeting, CenturyTel retained Barclays Capital and Morgan Stanley to act as CenturyTel’s financial advisors in connection with a proposed transaction. On August 8, 2008, Mr. Post informed Company C of this intention.

 

On August 6, 2008, the Embarq board met again to receive an update on the status of discussions with Company C and to consider further the company’s strategic alternatives, including, among other things, the proposal received from Company C and Embarq continuing as a stand-alone company. Embarq’s financial and legal advisors were present at this meeting and representatives of Cravath and Morris Nichols further reviewed with the board its fiduciary duties in the context of considering a business combination. Following deliberations, the Embarq board determined not to make any decision on Company C’s business combination proposal prior to the receipt of further information regarding financial and governance aspects of the proposal and requested that Mr. Gerke communicate this to Company C.

On August 7, 2008, Mr. Gerke contacted his counterpart at Company C to reiterate the expectations of the Embarq board. Representatives of management and the financial advisors of Embarq and Company C also discussed certain aspects of a potential business combination. On August 8, 2008, Embarq received a revised business combination proposal for a cash and stock transaction from Company C and executed a mutual confidentiality agreement with Company C.

 

During the period from August 8 to August 10, 2008, Mr. Post and Mr. Gerke discussed a possible business combination involving CenturyTel and Embarq, including financial and governance terms. Following this discussion, CenturyTel management contacted management of Company D regarding the possibility that Company D would participate in a transaction with Embarq.

 

On August 11, 2008, management representatives and financial advisors of Embarq and Company C had discussions regarding due diligence and the terms of a potential business combination.

 

Also on August 11, the CenturyTel board met to discuss submitting a proposal to acquire Embarq, the financial and governance terms of such a proposal, and the benefits and drawbacks of including Company D in the transaction. The CenturyTel board concluded that CenturyTel management should continue discussions with Embarq management and Company D and submit a term sheet proposal to Embarq.

 

On August 12, 2008, following a call between CenturyTel’s and Embarq’s chief financial officers, CenturyTel and Embarq executed a mutual confidentiality agreement. Mr. Post called Mr. Gerke to discuss the terms of a business combination proposal for a cash and stock transaction. Following the call, CenturyTel submitted to Embarq a draft term sheet outlining the terms of its proposal.

 

On August 13, 2008, representatives of management and the financial advisors of Embarq and CenturyTel met to discuss a potential business combination transaction.

 

On August 15, 2008, the Embarq board met to consider Embarq’s strategic alternatives, including, among other things, the business combination proposals received from CenturyTel and Company C and a process for exploring these and other potential strategic transactions, including business combinations, with industry participants. Representatives of J.P. Morgan were present at this meeting and presented analyses regarding potential strategic alternatives, including the likely low level of interest of financial acquirors given current financial conditions, and in particular the current condition of credit markets. Representatives of Cravath and Morris Nichols reviewed with the board the fiduciary duties of directors in the context of considering Embarq’s strategic alternatives. Following deliberations, the Embarq board directed management and Embarq’s advisors to initiate a process to explore business combination discussions with CenturyTel, Company C and the other industry participants discussed at the meeting.

 

On August 18, 2008, Mr. Gerke separately contacted each of Mr. Post and the chief executive officer of Company C to discuss a potential stock and cash business combination transaction and the process by which Embarq would evaluate any such transaction.

 

Mr. Gerke also contacted the chief executive officer of Company D to discuss a transaction involving certain wireline assets of Embarq. Company D indicated its willingness to pursue such discussions and executed a mutual confidentiality agreement with Embarq on August 20, 2008.

 

On August 19, 2008, Mr. Gerke contacted Company A to inquire as to its current interest in a potential business combination with Embarq. Company A indicated it was interested in exploring a business combination and executed a mutual confidentiality agreement with Embarq on August 20, 2008.

 

On August 20 and August 22, 2008, Mr. Gerke contacted Company B and another potential strategic partner to inquire as to their interest in exploring a potential business combination or other strategic transaction with Embarq. Neither party expressed interest at that time.

 

On August 25, 2008, CenturyTel’s board held a regularly scheduled board meeting with CenturyTel’s management and legal and financial advisors. Among other things, the board discussed the potential Embarq and Company C transactions. CenturyTel management reviewed the discussions to date with Embarq and with Company C, including the financial terms of Company C’s proposal, and the proposed financial terms of the Embarq proposal that management had submitted to Embarq. The CenturyTel board was advised that Embarq was engaging in a process that appeared to include several industry participants, likely including Company A

and Company C. Accordingly, there was no assurance that, even if CenturyTel were interested in pursuing a potential transaction with Company C, Company C would prefer a transaction with CenturyTel over a transaction with Embarq. Representatives of Wachtell, Lipton reviewed with the CenturyTel board the fiduciary duties of directors in the context of considering CenturyTel’s strategic alternatives, including the proposed transactions, and referred to discussions at prior board meetings. Barclays Capital and Morgan Stanley provided the CenturyTel board with a preliminary financial overview of CenturyTel as a stand-alone entity, CenturyTel after potential further restructuring steps, a combination of CenturyTel and Embarq (both with and without Company D’s participation), and the proposed Company C transaction. CenturyTel management expressed the view, following these discussions, that the Company C proposal significantly undervalued CenturyTel, that differences in management approach could hinder integration, that a combination with Company C carried significant financing risk and would create a highly leveraged company, that the high trading multiple of Company C’s stock price led to significant downside risk and that it would be in CenturyTel’s best interest to pursue its long-term strategic plans independently from an acquisition by Company C. CenturyTel management also expressed its view that the Embarq transaction could deliver significant value to CenturyTel’s shareholders, with significant opportunities for synergies, and improve CenturyTel’s strategic position, either with or without the participation of Company D. The CenturyTel board also discussed Embarq’s requests regarding governance of the combined company and transaction certainty. Following discussion of these and other factors, the CenturyTel board concluded that CenturyTel should cease pursuing the Company C proposal and should continue to pursue the Embarq opportunity, which CenturyTel management subsequently communicated to Company C.

 

From the date of execution of the relevant confidentiality agreements with Embarq through mid-September 2008, representatives of Embarq’s and each of CenturyTel’s, Company A’s and Company C’s management teams and advisors exchanged documents, engaged in telephone conferences and met on various occasions to conduct management presentations and perform an accounting, financial and legal due diligence review of the companies, including operational matters and potential synergies from a business combination. J.P. Morgan communicated to each of CenturyTel, Company A and Company C that definitive business combination proposals should be submitted by September 18, 2008.

 

In early September 2008, Embarq and Cravath provided CenturyTel, Company A and Company C with an initial draft of a merger agreement for their review. Cravath had initial high level discussions with each of CenturyTel’s, Company A’s and Company C’s legal advisors regarding the merger agreement and proposed transaction structure.

 

On September 4, 2008, the Embarq board met to receive an update as to the progress of discussions with potential strategic partners, the status of due diligence and an analysis of regulatory requirements, and to discuss the process being undertaken. The Embarq board also reviewed the stand-alone strategic alternatives available to Embarq, including increasing dividends and undertaking further stock repurchases. Representatives of J.P. Morgan presented a summary financial analysis of the potential transactions. Following these presentations, the Embarq board discussed the treatment of equity compensation plans and governance matters in the context of potential combinations with CenturyTel, Company A and Company C. The Embarq board did not reach any final conclusions at this meeting.

 

On September 5, 2008, CenturyTel’s management, Embarq’s management and Company D’s management met to discuss the potential participation by Company D in the business combination of Embarq and CenturyTel. Thereafter, CenturyTel’s management, Embarq’s management, and Company D’s management concluded that the proposed Company D transaction was unlikely to be finalized within the time frame required by Embarq and explored alternative forms of participation in the Embarq transaction, including a possible investment in CenturyTel. Ultimately, CenturyTel decided to pursue a business combination transaction with Embarq without the involvement of Company D. Subsequently, management of Embarq, in consultation with Admiral William A. Owens, non-executive Chairman of the board of Embarq, and Embarq’s advisors, also determined that consideration of any transaction including Company D should be deferred until after Embarq had considered its other strategic alternatives.

 

On September 12, 2008, CenturyTel’s board held a meeting with CenturyTel’s management and legal advisors to receive an update on the status of discussions with Embarq. The board reviewed the proposed

timetable for the transaction, the progress of due diligence efforts over the preceding several weeks, and the status of obtaining financing for the transaction in a difficult market. The CenturyTel board further discussed Embarq’s latest requests regarding the composition of the CenturyTel board following the proposed transaction. The board concluded that it would consider the proposal to be made to Embarq, including financial, legal and governance terms, at its next scheduled board meeting on September 16, 2008.

 

At that meeting, CenturyTel’s board met with CenturyTel’s management and legal and financial advisors to discuss the terms of the proposal to be submitted to Embarq on September 18. The board reviewed difficulties in the financing markets, management’s beliefs regarding the participation of other potential parties in the Embarq process, updated information regarding potential synergies and CenturyTel’s due diligence review. The board then discussed the financial, legal and governance terms of the proposal to be submitted to Embarq. The CenturyTel board agreed to meet on September 18 to determine the final terms of CenturyTel’s proposal after final financing commitment terms had been determined.

 

On September 17, 2008, due to dramatic fluctuations and disruptions in the credit and securities markets, advice from Company C that it would not be in a position to submit a business combination transaction proposal, and uncertainty that CenturyTel would be able to secure financing commitments from its potential lenders due to such disruptions, and following a discussion between Admiral Owens and Mr. Gerke and after discussion with J.P. Morgan, Embarq decided to suspend its consideration of a potential business combination transaction prior to receiving formal proposals and communicated this to each of CenturyTel, Company A and Company C. The CenturyTel board accordingly canceled its scheduled September 18 meeting.

 

Notwithstanding the suspension of the Embarq process, CenturyTel continued to explore alternative transaction structures with CenturyTel’s management and advisors that would involve a reduced level of debt financing while remaining accretive to CenturyTel shareholders. On September 18, Mr. Post contacted Mr. Gerke to inquire as to whether Embarq would have interest in a possible all-stock, or a substantially all-stock, business combination proposal in order to determine whether CenturyTel should consider developing such a proposal. Mr. Gerke indicated that Embarq planned to continue monitoring volatile market conditions before proceeding with its process.

 

On September 23, 2008, the chief executive officer of Company A contacted Mr. Gerke to indicate Company A’s continuing interest in pursuing a business combination transaction with Embarq. Following this discussion, Admiral Owens had an introductory meeting with the chief executive officer of Company A on September 24, 2008 to generally discuss a potential business combination transaction between Embarq and Company A, including governance matters. However, no specific proposal was made by Company A at this meeting.

 

On September 29, 2008, the CenturyTel board met with CenturyTel’s management and legal and financial advisors to review alternative financial terms and structures for a possible business combination with Embarq, including an all-stock or a largely stock transaction. The CenturyTel board discussed the difficulties in financing these transactions in light of continued market instability. The CenturyTel board concluded that CenturyTel management should continue to monitor market conditions and review potential transaction structures.

 

On September 30, 2008, and following an inquiry from Company B to J.P. Morgan regarding the status of the process, Embarq received, via J.P. Morgan, a verbal outline of an all-stock potential business combination proposal from Company B. Mr. Gerke discussed this outline with Admiral Owens and Embarq’s advisors on October 1, 2008. Admiral Owens and Mr. Gerke directed J.P. Morgan to convey to Company B that the financial terms of the proposal as outlined were unacceptable to Embarq. No further business combination discussions were held with Company B.

 

On October 7, 2008, the CenturyTel board met with CenturyTel’s management and legal and financial advisors to consider making an all-stock or a largely stock business combination proposal for Embarq. CenturyTel’s management discussed the potential impact of these structures on the transaction value to CenturyTel shareholders and noted that it had obtained preliminary oral financing commitments sufficient to proceed on this basis that would expire on October 10, 2008.

Following indications from Company A and CenturyTel on October 6 and 7, 2008 of their readiness to submit revised proposals, Mr. Gerke indicated that Embarq would not be in a position to consider resuming the exploration of a potential business combination transaction prior to the next regularly scheduled meeting of its board of directors.

 

On October 13 and 14, 2008, the Embarq board met at a regularly scheduled board meeting to review, among other things, Embarq’s three-year strategic and operating plan, including industry regulatory developments and current economic conditions. At that meeting, the Embarq board also received an update as to the progress of discussions with potential strategic partners and due diligence, as well as an assessment of the estimated synergies and regulatory approval process, including industry regulatory developments, with respect to potential business combinations with each of CenturyTel and Company A. The Embarq board then discussed the process by which any proposals would be considered. Representatives of J.P. Morgan presented an updated summary financial analysis of the potential stand-alone options available to Embarq and the potential business combination transactions. Mr. Gerke provided the Embarq board with a summary of his discussions with Admiral Owens and J.P. Morgan pertaining to the outline received from Company B. The Embarq board concurred with Admiral Owens and Mr. Gerke’s decision that the proposal as outlined was not acceptable. The Embarq board also concluded, after discussions with management and Embarq’s advisors and deliberations, that Embarq should focus on all-stock business combination proposals due to the market decline in the value of the Embarq common stock and the potential upside in stock consideration given the decline in the value of the common stock of possible business combination partners and to minimize financing risk in any proposed transaction. The Embarq board then directed management to work with Embarq’s advisors to contact each of CenturyTel and Company A, the two potential strategic partners that were considered to be in a position to submit acceptable all-stock proposals and request that they submit business combination proposals.

 

Following the October 14, 2008, board meeting, CenturyTel and Company A were each invited to submit all-stock business combination proposals.

 

On October 15, 2008, the CenturyTel board met with CenturyTel’s management and legal and financial advisors to discuss an all-stock proposal. The CenturyTel board discussed recent developments in Embarq’s and CenturyTel’s businesses and the continued strategic advantages of a combination of Embarq and CenturyTel, as well as the potential impact of the all-stock structure to the value to be received by Embarq stockholders and the value to be realized by CenturyTel shareholders. The CenturyTel board also discussed the availability of obtaining debt financing sufficient to refinance certain indebtedness of Embarq that would be required to be repaid in connection with the merger. Following discussion, the CenturyTel board authorized an all-stock proposal to Embarq under which Embarq stockholders would receive 1.3 CenturyTel shares for each Embarq share they owned.

 

On October 16, 2008, CenturyTel delivered its proposal to Embarq. Based on the closing prices per share for CenturyTel and Embarq stock on October 15, 2008 of $32.26 and $33.74, respectively, this exchange ratio implied a price of $41.94 for each outstanding share of Embarq common stock and a premium of approximately 24% over Embarq’s nominal market value.

 

On October 17, 2008, Mr. Gerke and Mr. Post organized a meeting at which Admiral Owens was introduced to Mr. Post and CenturyTel’s lead independent director, Mr. Fred R. Nichols, and CenturyTel’s proposal was discussed, including proposed governance matters, management approach and strategy.

 

On October 21, 2008, Embarq received a revised proposal from Company A outlining two alternative proposals. Under the first alternative, Embarq stockholders would receive $11.50 in cash and a fixed number of shares of the combined company with an implied value of $34.50 for each outstanding share of Embarq common stock they owned for an aggregate implied value of $46.00, which constituted a premium of approximately 32% over Embarq’s nominal market value. Under the second, all-stock alternative, Embarq stockholders would receive a fixed number of shares of combined company common stock for each outstanding share of Embarq common stock with an implied value of $44.00, representing a premium of approximately 26%. For both proposals, the implied value represented by shares of combined company stock was based on the closing price of Company A’s common stock on October 20, 2008, and the premium was based on the closing price of Embarq’s common stock of $34.90 on the same date.

From the dates of receipt of the revised proposals to October 25, 2008, the management teams and advisors of Embarq and CenturyTel, and Embarq and Company A, had frequent negotiations regarding the terms of the merger agreement and related documents and discussions regarding due diligence matters. During that period, Embarq negotiated several issues in the draft merger agreement and related documentation with CenturyTel and Company A, including governance matters relating to the board and committee composition of the combined company, transaction certainty, the extent of required regulatory efforts, the treatment of equity awards, and restrictions on the parties’ respective businesses between signing and closing. During this period, various financial, operational and legal due diligence items were exchanged between the parties, including assumptions underlying their respective financial analyses and information regarding their respective recent financial performance and future prospects. J.P. Morgan, at the direction of Admiral Owens and Mr. Gerke, communicated to Company A that Embarq was focused on receiving all-stock proposals given the current credit and securities market conditions. J.P. Morgan communicated to each of the potential strategic partners that best and final proposals should be submitted on October 25, 2008.

 

On October 24, 2008, the CenturyTel board met to discuss the final proposal to be submitted to Embarq. The CenturyTel board reviewed results of due diligence, the significant strategic advantages of a combination with Embarq, the likelihood of Embarq pursuing an alternative transaction and updated financial information regarding the potential impact of a range of exchange ratios on both CenturyTel shareholders and Embarq stockholders. The CenturyTel board also reviewed the proposed merger agreement and draft debt financing commitments sufficient to replace indebtedness to be repaid in connection with the merger. Following discussion, the CenturyTel board authorized an all-stock offer to Embarq at an exchange ratio of 1.37 CenturyTel shares for each outstanding share of Embarq common stock.

 

On October 25, 2008, Embarq received revised proposals from CenturyTel and Company A, in each case including a merger agreement in the form that the potential partner was prepared to execute. Under CenturyTel’s proposal, Embarq stockholders would receive 1.37 CenturyTel shares for each outstanding share of Embarq common stock they owned. Based on the closing stock prices for CenturyTel and Embarq on October 24, 2008 of $29.50 and $29.74, respectively, this exchange ratio implied a price of $40.42 for each outstanding share of Embarq common stock, representing a premium of approximately 36%. Under Company A’s proposal, Embarq stockholders would receive shares of common stock in the combined company equivalent to $40.86 for each outstanding share of Embarq common stock they owned, representing a premium of approximately 37%. This implied price was based on the closing stock price for Company A on October 24, 2008, and the implied premium was based on the closing stock price for Embarq on the same date. While both CenturyTel’s and Company A’s revised proposals implied a comparatively lower nominal market value for each outstanding share of Embarq common stock than the proposals received on October 16, 2008 and October 21, 2008, respectively, this was due to the market decline in the values of each of CenturyTel’s and Company A’s common stock prices, and in fact the proposed exchange ratios submitted on October 25, 2008 as part of the revised proposals and the premiums implied by the proposals had increased.

 

On October 26, 2008, the Embarq board held a meeting at which the company’s senior management and outside legal and financial advisors were present. Prior to the meeting, the Embarq board was provided with a summary of the proposed merger agreements and copies of the most recent drafts of the merger agreement from CenturyTel and Company A. Also prior to the meeting, the Embarq board of directors was provided with a summary of J.P. Morgan’s financial analyses of the potential transactions and the potential stand-alone options available to Embarq and due diligence materials, including synergy estimates, with respect to CenturyTel and Company A. At the meeting, members of Embarq’s senior management updated the board on the conclusion of discussions with CenturyTel and Company A and reviewed with the board the strategic rationale and potential risks and benefits of the proposed transactions. The Embarq board also received separate presentations via telephone from Mr. Post and the chief executive officer of Company A. Representatives of Cravath and Morris Nichols reviewed with the board the fiduciary duties of directors in the context of considering Embarq’s strategic alternatives, including the proposed transactions, and referred to discussions at prior board meetings. Representatives of Cravath also reviewed with the board the proposed terms of the merger agreements and related matters. The Embarq board also received an overview of the regulatory approval process for the proposed transactions and was also updated on certain regulatory developments and proceedings in the industry. Representatives of J.P. Morgan reviewed J.P. Morgan’s financial analyses of the

proposed transactions and indicated they were prepared to deliver J.P. Morgan’s opinion to the Embarq board of directors (which was subsequently confirmed in writing) to the effect that, as of October 26, 2008, and on the basis of and subject to the various factors, assumptions and limitations set forth in such written opinion, the exchange ratio in the CenturyTel merger was fair, from a financial point of view, to the holders of Embarq common stock. Following these presentations, the Embarq board considered the revised proposals and the relative strategic benefits of each proposed transaction in a consolidating industry including, with respect to CenturyTel, the likelihood that expected synergies would be realized; the strength of the combined company’s balance sheet, including the fact that both Embarq and CenturyTel were investment grade companies; the impact, including with respect to timing, on the regulatory approval process of such ratings; and the anticipated market value and trading multiples of the combined company’s common stock. After a lengthy discussion, all members of management, including Mr. Gerke, left the meeting and further discussions were conducted among the non-executive directors and representatives of Cravath and Morris Nichols. Following the additional discussions and deliberation, Mr. Gerke and Ms. Claudia S. Toussaint, general counsel and corporate secretary, rejoined the meeting and the Embarq directors present unanimously declared that the merger agreement and merger with CenturyTel were advisable and in the best interests of Embarq’s stockholders, approved the merger agreement and the merger with CenturyTel in accordance with Delaware law and recommended that Embarq’s stockholders adopt the merger agreement. The Embarq board authorized the appropriate officers of Embarq to finalize, execute and deliver the merger agreement and related documentation.

 

Following the Embarq board meeting, CenturyTel management, Embarq management, Wachtell, Lipton, Jones Walker and Cravath worked to finalize the merger agreement.

 

That evening, the CenturyTel board met with CenturyTel’s management and legal and financial advisors. Barclays Capital and Morgan Stanley reviewed with the CenturyTel board their joint financial analysis of the consideration provided for in the proposed merger. Wachtell, Lipton reviewed the legal terms of the proposed merger agreement, including the proposed governance of the combined company, and management reviewed the proposed terms of debt financing commitments. Barclays Capital delivered to the CenturyTel board of directors an oral opinion, which was confirmed by delivery of a written opinion dated October 26, 2008, to the effect that, as of that date and based upon the factors and subject to the assumptions set forth in such opinion, the 1.37 exchange ratio provided for in the proposed merger was fair, from a financial point of view, to CenturyTel, as more fully described below under the caption “Opinions of CenturyTel’s Financial Advisors — Barclays Capital Inc.” Morgan Stanley delivered its written opinion, attached hereto as Annex C, to the CenturyTel board of directors to the effect that, as of October 26, 2008, and based upon the factors and subject to the assumptions set forth in the written opinion, the consideration to be paid by CenturyTel pursuant to the merger agreement was fair from a financial point of view to CenturyTel, as more fully described below under the caption “Opinions of CenturyTel’s Financial Advisors — Morgan Stanley.” Following discussion, the board unanimously (a) determined that the proposed merger agreement and the transactions contemplated thereby, including the merger, the issuance of CenturyTel shares in connection with the merger and the CenturyTel charter amendment to eliminate special ten-vote voting rights of long-term CenturyTel shareholders, was advisable to and in the best interests of CenturyTel and its shareholders, (b) adopted resolutions approving the proposed merger agreement and the transactions contemplated thereby and (c) recommended, subject to the terms and conditions in the proposed merger agreement, that CenturyTel’s shareholders approve the issuance of shares in connection with the merger and the CenturyTel charter amendment to eliminate special ten-vote voting rights.

 

Following the board meetings, Embarq and CenturyTel and their respective legal advisors finalized the merger agreement, the terms of which are more fully described below under the caption “— The Merger Agreement.” The merger agreement was then executed by Embarq, CenturyTel and Cajun Acquisition Company. On October 27, 2008, before the opening of trading on the NYSE, Embarq and CenturyTel issued a joint press release announcing the merger.

 

In evaluating the merger agreement and the stock issuance proposal, the CenturyTel board of directors consulted with CenturyTel’s management and legal and financial advisors. In reaching its decision, the CenturyTel board of directors considered a number of factors, including the following factors which the CenturyTel board viewed as generally supporting its decision to approve and enter into the merger and the merger agreement and recommend that CenturyTel shareholders vote FOR approval of the issuance of CenturyTel common stock in connection with the merger.

 

Strategic Considerations.  The CenturyTel board believes the merger will provide a number of significant strategic opportunities, including the following:

 

 

Other Factors Considered by the CenturyTel Board.  In addition to considering the strategic factors described above, the CenturyTel board considered the following additional factors, all of which it viewed as supporting its decision to approve the merger:

 

 

 

The CenturyTel board of directors weighed these advantages and opportunities against a number of other factors identified in its deliberations weighing negatively against the merger, including:

 

 

In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the CenturyTel board of directors did not find it useful and did not attempt to quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger and the merger agreement and to make its recommendations to CenturyTel shareholders. In addition, individual members of the CenturyTel board of directors may have given differing weights to different factors. The CenturyTel board of directors conducted an overall review of the factors described above, including thorough discussions with CenturyTel’s management and outside legal and financial advisors.

 

The CenturyTel board of directors unanimously determined that the merger, the merger agreement and the transactions contemplated by the merger agreement, including the stock issuance and the CenturyTel charter amendment to eliminate special ten-vote voting rights of CenturyTel shareholders, are advisable and in the best interests of CenturyTel and its shareholders and unanimously approved the merger agreement and the transactions contemplated by the merger agreement. The CenturyTel board of directors unanimously recommends that the CenturyTel shareholders vote “FOR” the proposal to issue shares of CenturyTel common stock in the merger.

 

In reaching its conclusion, the board of directors of Embarq consulted with its management and legal, financial and other advisors, and considered a variety of factors weighing in favor of or relevant to the merger, including the factors listed below.

 

Expected Strategic Benefits of the Merger.  The combination of CenturyTel and Embarq is expected to result in several significant strategic benefits to the combined company and Embarq stockholders, including the following:

 

 

Other Factors Considered.  During the course of its deliberations relating to the merger agreement and the merger, the board of directors of Embarq considered the following factors in addition to the benefits described above:

 

 

 

The board of directors of Embarq weighed these factors against a number of other factors identified in its deliberations weighing negatively against the merger, including:

 

 

This discussion of the information and factors considered by the board of directors of Embarq includes the principal positive and negative factors considered by the board of directors, but is not intended to be exhaustive and may not include all of the factors considered by the board of directors of Embarq. The board of directors of Embarq did not quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination that the merger agreement and the merger are advisable and in the best interests of Embarq stockholders. Rather, the board of directors of Embarq viewed its position and recommendation as being based on the totality of the information presented to it and the factors it considered. In addition, individual members of the board of directors of Embarq may have given differing weights to different factors. It should be noted that this explanation of the reasoning of the board of directors of Embarq and certain information presented in this section is forward-looking in nature and, therefore, that information should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” in this proxy statement-prospectus, beginning on page 23.

 

The board of directors of Embarq, by the unanimous vote of the directors present, believes that the terms of the merger are advisable and in the best interests of Embarq and its stockholders and has approved the terms of the merger agreement and the merger and recommends that the stockholders of Embarq vote “FOR” the proposal to adopt the merger agreement.

 

Barclays Capital Inc.

 

CenturyTel engaged Barclays Capital to act as a financial advisor to CenturyTel in connection with the proposed merger. On October 26, 2008, at a meeting of the CenturyTel board of directors held to evaluate the merger, Barclays Capital rendered to the CenturyTel board of directors an oral opinion, which was confirmed

by delivery of a written opinion dated that date, to the effect that, as of that date and based on and subject to the qualifications, limitations and assumptions stated in its opinion, the 1.37 exchange ratio provided for in the merger was fair, from a financial point of view, to CenturyTel.

 

The full text of Barclays Capital’s written opinion, dated October 26, 2008, is attached as Annex B to this joint proxy statement-prospectus. Barclays Capital’s written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken by Barclays Capital in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. The following summary of Barclays Capital’s opinion is qualified in its entirety by reference to the full text of the opinion. Barclays Capital’s opinion is addressed to the CenturyTel board of directors, relates only to the fairness, from a financial point of view, to CenturyTel of the exchange ratio provided for in the merger and does not constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the proposed merger or any other matter.

 

The terms of the proposed merger were determined through negotiations between CenturyTel and Embarq, and the decision to enter into the merger agreement was solely that of the CenturyTel board of directors and was approved by the CenturyTel board of directors. Barclays Capital did not recommend any specific form of consideration to CenturyTel or that any specific form of consideration constituted the only appropriate consideration for the proposed merger. Barclays Capital’s opinion was only one of many factors considered by the CenturyTel board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the CenturyTel board of directors or management with respect to the merger or the consideration payable in the merger.

 

In arriving at its opinion, Barclays Capital, among other things:

 

 

 

In arriving at its opinion, Barclays Capital assumed and relied upon the accuracy and completeness of the financial and other information that was publicly available or provided or otherwise made available to, or discussed with, Barclays Capital by CenturyTel or Embarq without any independent verification of such information and Barclays Capital further relied upon the assurances of CenturyTel’s and Embarq’s managements that they were not aware of any facts or circumstances that would make any information that such company provided or otherwise made available to, or discussed with, Barclays Capital inaccurate or misleading. With respect to the financial forecasts for Embarq, Barclays Capital discussed with CenturyTel’s management the financial forecasts prepared by Embarq and the financial forecasts prepared by CenturyTel’s management and, at CenturyTel’s direction, Barclays Capital relied upon the financial forecasts prepared by CenturyTel’s management for purposes of its opinion. With respect to the financial forecasts for Embarq and CenturyTel and estimated synergies expected to be realized from the merger prepared by CenturyTel’s management, Barclays Capital assumed, with CenturyTel’s consent, that such forecasts and estimates were reasonably prepared on a basis reflecting the best currently available estimates and judgments of CenturyTel’s management as to the future financial performance of Embarq and CenturyTel and that the amount and timing of such estimated synergies were reasonable and would be realized substantially in accordance with such estimates. Barclays Capital assumed no responsibility for and expressed no view as to any such forecasts or estimates or the assumptions on which they were based.

 

In arriving at its opinion, Barclays Capital did not conduct a physical inspection of the properties and facilities of Embarq or CenturyTel and did not make or obtain any evaluations or appraisals of the assets or liabilities, contingent or otherwise, of Embarq or CenturyTel. Barclays Capital assumed, with CenturyTel’s consent, that there had been no material change in Embarq’s or CenturyTel’s assets, financial condition, results of operations, business or prospects since the date of the most recent financial statements made available to Barclays Capital and that there were no material undisclosed liabilities of Embarq or CenturyTel for which appropriate reserves or other provisions had not been made. Barclays Capital relied, without independent verification and with CenturyTel’s consent, upon the assessments of CenturyTel’s management as to (i) the ability of CenturyTel to integrate CenturyTel’s and Embarq’s businesses and operations and (ii) Embarq’s and CenturyTel’s existing and future relationships, agreements and arrangements with, and CenturyTel’s ability to retain, key employees. Barclays Capital also assumed, with CenturyTel’s consent, that all material governmental, regulatory or other consents or approvals necessary for the consummation of the proposed merger would be obtained without adverse affect on Embarq, CenturyTel or the proposed merger in any respect material to Barclays Capital’s opinion and that the proposed merger would qualify for U.S. federal income tax purposes as a tax-free reorganization under Section 368(a) of the Code. Barclays Capital was not requested to, and its opinion does not in any manner, address CenturyTel’s underlying business decision to proceed with or effect the proposed merger. Barclays Capital expressed no opinion on, and its opinion did not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the proposed merger, or any class of such persons, relative to the consideration paid in the proposed merger or otherwise. Barclays Capital’s opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, the date of its letter. Barclays Capital did not assume any responsibility for updating or revising its opinion based on events or circumstances that may occur after the date of its letter, including, without limitation, changes in the credit, financial and stock markets, which have been experiencing unusual volatility and Barclays Capital expressed no opinion or view as to the potential effects, if any, of such volatility on Embarq, CenturyTel or the proposed merger. In addition, Barclays Capital expressed no opinion as to the prices at which shares of (i) CenturyTel’s common stock or Embarq’s common stock would trade at any time following the announcement of the proposed merger or (ii) CenturyTel’s common stock would trade at any time following the consummation of the proposed merger. The issuance of Barclays Capital’s opinion was approved by Barclays Capital’s fairness opinion committee. Except as

described above, CenturyTel imposed no other instructions or limitations on Barclays Capital with respect to the investigations made or the procedures followed by it in rendering its opinion.

 

Barclays Capital is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The CenturyTel board of directors selected Lehman Brothers (certain assets of which, including its North American investment banking franchise, were acquired by Barclays Capital) because of its qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally, as well as substantial experience in transactions comparable to the proposed merger.

 

As compensation for its services, CenturyTel has agreed to pay Barclays Capital a fee of $16,000,000 in the aggregate, a portion of which was payable upon rendering of its opinion and approximately $14,500,000 of which is contingent upon the consummation of the merger. In addition, CenturyTel has agreed to reimburse Barclays Capital for expenses incurred in connection with the proposed merger and to indemnify Barclays Capital and related parties for certain liabilities that may arise out of Barclays Capital’s engagement by CenturyTel and the rendering of Barclays Capital’s opinion. Barclays Capital and its affiliates have performed various investment banking and financial services for CenturyTel in the past and have received customary fees for such services. Specifically, in the past two years, Barclays Capital and its affiliates have acted as (i) lender under certain revolving credit facilities of CenturyTel from 2006 to 2008, certain of which facilities may be renegotiated in connection with the merger and (ii) co-manager in connection with certain note offerings of CenturyTel in 2007. Barclays Capital may continue to provide investment banking and financial services for CenturyTel in the future and expects to receive customary fees for any such services provided, including acting as a lender to CenturyTel in connection with a bridge facility that may be used by CenturyTel in connection with the merger. In the ordinary course of business, Barclays Capital actively trades in the debt and equity securities of CenturyTel and Embarq for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

 

In connection with rendering its opinion, Barclays Capital performed certain financial, comparative and other analyses as summarized below under “Summary of Joint Financial Analyses.” This summary is not a complete description of Barclays Capital’s opinion or the financial analyses performed and factors considered by it in connection with its opinion. In arriving at its opinion, Barclays Capital did not ascribe a specific range of values to shares of Embarq’s common stock or CenturyTel’s common stock but rather made its determination as to the fairness, from a financial point of view, to CenturyTel of the exchange ratio provided for in the merger on the basis of various financial and comparative analyses taken as a whole. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

 

In arriving at its opinion, Barclays Capital did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. Accordingly, Barclays Capital believes that the analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion. In performing these analyses, Barclays Capital considered industry performance, general business and economic conditions and other matters existing as of the date of the opinion, many of which are beyond the control of CenturyTel, Embarq or any other parties to the proposed merger. Any estimates contained in these analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or necessarily reflect the prices at which businesses or securities may actually be sold or acquired. Accordingly, the assumptions and estimates used in, and the results derived from, Barclays Capital’s analyses are inherently subject to substantial uncertainty.

Morgan Stanley & Co. Incorporated

 

CenturyTel retained Morgan Stanley to provide it with financial advisory services and a financial opinion in connection with a possible acquisition of Embarq. CenturyTel selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation. At the meeting of the CenturyTel board of directors on October 26, 2008, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that, as of October 26, 2008, based upon and subject to the various considerations set forth in the opinion, the consideration to be paid by CenturyTel pursuant to the merger agreement was fair from a financial point of view to CenturyTel.

 

The full text of the written opinion of Morgan Stanley, dated as of October 26, 2008, is attached to this joint proxy statement-prospectus as Annex C. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. We encourage you to read the entire opinion carefully. Morgan Stanley’s opinion is directed to the CenturyTel board of directors and addresses only the fairness from a financial point of view as of the date of the opinion of the consideration to be paid by CenturyTel pursuant to the merger agreement. It does not address any other aspects of the merger and does not constitute a recommendation to any holder of CenturyTel or Embarq common shares as to how to vote at CenturyTel’s or Embarq’s special meeting, respectively. The summary of the opinion of Morgan Stanley set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

 

In connection with rendering its opinion, Morgan Stanley, among other things:

 

 

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to it by Embarq and CenturyTel, and that formed a substantial basis for its opinion. With respect to the financial forecasts, including information relating to certain strategic, financial and operational benefits anticipated from the merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective managements of Embarq and CenturyTel of the future financial performance of Embarq and CenturyTel. Morgan Stanley relied upon, without independent verification, the assessment by the management of CenturyTel of: (i) the strategic, financial and other benefits expected to result from the merger; (ii) the timing and risks associated with the integration of CenturyTel and Embarq; (iii) the ability to retain key employees of CenturyTel and Embarq, respectively; and (iv) the validity of, and risks associated with, CenturyTel and Embarq’s existing and future technologies, intellectual property, products, services and business models. In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any material waiver, amendment or delay of any terms or conditions, including, among other things, that the merger will be treated as a tax-free reorganization and/or exchange, each pursuant to the Code, and that CenturyTel will obtain financing in accordance with the terms set forth in the commitment letter. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley is not a legal, tax, or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of CenturyTel and its legal, tax, or regulatory advisors with respect to legal, tax or regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of Embarq’s officers, directors or employees, or any class of such persons, relative to the consideration to be paid to the holders of shares of Embarq common stock in the merger. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Embarq, nor was it furnished with any such appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion. Events occurring after the date of Morgan Stanley’s opinion may affect the opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

 

In connection with the review of the merger by the CenturyTel board of directors, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described below should not be taken to be Morgan Stanley’s view of the actual value of CenturyTel. In performing its analyses, Morgan Stanley made assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions relate to factors that are beyond the control of CenturyTel. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

 

Morgan Stanley conducted the analyses described below under “Summary of Joint Financial Analyses” solely as part of its analysis of the fairness of the merger consideration pursuant to the merger agreement from a financial point of view to CenturyTel and in connection with the delivery of its opinion to the CenturyTel board of directors. These analyses do not purport to be appraisals or to reflect the prices at which common shares of CenturyTel might actually trade.

 

The merger consideration was determined through arm’s-length negotiations between CenturyTel and Embarq and was approved by the CenturyTel board of directors. Morgan Stanley provided advice to

CenturyTel during these negotiations. Morgan Stanley did not, however, recommend any specific merger consideration to CenturyTel or that any specific merger consideration constituted the only appropriate merger consideration for the merger.

 

Morgan Stanley’s opinion and its presentation to the CenturyTel board of directors was one of many factors taken into consideration by the CenturyTel board of directors in deciding to approve, adopt and authorize the merger agreement. Consequently, the analyses as described below should not be viewed as determinative of the view of the CenturyTel board of directors with respect to the merger consideration or of whether the CenturyTel board of directors would have been willing to agree to a different merger consideration. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice.

 

Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate, estate and other purposes. In the ordinary course of its trading, brokerage, investment management and financing activities, Morgan Stanley or its affiliates may actively trade the equity securities of Embarq or CenturyTel for its own accounts or for the accounts of its customers and, accordingly, may at any time hold long or short positions in such securities.

 

As compensation for its services, CenturyTel has agreed to pay Morgan Stanley a fee of $14,000,000 in the aggregate, a portion of which was payable upon rendering of its opinion and approximately $12,500,000 of which is contingent upon the consummation of the merger. CenturyTel has also agreed to reimburse Morgan Stanley for its expenses incurred in performing its services. In addition, one or more of Morgan Stanley’s affiliates are providing financing services related to the merger to CenturyTel and will receive compensation related to those services. In the two years prior to the date hereof, Morgan Stanley has provided financing services for Embarq and for CenturyTel, for which it has received fees. Morgan Stanley may also seek to provide such services to CenturyTel in the future and expects to receive fees for the rendering of these services. In addition, CenturyTel has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley’s engagement.

 

Summary of Joint Financial Analyses

 

The following is a summary of the material financial analyses reviewed with the CenturyTel board of directors in connection with Barclays Capital’s and Morgan Stanley’s respective opinions, each dated October 26, 2008. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of such financial analyses. None of CenturyTel, Embarq, Barclays Capital, Morgan Stanley or any other person assumes responsibility if future results are different from those discussed, whether or not any such difference is material.

 

Historical Trading Prices and Equity Research Analysts’ Stock Price Targets

 

Barclays Capital and Morgan Stanley reviewed, for informational purposes, the range of closing prices of shares of CenturyTel’s common stock and Embarq’s common stock for the last 12 months ended on October 24, 2008. Based on such historical share price range, Barclays Capital and Morgan Stanley calculated the following implied exchange ratio reference range by dividing the low and high trading prices of Embarq common stock by the low and high trading prices of CenturyTel common stock during such period, as compared to the exchange ratio provided for in the merger:

 

Barclays Capital and Morgan Stanley also reviewed, for informational purposes, future public market trading price targets for shares of Embarq’s common stock and CenturyTel’s common stock prepared and published by equity research analysts. Based on such share price targets, Barclays Capital and Morgan Stanley calculated the following implied exchange ratio reference range, as compared to the exchange ratio provided for in the merger:

 

 

The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for shares of Embarq’s common stock or CenturyTel’s common stock and these estimates are subject to uncertainties, including the future financial performance of Embarq and CenturyTel, as well as future financial market conditions.

 

Selected Company Trading Analysis

 

In order to assess how the public market values shares of publicly traded independent local exchange carriers, Barclays Capital and Morgan Stanley performed separate selected company trading analyses of Embarq and CenturyTel. Barclays Capital and Morgan Stanley reviewed and compared specific financial, operating and stock market data relating to Embarq and CenturyTel with each other and with the following two selected publicly held independent local exchange carriers:

 

 

Barclays Capital and Morgan Stanley calculated and compared various financial multiples and ratios of the selected companies, Embarq and CenturyTel, including, among other things, the ratio of each company’s enterprise value, calculated as the market capitalization of each company (based on each company’s fully diluted shares and closing stock price as of October 24, 2008, the last trading day prior to delivery of Barclays Capital’s and Morgan Stanley’s respective opinions), plus debt, less cash, cash equivalents and other adjustments, to its calendar year 2009 estimated earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA. Barclays Capital and Morgan Stanley also calculated the ratio of each company’s market capitalization to its calendar year 2009 estimated levered free cash flows, commonly referred to as LFCF. Estimated financial data of the selected companies, Embarq and CenturyTel utilized in the calculation of the selected multiples were based on publicly available financial data. Barclays Capital and Morgan Stanley then calculated an implied per share equity reference range for Embarq by applying a range of selected multiples of calendar year 2009 estimated EBITDA and LFCF derived from CenturyTel and the selected companies of 4.0x to 5.0x and 4.5x to 6.5x, respectively, to corresponding data of Embarq. Barclays Capital and Morgan Stanley also calculated an implied per share equity reference range for CenturyTel by applying a range of selected multiples of calendar year 2009 estimated EBITDA and LFCF derived from Embarq and the selected companies of 5.0x to 6.0x and 5.5x to 7.0x, respectively, to corresponding data of CenturyTel. Estimated financial data of Embarq and CenturyTel were based on internal estimates of CenturyTel’s management. Based on these implied per share equity reference ranges, this analysis indicated the following implied exchange ratio reference ranges, as compared to the exchange ratio provided for in the merger:

 

 

Barclays Capital and Morgan Stanley selected the companies reviewed in this analysis because, among other things, such companies operate as independent local exchange carriers and, as a result, their businesses and operating profiles are generally similar to that of Embarq and CenturyTel. However, no selected company is identical to Embarq or CenturyTel. Accordingly, Barclays Capital and Morgan Stanley believe that purely quantitative analyses are not, in isolation, determinative in the context of the merger and that qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Embarq, CenturyTel and the selected companies that could affect the public trading values of each also are relevant.

Selected Precedent Transactions Analysis

 

In order to assess how independent local exchange carriers have been valued in merger and acquisition transactions, Barclays Capital and Morgan Stanley reviewed and compared the purchase prices and financial multiples paid in the following six selected precedent transactions announced from December 2005 to July 2007 involving independent local exchange carriers or related assets:

 

 

Barclays Capital and Morgan Stanley calculated transaction values in the selected precedent transactions as the ratio of the target company’s enterprise value, based on the consideration payable in the selected precedent transaction, to its latest 12 months EBITDA both before and after taking into account estimated synergies anticipated to be realized from the selected precedent transaction. Financial data (including estimated synergies) of the selected precedent transactions were based on publicly available information at the time of announcement of the relevant transaction. Estimated financial data of Embarq and estimated synergies expected to be realized from the merger were based on internal estimates of CenturyTel’s management. Based on implied per share equity reference ranges for Embarq, calculated by applying ranges of selected multiples derived from the selected precedent transactions of latest 12 months EBITDA (both before and after taking into account estimated synergies from the selected precedent transactions) of 6.5x to 7.5x and 5.5x to 6.5x, respectively, to Embarq’s calendar year 2008 estimated EBITDA (both before and after taking into account estimated merger synergies, assuming Embarq would receive 100% credit for such synergies) and on CenturyTel’s closing stock price as of October 24, 2008, this analysis indicated the following implied exchange ratio reference ranges, as compared to the exchange ratio provided for in the merger:

 

 

Barclays Capital and Morgan Stanley also reviewed the premiums paid in selected all-stock transactions with transaction values of between $3 billion and $8 billion in equity value paid announced from January 1, 2001 to October 15, 2008. For each transaction, Barclays Capital and Morgan Stanley calculated the premium paid by the acquiror by comparing, among other things, the announced transaction value per share to the target company’s share price one-trading day prior to announcement and the target company’s share price 30 days prior to announcement. Barclays Capital and Morgan Stanley calculated implied exchange ratios based on Embarq’s and CenturyTel’s closing stock prices as of October 24, 2008 and based on Embarq’s 30-day average closing stock price and CenturyTel’s 30-day average closing stock price ending October 24, 2008. Barclays Capital and Morgan Stanley then applied to such implied exchange ratios a range of selected premiums of 15% to 40% derived from the selected transactions. This analysis indicated the following implied exchange ratio reference ranges, as compared to the exchange ratio provided for in the merger:

 

 

The reasons for and the circumstances surrounding each of the transactions considered were diverse and there are inherent differences in the business, operations, financial conditions and prospects of Embarq and the companies included in the above analyses. Accordingly, Barclays Capital and Morgan Stanley believe that purely quantitative analyses are not, in isolation, determinative in the context of the merger and that qualitative

judgments concerning differences between the characteristics of the selected transactions and the proposed merger that could affect the acquisition values of the selected target companies and Embarq also are relevant.

 

Discounted Cash Flow Analysis

 

Barclays Capital and Morgan Stanley performed a discounted cash flow analysis of Embarq, which is a valuation methodology used to derive a valuation of an asset by calculating the “present value” of estimated future cash flows of the asset. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors. Estimated financial data of Embarq and estimated synergies expected to be realized from the merger utilized in such analysis were based on internal estimates of CenturyTel’s management.

 

In calculating the estimated enterprise value of Embarq using the discounted cash flow methodology, Barclays Capital and Morgan Stanley added (i) the present value of Embarq’s projected after-tax unlevered free cash flows for fiscal years 2009 through 2012 to (ii) the present value of Embarq’s residual after-tax unlevered free cash flows for the fiscal years after 2012 estimated based on the projected after-tax unlevered free cash flows for fiscal year 2013, also referred to as the terminal value. The after-tax unlevered free cash flows were calculated by subtracting taxes and capital expenditures from EBITDA and adjusting for changes in working capital and other income and expenses. The terminal value was estimated by applying selected ranges of perpetual growth rates of -2.0% to 0.0% and -2.0% to 1.0% and discount rates of 7.0% to 8.0% to Embarq’s fiscal year 2013 projected unlevered free cash flows. The cash flows and terminal values were then discounted to present value using the same discount rates referenced above. Implied per share equity reference ranges for Embarq, both before and after taking into account estimated merger synergies (assuming Embarq would receive 100% credit for such synergies), were then calculated by subtracting debt and adding cash and cash equivalents from Embarq’s estimated enterprise value and dividing such amount by the fully diluted shares of Embarq’s common stock. Based on implied per share equity reference ranges for Embarq, both before and after taking into account estimated merger synergies, and on CenturyTel’s closing stock price as of October 24, 2008, this analysis indicated the following implied exchange ratio reference ranges, as compared to the exchange ratio provided for in the merger:

 

 

 

Contribution Analysis

 

Barclays Capital and Morgan Stanley reviewed the relative contributions of CenturyTel and Embarq to the following estimated financial and operating metrics of the combined company for calendar year 2009, based on internal estimates of CenturyTel’s management:

 

 

Barclays Capital and Morgan Stanley calculated the following overall aggregate equity ownership percentages, adjusted for outstanding indebtedness, less cash and cash equivalents of each company, of CenturyTel and Embarq shareholders in the combined company based on these relative contributions and then compared such percentages to the aggregate pro forma equity ownership percentages of CenturyTel

shareholders and Embarq stockholders, respectively, in the combined company upon consummation of the merger based on the exchange ratio provided for in the merger:

 

 

Pro Forma Financial Analyses

 

Accretion/Dilution Analysis.  Barclays Capital and Morgan Stanley reviewed the potential pro forma financial effects of the merger on the combined company’s calendar years 2009 and 2010 estimated LFCF per share and earnings per share, commonly referred to as EPS, based on internal estimates of CenturyTel’s management and consensus estimates of publicly available equity research analysts, after taking into account certain estimated share repurchases by CenturyTel (using an estimated 20% of annual combined company LFCF) and estimated synergies expected by CenturyTel’s management to be realized from the merger, both assuming such synergies are fully realized in the first year following consummation of the merger and assuming such synergies are realized over time. Based on the exchange ratio provided for in the merger, this analysis indicated that the merger could be accretive or dilutive to CenturyTel’s calendar years 2009 and 2010 estimated LFCF per share and EPS as follows:

 

 

The actual results achieved by the combined company may vary from forecasted results and the variations may be material.

 

Has/Gets Analysis.  Barclays Capital and Morgan Stanley also reviewed the implied relative per share value derived from the exchange ratio provided for in the merger for both CenturyTel and Embarq based on selected financial and operating metrics of CenturyTel and Embarq and implied per share equity reference ranges for CenturyTel and Embarq based on a discounted cash flow analysis. Financial and operating data of CenturyTel and Embarq, including estimated synergies expected to be realized from the merger, were based on internal estimates of CenturyTel’s management. Based on such financial and operating metrics, Barclays Capital and Morgan Stanley compared the per share values of CenturyTel and Embarq both prior to the merger (calculated by dividing each metric by the fully diluted shares of CenturyTel’s common stock and Embarq’s common stock, respectively) and after consummation of the merger (calculated by dividing each metric by the fully diluted shares of CenturyTel’s common stock and Embarq’s common stock, respectively, after taking into account the exchange ratio provided for in the merger). This comparison indicated that, based on the exchange

ratio provided for in the merger, per share values of CenturyTel and Embarq could increase or (decrease) as follows:

 

 

Embarq retained J.P. Morgan as its financial advisor for the purpose of advising Embarq in connection with the merger and to evaluate whether the exchange ratio in the merger was fair, from a financial point of view, to the holders of common stock of Embarq. At the meeting of the board of directors of Embarq on October 26, 2008, J.P. Morgan rendered its oral opinion, subsequently confirmed in writing to the board of directors of Embarq, that, as of such date and on the basis of and subject to the various factors, assumptions and limitations set forth in such written opinion, the exchange ratio of 1.37 shares of CenturyTel common stock for each share of Embarq common stock in the proposed merger was fair, from a financial point of view, to the holders of common stock of Embarq. The J.P. Morgan written opinion, dated October 26, 2008, is sometimes referred to herein as the J.P. Morgan opinion.

 

The full text of the written opinion of J.P. Morgan, dated October 26, 2008, which sets forth, among other things, the assumptions made, procedures followed, matters considered and any limitations on the review undertaken in rendering its opinion, is attached as Annex D. The summary of J.P. Morgan’s opinion set forth in this document is qualified in its entirety by reference to the full text of the opinion. Stockholders should read this opinion carefully and in its entirety. J.P. Morgan’s opinion is directed to the board of directors of Embarq, addresses only the fairness, from a financial point of view, to the holders of common stock of Embarq of the exchange ratio in the proposed merger, and does not address any other aspect of the merger. The issuance of the J.P. Morgan opinion was approved by a fairness opinion committee of J.P. Morgan. J.P. Morgan provided its advisory services and opinion for the information and assistance of the board of directors of Embarq in connection with its consideration of the proposed merger. The opinion of J.P. Morgan does not constitute a recommendation as to how any stockholder should vote with respect to the proposed merger. In addition, the J.P. Morgan opinion does not in any manner address the prices at which Embarq or CenturyTel common stock will trade following the date of the opinion.

 

In arriving at its opinion, J.P. Morgan, among other things:

 

 

 

J.P. Morgan also held discussions with certain members of the management of Embarq and CenturyTel with respect to certain aspects of the merger, and the past and current business operations of Embarq and CenturyTel, the financial condition and future prospects and operations of Embarq and CenturyTel, the effects of the merger (including the Synergies) on the financial condition and future prospects of Embarq and CenturyTel, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

 

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by Embarq and CenturyTel or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (nor did it assume responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of Embarq and CenturyTel under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, including the Synergies, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best then available estimates and judgments by management as to the expected future results of operations and financial condition of Embarq and CenturyTel to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the Synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the merger and the other transactions contemplated by the merger agreement will qualify as a tax-free reorganization for U.S. federal income tax purposes, and will be consummated as described in the merger agreement, and that the definitive merger agreement would not differ in any material respects from the draft thereof reviewed by J.P. Morgan. J.P. Morgan also assumed that the representations and warranties made by Embarq and CenturyTel in the merger agreement are true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by Embarq or its advisors with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents, authorizations and approvals necessary for the consummation of the merger will be obtained without any adverse effect on Embarq or CenturyTel or on the contemplated benefits of the merger.

 

The J.P. Morgan opinion is necessarily based on economic, market, regulatory and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of the J.P. Morgan opinion. Subsequent developments may affect the J.P. Morgan opinion, and J.P. Morgan does not have any obligation to update, revise or reaffirm the J.P. Morgan opinion. The J.P. Morgan opinion is limited to the fairness, from a financial point of view, to the holders of Embarq common stock of the exchange ratio in the proposed merger. J.P. Morgan has expressed no opinion as to the fairness of the merger to any person or entity, or as to the fairness of any consideration to be received by the holders of any other class of securities, creditors or other constituencies of Embarq, or as to the underlying decision by Embarq to engage in the merger. Furthermore, J.P. Morgan has expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the merger, or any class of such persons relative to the exchange ratio applicable to holders of Embarq common stock in the merger or with respect to the fairness of any such compensation. J.P. Morgan has also expressed no opinion as to the price at which shares of Embarq or CenturyTel common stock will trade at any future time.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses undertaken by J.P. Morgan in connection with rendering the J.P. Morgan opinion delivered to the board of directors of Embarq on October 26, 2008. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s financial analyses.

 

Estimates

 

In performing its analysis of Embarq, J.P. Morgan (1) relied upon estimates provided by the management of Embarq prepared in connection with the proposed merger for the period 2008 and 2009, plus an extrapolation of such estimates for the period beginning 2010 and ending 2018 approved by the management of Embarq, which are referred to in this document as the Embarq Management Estimates, and (2) reviewed Wall Street analyst projections for the period 2008 and 2009, plus an extrapolation of such estimates for the period beginning 2010 and ending 2018 approved by the management of Embarq, which are referred to in this document as the Embarq Street Estimates. In performing its analysis of CenturyTel, J.P. Morgan (1) relied upon estimates prepared by the management of CenturyTel (as adjusted by the management of Embarq) prepared in connection with the proposed merger for the period 2008 and 2009, plus an extrapolation of such estimates for the period beginning 2010 and ending 2018 approved by the management of Embarq, which are referred to in this document as the Adjusted CenturyTel Management Estimates, and (2) reviewed Wall Street analyst projections for the period 2008 and 2009, plus an extrapolation of such estimates for the period beginning 2010 and ending 2018 approved by the management of Embarq, which are referred to in this document as the CenturyTel Street Estimates.

 

The forecasts furnished to J.P. Morgan for Embarq and CenturyTel were prepared by the managements of Embarq and CenturyTel in connection with the proposed merger. Neither Embarq nor CenturyTel publicly discloses internal management forecasts of the type provided to J.P. Morgan in connection with J.P. Morgan’s analysis of the merger, and such forecasts were prepared in connection with the proposed merger and were not prepared with a view toward public disclosure. These forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such forecasts.

 

Historical Exchange Ratio Analysis

 

J.P. Morgan reviewed the per share daily closing market price of CenturyTel common stock and Embarq common stock over the previous year and calculated the implied historical exchange ratios during this period by dividing the daily closing prices per share of Embarq common stock by those of CenturyTel common stock and the average of those implied historical exchange ratios for the one-month, three-month, six-month and one-year periods ending October 24, 2008 as well as the 52-week high and low exchange ratios for the year ending October 24, 2008, and compared such implied historical exchange ratios to the October 24, 2008

implied exchange ratio and the 1.370x exchange ratio in the proposed merger. The analysis resulted in the following implied exchange ratios (rounded to the nearest thousandth):

 

 

J.P. Morgan noted that an historical stock trading analysis is not a valuation methodology and that such analysis was presented merely for informational purposes.

 

Selected Publicly Traded Companies

 

Using publicly available information, J.P. Morgan compared the financial and operating performance of Embarq and CenturyTel with publicly available information of selected publicly traded companies engaged in businesses which J.P. Morgan deemed relevant to Embarq and CenturyTel’s business. The companies were as follows:

 

 

These companies were selected, among other reasons, because they compete in the rural local exchange carrier (RLEC) sector with similar competitive dynamics and growth potential.

 

J.P. Morgan reviewed, among other information, the market value of the particular company’s equity compared to calendar year 2008 projected EBITDA less capital expenditures, net cash interest expense, change in working capital and cash taxes normalized to exclude the effect of net operating losses (NOLs) and other one time and non-cash items, referred to as levered free cash flow (LFCF), to determine a range of multiples of the ratio of equity value to 2008 estimated LFCF for the selected companies.

 

The analysis indicated that such multiples ranged from a low of 4.0x to a high of 5.3x. J.P. Morgan applied a range of 4.0x-5.0x (derived from such analysis) to Embarq and CenturyTel and calculated an implied per share equity value of common stock for each using estimated LFCF for each company as provided by management of Embarq for fiscal year 2008 (without incorporating the impact of the Synergies). In doing so, it arrived at an implied equity value range of approximately $29.98 to $37.48 per share based on such estimated LFCF of Embarq common stock and an implied equity value range of $23.84 to $29.79 per share based on such estimated LFCF of CenturyTel common stock. J.P. Morgan then calculated (a) the ratio of the lowest implied equity value per share for Embarq to the highest implied equity value per share for CenturyTel and (b) the ratio of the highest implied equity value per share for Embarq to the lowest implied equity value per share for CenturyTel to derive an implied exchange ratio range as shown below, as compared to the exchange ratio in the proposed merger of 1.370x:

 

 

Relative Discounted Cash Flow Analysis

 

J.P. Morgan conducted a discounted cash flow analysis for each of Embarq and CenturyTel for the purpose of determining a fully diluted implied equity value per share for each company on a stand-alone basis (i.e., without Synergies). A discounted cash flow analysis is a method of evaluating an asset using estimates of

the future unlevered free cash flows generated by assets and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” “Present value” refers to the current value of one or more future cash payments from the asset, which we refer to as that asset’s cash flows, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, capitalized returns and other appropriate factors. “Terminal value” refers to the capitalized value of all cash flows from an asset for periods beyond the final forecast period. J.P. Morgan calculated the relative value of the unlevered free cash flows that CenturyTel and Embarq are expected to generate for fiscal years 2008 through 2018 implied by the Embarq Management Estimates and Adjusted CenturyTel Management Estimates and implied by the Embarq Street Estimates and the CenturyTel Street Estimates.

 

The unlevered free cash flows and range of terminal values were then discounted to present value using a range of discount rates from 9.0% to 10.0%, which were chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of Embarq and CenturyTel. J.P. Morgan also calculated a range of terminal values for both Embarq and CenturyTel at the end of the 10-year period ending 2018 by applying a perpetual revenue growth rate ranging from (0.50%) to 0.50%.

 

As part of the total implied equity value calculated for Embarq, J.P. Morgan calculated (a) the present value of the estimated net operating loss carryforward balance, referred to as NOLs, as of June 30, 2009, (b) the present value of the estimated pension contributions as of June 30, 2009 and (c) the book value of the outstanding financial debt minus cash, cash equivalents and marketable securities, in each case as approved by the management of Embarq. As part of the total implied equity value calculated for CenturyTel, J.P. Morgan calculated (a) the present value of the estimated pension contributions as of June 30, 2009, (b) an unconsolidated investment reflecting CenturyTel’s wireless spectrum acquisition and (c) the book value of the outstanding financial debt minus cash, cash equivalents and marketable securities, in each case as approved by the management of Embarq.

 

Using the Embarq Management Estimates, the analysis indicated an implied equity value for Embarq ranging from $50.65 to $64.85 per share. Using the Embarq Street Estimates, the analysis indicated an implied equity value for Embarq ranging from $37.50 to $49.52 per share. Using the Adjusted CenturyTel Management Estimates, the analysis indicated an implied equity value for CenturyTel ranging from $34.86 to $44.52 per share. Using the CenturyTel Street Estimates, the analysis indicated an implied equity value for CenturyTel ranging from $29.23 to $38.25 per share.

 

J.P. Morgan compared the results for the Embarq Management Estimates to the Adjusted CenturyTel Management Estimates. J.P. Morgan also compared the results for the Embarq Street Estimates to the CenturyTel Street Estimates. For each comparison, J.P. Morgan compared the highest implied equity value per share for Embarq to the lowest implied equity value per share for CenturyTel to derive the highest relative ownership implied by each pair of estimates. J.P. Morgan also compared the lowest implied equity value per share for Embarq to the highest implied equity value per share for CenturyTel to derive the lowest relative ownership implied by each pair of estimates. These relative equity ownerships yielded the following implied exchange ratios, as compared to the exchange ratio in the merger of 1.370x:

 

 

Value Creation Analysis

 

J.P. Morgan conducted a value creation analysis that compared the implied equity value per share of Embarq common stock derived from the midpoint of the discounted cash flow analysis on a stand-alone basis using the Embarq Management Estimates to the implied equity value per share of Embarq common stock pro forma for the merger. The pro forma implied equity value per Embarq share was equal to Embarq’s pro forma ownership (based on the 66.1%/33.9% Embarq/CenturyTel ownership split) of: (1) (a) the midpoint of Embarq’s stand-alone discounted cash flow implied equity value based on the Embarq Management Estimates

(including the present value of the expected tax shield from NOLs and the present value of pension contributions), plus (b) the midpoint of CenturyTel’s stand-alone discounted cash flow implied equity value based on the Adjusted CenturyTel Management Estimates (including the present value of pension contributions and value of the unconsolidated investment reflecting CenturyTel’s wireless spectrum acquisition), plus (c) the present value of the Synergies, less (d) the present value of integration costs, less (e) transaction fees and expenses, divided by (2) pro forma diluted shares outstanding. The value creation analysis yielded the following pro forma implied equity value accretion per Embarq share using the estimate for Synergies and realization costs of the management of Embarq:

 

 

The value creation analysis was also sensitized for 50% Synergy realization, and under that scenario the Embarq management estimate of the Synergies and realization costs yielded 10.1% pro forma implied equity value accretion per Embarq share and the CenturyTel management estimate of the Synergies and realization costs yield 7.3% pro forma implied equity value accretion per Embarq share.

 

The foregoing summary of the material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual value of Embarq or CenturyTel. In arriving at its opinion, J.P. Morgan reviewed various financial and operational metrics for both Embarq and CenturyTel, including forecasts with respect to Embarq and CenturyTel which were made available to J.P. Morgan by or on behalf of Embarq. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. The exchange ratio and other terms of the merger were determined through arm’s-length negotiations between Embarq and CenturyTel.

 

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected on the basis of such experience and its familiarity with Embarq to advise Embarq in connection with the merger and to deliver a fairness opinion to the board of directors of Embarq addressing the fairness from a financial point of view of the exchange ratio in the proposed merger to the holders of common stock of Embarq as of the date of such opinion.

 

For services rendered in connection with the merger (including the delivery of its opinion), Embarq has agreed to pay J.P. Morgan $20,000,000, substantially all of which is dependent on completion of the merger. In addition, Embarq has agreed to reimburse J.P. Morgan for certain expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the federal securities laws.

 

J.P. Morgan and its affiliates have performed in the past, and may continue to perform, certain services for Embarq, CenturyTel and their respective affiliates, all for customary compensation or other financial

benefits including, during the last two years, (a) acting as joint lead bookrunner in connection with CenturyTel’s offering of $500 million of 6.0% senior notes due 2017 and $250 million of 5.5% senior notes due 2013 in March 2007 and (b) as agent bank and a lender under outstanding credit facilities of CenturyTel. In the ordinary course of its businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of Embarq or CenturyTel for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities.

 

In considering the recommendation of the Embarq board of directors that you vote to adopt the merger agreement, you should note that some Embarq directors and executive officers have financial interests in the merger pursuant to employment agreements and various corporate benefit and incentive plans, that are different from, or in addition to, those of other Embarq stockholders generally. The board of directors of Embarq was aware of these differences and considered them, among other matters, in approving the merger agreement. The agreements and plans generally provide for payments and benefits:

 

 

For purposes of all of the Embarq employment agreements and plans described below, the completion of the merger will constitute a “Change in Control.”

 

Positions with the Combined Company

 

Following the completion of the merger, certain members of the Embarq board of directors will continue to be directors of the combined company, and certain of the executive officers of Embarq will continue to be executive officers of the combined company, as described below under “— Board of Directors and Management After the Merger.”

 

Equity Compensation Awards

 

Equity Incentive Plans and Award Agreements Thereunder.  Stock options and restricted stock units awarded to Embarq’s executive officers under Embarq’s 2006 Equity Incentive Plan are subject to accelerated vesting or settlement following the executive’s involuntary termination of employment by Embarq without cause, or, in some cases, by the executive for good reason within one year following a Change in Control (or, for Mr. Gerke, within two years following a Change in Control) if the participant has been continuously employed from the date of grant to the date of a Change in Control. Generally, the award agreements issued in connection with these awards provide that the awards will be subject to accelerated vesting at the conclusion of the severance period following the executive’s termination of employment. None of Embarq’s executive officers holds outstanding awards under Embarq’s 2008 Equity Incentive Plan.

 

Based on Embarq equity compensation holdings as of          , and assuming a closing date of April 30, 2009, upon consummation of the merger and a simultaneous termination of each executive officer’s employment under the circumstances described above, the following table sets forth for each of Thomas A. Gerke, Gene M. Betts, Thomas J. McEvoy, Dennis G. Huber, Harrison S. Campbell, William E. Cheek, Richard B. Green, E.J. Holland, Jr. and Claudia S. Toussaint the amount that such individual would receive in respect of vesting of unvested equity compensation awards that are currently outstanding, and the number of such awards. Amounts are based on a price of per share of CenturyTel common stock of $      (the closing price on          ) and the exchange ratio of 1.37 shares of CenturyTel common stock per share of Embarq common stock and calculated assuming all such stock options are exercised and all underlying shares are sold. Actual amounts may be higher or lower depending on the value of CenturyTel common stock on the date any vesting is triggered and the number of equity compensation awards that are unvested on the date any vesting is triggered (including any such awards which may be granted prior to such date). Depending on when the

merger occurs, certain of the equity compensation awards shown as unvested in the table below may become vested in accordance with their terms without regard to the merger.