UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

           [ X ] Annual Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 2002

                                       or

          [ ] Transition Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                          Commission file number 1-7784

                                CENTURYTEL, INC.
             (Exact name of Registrant as specified in its charter)

                 Louisiana                                 72-0651161
      (State or other jurisdiction of                     (IRS Employer
      incorporation or organization)                   Identification No.)

 100 CenturyTel Drive, Monroe, Louisiana                      71203
 (Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code - (318) 388-9000

Securities registered pursuant to Section 12(b) of the Act:

    Title of each class               Name of each exchange on which registered
    ___________________               _________________________________________

  Common Stock, par value $1.00               New York Stock Exchange
                                              Berlin Stock Exchange
  Preference Share Purchase Rights            New York Stock Exchange
                                              Berlin Stock Exchange
  Corporate Units issued May 2002             New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:      None

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.               Yes [X]   No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark if the Registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act).                       Yes [X]   No [ ]

The aggregate market value of voting stock held by non-affiliates (affiliates
being for these purposes only directors, executive officers and holders of more
than five percent of the Company's outstanding voting securities) was $4.2
billion as of June 28, 2002. As of February 28, 2003, there were 143,069,486
shares of common stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Proxy Statement to be furnished in connection with
the 2003 annual meeting of shareholders are incorporated by reference in Part
III of this Report.

PART I Item 1. Business General. CenturyTel, Inc. ("CenturyTel") is a regional integrated communications company engaged primarily in providing local exchange telephone services. For the year ended December 31, 2002, local exchange telephone operations provided 88% of the consolidated revenues from continuing operations of CenturyTel and its subsidiaries (the "Company"). All of the Company's operations are conducted within the continental United States. At December 31, 2002, the Company's local exchange telephone subsidiaries operated approximately 2.4 million telephone access lines, primarily in rural, suburban and small urban areas in 22 states, with the largest customer bases located in Wisconsin, Missouri, Alabama, Arkansas, Washington, Michigan, Louisiana, Colorado, Ohio and Oregon. According to published sources, the Company is the eighth largest local exchange telephone company in the United States based on the number of access lines served. For more information, see "Telephone Operations." On August 1, 2002, the Company sold substantially all of its wireless operations for an aggregate of approximately $1.59 billion in cash. For additional information, see "Recent acquisitions and dispositions" below. The Company also provides long distance, Internet access, competitive local exchange carrier, fiber network, security monitoring, and other communications and business information services in certain local and regional markets. For more information, see "Other Operations." Recent acquisitions and dispositions. On July 1, 2002, the Company completed the acquisition of approximately 300,000 telephone access lines in the state of Alabama from Verizon Communications, Inc. ("Verizon") for approximately $1.022 billion cash. On August 31, 2002, the Company completed the acquisition of approximately 350,000 telephone access lines in the state of Missouri from Verizon for approximately $1.179 billion cash. The assets purchased included (i) telephone access lines and related property and equipment comprising Verizon's local exchange operations in predominantly rural markets throughout Alabama and Missouri, (ii) Verizon's assets used to provide digital subscriber line ("DSL") and other high speed data services within the purchased exchanges and (iii) approximately 2,800 route miles of fiber optic cable within the purchased exchanges. The acquired assets did not include Verizon's cellular, personal communications services ("PCS"), long distance, dial-up Internet, or directory publishing operations, or rights under various Verizon contracts, including those relating to customer premise equipment. The Company did not assume any liabilities of Verizon other than (i) those associated with contracts, facilities and certain other assets transferred in connection with the purchase and (ii) certain employee-related liabilities, including liabilities for postretirement health benefits. On February 28, 2002, the Company purchased the fiber network and customer base of KMC Telecom's operations in Monroe and Shreveport, Louisiana which allows the Company to offer broadband and competitive local exchange services to customers in these markets. On July 31, 2000 and September 29, 2000, affiliates of the Company acquired over 490,000 telephone access lines and related assets from Verizon in four separate transactions for approximately $1.5 billion in cash. Under these transactions: o On July 31, 2000, the Company purchased approximately 231,000 telephone access lines and related local exchange assets comprising 106 exchanges throughout Arkansas for approximately $842 million in cash. o On July 31, 2000, Spectra Communications Group, LLC ("Spectra") purchased approximately 127,000 telephone access lines and related local exchange assets comprising 107 exchanges throughout Missouri for approximately $297 million cash. The Company currently owns 75.7% of Spectra, which was organized to acquire and operate these Missouri properties. At closing, the Company made a preferred equity investment in Spectra of approximately $55 million (which represented a 57.1% interest) and financed substantially all of the remainder of the purchase price. In the first quarter of 2001, the Company purchased an additional 18.6% interest in Spectra for $47.1 million. o On September 29, 2000, the Company purchased approximately 70,500 telephone access lines and related local exchange assets comprising 42 exchanges throughout Wisconsin for approximately $197 million in cash. o On September 29, 2000, Telephone USA of Wisconsin, LLC ("TelUSA") purchased approximately 62,900 telephone access lines and related local exchange assets comprising 35 exchanges throughout Wisconsin for approximately $172 million in cash. The Company owns 89% of TelUSA, which was organized to acquire and operate these Wisconsin properties. At closing, the Company made an equity investment in TelUSA of approximately $37.8 million and financed substantially all of the remainder of the purchase price. In August 2000, the Company acquired the assets of CSW Net, Inc., a regional Internet service provider that offers dial-up and dedicated Internet access, and web site and domain hosting to more than 18,000 customers in 28 communities in Arkansas. On August 1, 2002, the Company sold substantially all of its wireless operations to an affiliate of ALLTEL Corporation ("Alltel") and certain partners in the Company's markets that exercised "first refusal" purchase rights for an aggregate of approximately $1.59 billion in cash. In connection with this transaction, the Company divested its (i) interests in its majority-owned and operated cellular systems, which at June 30, 2002 served approximately 783,000 customers and had access to approximately 7.8 million pops (the estimated population of licensed cellular telephone markets multiplied by the Company's proportionate equity interest in the licensed operators thereof), (ii) minority cellular equity interests representing approximately 1.8 million pops at June 30, 2002, and (iii) licenses to provide PCS covering 1.3 million pops in Wisconsin and Iowa. As a result, the Company's wireless operations have been reflected as discontinued operations in the Company's accompanying consolidated financial statements. In the second quarter of 2001, the Company sold to Leap Wireless International, Inc. 30 PCS operating licenses for an aggregate of $205 million. The Company received approximately $118 million of the purchase price in cash at closing and collected the remainder in installments through the fourth quarter of 2001. In June 1999, the Company sold all of the operations of its Brownsville and McAllen, Texas, cellular systems to Western Wireless Corporation for approximately $96 million cash. The Company received its proportionate share of the sale proceeds of approximately $45 million after-tax. In May 1999, the Company sold substantially all of its Alaska telephone and wireless operations for approximately $300 million after-tax. In February 2000, the Company sold its interest in Alaska RSA #1, which completed the Company's divestiture of its Alaska operations. The Company continually evaluates the possibility of acquiring additional telecommunications assets in exchange for cash, securities or both, and at any given time may be engaged in discussions or negotiations regarding additional acquisitions. The Company generally does not announce its acquisitions until it has entered into a preliminary or definitive agreement. Over the past few years, the number and size of communications properties on the market has increased substantially. Although the Company's primary focus will continue to be on acquiring interests that are proximate to its properties or that serve a customer base large enough for the Company to operate efficiently, other communications interests may also be acquired and these acquisitions could have a material impact upon the Company. Pending Acquisition and Disposition. In connection with the August 2002 sale of its wireless operations to Alltel, the Company retained a minority interest in one market, which it agreed to sell to Alltel for approximately $68 million, subject to several closing conditions. Alltel has asserted that some of these closing conditions have not been satisfied, and the parties are currently in discussions regarding such conditions. No assurance can be given that this sale will occur. On February 13, 2003, a federal bankruptcy court approved the Company's $38 million bid to acquire the assets of Digital Teleport, Inc., a regional fiber optics communications company providing wholesale data transport services to other communications carriers over a currently usable 3,800 route mile network located in Missouri, Arkansas, Oklahoma and Kansas. The Company intends to use the acquired assets to sell services to new and existing customers and to reduce the Company's reliance on third party transport providers. The transaction is expected to be completed in the second quarter of 2003, subject to regulatory approvals and other closing conditions. Where to find additional information. Effective February 28, 2003, the Company makes available free of charge on its website (www.centurytel.com) filings made with the Securities and Exchange Commission ("SEC") on Forms 10-K, 10-Q and 8-K as soon as reasonably practicable after such filings are made with the SEC. Other. As of December 31, 2002, the Company had approximately 6,960 employees, approximately 1,900 of whom were members of 15 different bargaining units represented by the International Brotherhood of Electrical Workers, the Communications Workers of America, or the NTS Employee Committee. Relations with employees continue to be generally good. CenturyTel was incorporated under Louisiana law in 1968 to serve as a holding company for several telephone companies acquired over the previous 15 to 20 years. CenturyTel's principal executive offices are located at 100 CenturyTel Drive, Monroe, Louisiana 71203 and its telephone number is (318) 388-9000. TELEPHONE OPERATIONS According to published sources, the Company is the eighth largest local exchange telephone company in the United States, based on the approximately 2.4 million access lines it served at December 31, 2002. All of the Company's access lines are digitally switched. Through its operating telephone subsidiaries, the Company provides services to predominantly rural, suburban and small urban markets in 22 states. The table below sets forth certain information with respect to the Company's access lines as of December 31, 2002 and 2001. December 31, 2002 December 31, 2001 ------------------------------------------------------------------------------ Number of Percent of Number of Percent of State access lines access lines access lines access lines ------------------------------------------------------------------------------ Wisconsin (1) 490,116 21% 498,331 28% Missouri (2) 478,207 20 130,651 7 Alabama 289,015 12 - - Arkansas 268,220 11 271,617 15 Washington 188,733 8 189,868 11 Michigan 112,713 5 114,643 6 Louisiana 104,408 4 104,043 6 Colorado 96,799 4 97,571 6 Ohio 84,452 4 84,636 5 Oregon 76,751 3 78,592 4 Montana 65,666 3 65,974 4 Texas 48,931 2 51,451 3 Minnesota 30,930 1 31,110 2 Tennessee 27,365 1 27,660 2 Mississippi 24,156 1 23,579 1 New Mexico 6,565 - 6,396 - Idaho 5,976 - 6,119 - Wyoming 5,494 - 5,408 - Indiana 5,468 - 5,490 - Iowa 2,099 - 2,072 - Arizona 1,986 - 1,937 - Nevada 514 - 495 - ------------------------------------------------------------------------------ 2,414,564 100% 1,797,643 100% ============================================================================== (1) As of December 31, 2002 and 2001, approximately 61,060 and 61,990, respectively, of these lines are owned and operated by CenturyTel's 89%-owned affiliate. (2) As of December 31, 2002 and 2001, approximately 130,740 and 130,651, respectively, of these lines are owned and operated by CenturyTel's 75.7%-owned affiliate. As indicated in the following table, the Company has generally experienced growth in its telephone operations over the past several years, a substantial portion of which was attributable to the third quarter 2002 acquisitions of telephone properties from Verizon, the third quarter 2000 acquisitions of telephone properties from Verizon, the acquisitions of other telephone properties and the expansion of services. A portion of the Company's access line growth was offset by the May 1999 sale of the Company's Alaska telephone operations. <TABLE> <CAPTION> Year ended or as of December 31, ------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> <C> <C> Access lines 2,414,564 1,797,643 1,800,565 1,272,867 1,346,567 % Residential 76% 76 76 75 74 % Business 24% 24 24 25 26 Operating revenues $ 1,733,592 1,505,733 1,253,969 1,126,112 1,077,343 Capital expenditures $ 319,536 351,010 275,523 233,512 223,190 ------------------------------------------------------------------------------------------- </TABLE> The Company hopes to expand its telephone operations by (i) acquiring additional telephone properties, (ii) providing service to new customers, (iii) increasing network usage and (iv) providing additional services which may be made possible by advances in technology and improvements in the Company's infrastructure. For information on developing competitive trends, see "-Regulation and Competition." Services The Company's local exchange telephone subsidiaries derive revenue from providing (i) local telephone services, (ii) network access services and (iii) other related services. The following table reflects the percentage of telephone operating revenues derived from these respective services: <TABLE> <CAPTION> 2002 2001 2000 ------------------------------------------------------------------------- <S> <C> <C> <C> Local service 34.9% 32.6 32.6 Network access 56.1 58.1 58.0 Other 9.0 9.3 9.4 ------------------------------------------------------------------------- 100.0% 100.0 100.0 ========================================================================= </TABLE> Local service. Local service revenues are derived from the provision of local exchange telephone services in the Company's service areas. Access lines declined 1.1% in 2002 (exclusive of the 2002 Verizon acquisitions) and declined 0.2% in 2001. Internal access line growth during 2000 was 2.8%. The Company believes the decline in the number of access lines during 2002 and 2001 is primarily due to declines in second lines, soft general economic conditions in the Company's markets and the displacement of traditional wireline telephone services by other competitive service providers. Even when the economy recovers, the Company believes that any rebound in access lines will be limited by continued declines in second lines caused primarily by DSL substitution and the impact of competitive services. Based on current conditions, the Company expects to incur a decline in access lines of 1 to 2% for 2003. The installation of digital switches, high-speed data circuits and related software has been an important component of the Company's growth strategy because it allows the Company to offer enhanced voice services (such as call forwarding, conference calling, caller identification, selective call ringing and call waiting) and data services (such as data private line, digital subscriber line, frame relay and local area/wide area networks) and to thereby increase utilization of existing access lines. In 2002 the Company continued to expand the availability of enhanced services offered in certain service areas. Network access. Network access revenues primarily relate to services provided by the Company to long distance carriers, wireless carriers and other customers in connection with the use of the Company's facilities to originate and terminate interstate and intrastate long distance telephone calls. Certain of the Company's interstate network access revenues are based on tariffed access charges prescribed by the Federal Communications Commission ("FCC"); the remainder of such revenues are derived under revenue sharing arrangements with other local exchange carriers ("LECs") administered by the National Exchange Carrier Association ("NECA"), a quasi-governmental non-profit organization formed by the FCC in 1983 for such purposes. Certain of the Company's intrastate network access revenues are derived through access charges billed by the Company to intrastate long distance carriers and other LEC customers. Such intrastate network access charges are based on tariffed access charges, which are subject to state regulatory commission approval. Additionally, certain of the Company's intrastate network access revenues, along with intrastate and intra-LATA (Local Access and Transport Areas) long distance revenues, are derived through revenue sharing arrangements with other LECs. In 2002 the Company incurred a reduction in its intrastate revenues (exclusive of the properties acquired from Verizon in 2002) of approximately $27.7 million compared to 2001 primarily due to (i) a reduction in intrastate minutes (partially due to the displacement of minutes by wireless and instant messaging services) and (ii) decreased access rates in certain states. The Company believes such trend of decreased intrastate minutes will continue in 2003. Although the magnitude of such decrease cannot be precisely estimated, the Company believes such decrease will be less than that incurred in 2002. The Company is continuing to install fiber optic cable in certain high traffic routes providing diversity, increased bandwidth capability and improved quality of service for its telephone operations in strategic operating areas. At December 31, 2002 the Company's telephone subsidiaries had over 15,100 miles of fiber optic cable in use. Other. Other telephone revenues include revenues related to (i) leasing, selling, installing, maintaining and repairing customer premise telecommunications equipment and wiring, (ii) providing billing and collection services for long distance companies and (iii) participating in the publication of local directories. Certain large communications companies for which the Company currently provides billing and collection services continue to indicate their desire to reduce their billing and collection expenses, which has resulted and may continue to result in future reductions of the Company's billing and collection revenues. For further information on the regulation of the Company's revenues, see "-Regulation and Competition." Federal Financing Programs Certain of the Company's telephone subsidiaries receive long-term financing from the Rural Utilities Service ("RUS") or the Rural Telephone Bank ("RTB"). The RUS has made long-term loans to telephone companies since 1949 for the purpose of improving telephone service in rural areas. The RUS continues to make new loans at interest rates that range from 5% to 7% based on borrower qualifications and the cost of funds to the United States government. The RTB, established in 1971, makes long-term loans at interest rates based on its average cost of funds as determined by statutory formula (which ranged from 6.05% to 6.51% for the RTB's fiscal year ended September 30, 2002), and in some cases makes loans concurrently with RUS loans. Some of the Company's telephone plant is pledged or mortgaged to secure obligations of the Company's telephone subsidiaries to the RUS and RTB. The Company's telephone subsidiaries that have borrowed from government agencies generally may not loan or advance any funds to CenturyTel, but may pay dividends if certain financial covenants are met. For additional information regarding the Company's financing, see the Company's consolidated financial statements included in Item 8 herein. Regulation and Competition Traditionally, LECs have operated as regulated monopolies. Consequently, most of the Company's telephone operations have traditionally been regulated extensively by various state regulatory agencies (generally called public service commissions or public utility commissions) and by the FCC. As discussed in greater detail below, passage of the Telecommunications Act of 1996 (the "1996 Act"), coupled with state legislative and regulatory initiatives and technological changes, fundamentally altered the telephone industry by reducing the regulation of LECs and permitting competition in each segment of the telephone industry. CenturyTel anticipates that these trends towards reduced regulation and increased competition will continue. State regulation. The local service rates and intrastate access charges of substantially all of the Company's telephone subsidiaries are regulated by state regulatory commissions which typically have the power to grant and revoke franchises authorizing companies to provide communications services. Most of such commissions have traditionally regulated pricing through "rate of return" regulation that focuses on authorized levels of earnings by LECs. Most of these commissions also (i) regulate the purchase and sale of LECs, (ii) prescribe depreciation rates and certain accounting procedures and (iii) regulate various other matters, including certain service standards and operating procedures. In recent years, state legislatures and regulatory commissions in most of the 22 states in which the Company operates have either reduced the regulation of LECs or have announced their intention to do so, and it is expected that this trend will continue. Wisconsin, Missouri, Alabama, Arkansas, Louisiana and several other states have implemented laws or rulings which require or permit LECs to opt out of rate of return regulation in exchange for agreeing to alternative forms of regulation which typically permit the LEC greater freedom to establish local service rates in exchange for agreeing not to charge rates in excess of specified caps. As discussed further below, subsidiaries operating over half of the Company's access lines in various states have agreed to be governed by alternative regulation plans, and the Company continues to explore its options for similar treatment in other states. Other states have imposed new regulatory models that do not rely on "rate of return" regulation. The Company believes that reduced regulatory oversight of certain of the Company's telephone operations may allow the Company to offer new and competitive services faster than under the traditional regulatory process. For a discussion of legislative, regulatory and technological changes that have introduced competition into the local exchange industry, see "-Developments Affecting Competition." A portion of the Company's telephone operations in Wisconsin has been regulated under an alternative regulation plan since June 1996; such plan was subsequently modified in early 2000. In late 1999 and early 2000, most of the Company's remaining Wisconsin telephone subsidiaries agreed to be subject to alternative regulation plans. Each of these alternative regulation plans has a five-year term and permits the Company to adjust local rates within specified parameters if it meets certain quality-of-service and infrastructure-development commitments. These plans also include initiatives designed to promote competition. In November 2002, the Company applied to have its Wisconsin access lines acquired in December 1998 regulated under a similar alternative regulation plan. The Company's Wisconsin access lines acquired in mid-2000 continue to be regulated under "rate of return" regulation. All of the Company's Missouri LECs are regulated under a price-cap regulation plan (effective in 2002) whereby basic service rates are adjusted annually based on an inflation-based factor; non-basic services may be increased up to 8% annually. The plan also allows the LECs to rebalance local basic service rates up to four times in the first four years of such regulation as a result of access rate or toll reductions. Since 1995, the Company's Alabama LEC acquired as part of the acquisitions from Verizon in 2002 has been subject to an alternative regulation plan. Under this plan, local rates were frozen initially for five years, after which time such rates can be increased by an amount equal to the consumer price index less a 1% efficiency factor; non-basic service rates can be increased 10% per year. In January 2003, the Company's Alabama LEC and the other independent LECs in the state filed a Petition for Adoption of Streamlined Regulation Plan with the Alabama Public Service Commission ("Alabama PSC"). As part of this proposed plan, basic local service rates could be increased by 3% per year while non-basic service rates could be increased as much as 7% per year. Access rates could not be reduced unless the Alabama PSC offsets the revenue loss by some other means. All rate adjustments proposed in the plan must be approved by the Alabama PSC before being implemented. The Alabama PSC is expected to issue a request for comments on the proposed plan in the second quarter of 2003. The Company's Arkansas LECs, excluding the properties acquired from Verizon in 2000, are regulated under an alternative regulation plan adopted in 1997, which initially froze access rates for three years, after which time such rates can be adjusted based on an inflation-based factor. Local service rates can be adjusted without commission approval; however, such rates are subject to commission review if certain petition criteria are met. In addition, since 1995 the Company's Michigan LECs have been subject to a regulatory structure that focuses on price and quality of service as opposed to traditional rate of return regulation, and which relies more on existing federal and state law regarding antitrust consumer protection and fair trade to provide safeguards for competition and consumers. Since 1997 all of the Company's LECs operating in Louisiana have been regulated under a Consumer Price Protection Plan (the "Louisiana Plan"). This form of regulation focuses on price and quality of service. Under the Louisiana Plan, the Company's Louisiana LECs' local rates and access rates have remained unchanged since 1997, but may currently be increased within certain parameters. The Company's Louisiana LECs have the option to propose a new plan at any time if the Louisiana Public Service Commission determines that (i) effective competition exists or (ii) unforeseen events threaten the LEC's ability to provide adequate service or impair its financial health. Notwithstanding the movement towards alternative regulation, LECs operating approximately 45% of the Company's total access lines continue to be subject to "rate of return" regulation for intrastate purposes. These LECs remain subject to the powers of state regulatory commissions to conduct earnings reviews and adjust service rates, either of which could lead to revenue reductions. FCC regulation. The FCC regulates the interstate services provided by the Company's telephone subsidiaries primarily by regulating the interstate access charges that are billed to long distance companies and other LECs by the Company for use of its local network in connection with the origination and termination of interstate telephone calls. Additionally, the FCC has prescribed certain rules and regulations for telephone companies, including regulations regarding the use of radio frequencies; a uniform system of accounts; and rules regarding the separation of costs between jurisdictions and, ultimately, between interstate services. Effective January 1, 1991, the FCC adopted price-cap regulation relating to interstate access rates for the Regional Bell Operating Companies. All other LECs may elect to be subject to price-cap regulation. Under price-cap regulation, limits imposed on a company's interstate rates are adjusted periodically to reflect inflation, productivity improvement and changes in certain non-controllable costs. In May 1993 the FCC adopted an optional incentive regulatory plan for LECs not subject to price-cap regulation. A LEC electing the optional incentive regulatory plan would, among other things, file tariffs based primarily on historical costs and not be allowed to participate in the relevant NECA pooling arrangements. The Company has not elected price-cap regulation or the optional incentive regulatory plan for its incumbent operations; however, the properties acquired from Verizon in 2002 are operated under price-cap regulation. In connection with this acquisition, the Company obtained a waiver of the FCC's "all or nothing" rule. This waiver is valid until the FCC reviews the future appropriateness of the "all or nothing" rule. Absent the waiver, present rules require a carrier that purchases access lines subject to price-cap regulation to convert all of its properties to price-cap regulation. On October 11, 2001, the FCC modified its interstate access charge rules and universal service support system for rate of return local exchange carriers. This order, among other things, (i) increased the caps on the subscriber line charges ("SLC") to the levels paid by most subscribers nationwide; (ii) allowed limited SLC deaveraging, which will enhance the competitiveness of rate of return carriers by giving them pricing flexibility; (iii) lowered per minute rates collected for federal access charges; (iv) created a new explicit universal service support mechanism that will replace other implicit support mechanisms in a manner designed to ensure that rate structure changes do not affect the overall recovery of interstate access costs by rate of return carriers serving high cost areas and (v) terminated the FCC's proceeding on the represcription of the authorized rate of return for rate of return LECs, which will remain at 11.25%. The effect of this order on the Company was revenue neutral for interstate purposes; however, intrastate revenues were adversely affected in Arkansas and Ohio as the intrastate access rates in these states mirror the interstate access rates. The FCC is pursuing rulemaking regarding the development of an appropriate federal incentive plan for rate of return LECs. The Company is actively monitoring this proceeding and has provided comments to the FCC on this issue. High-cost support funds, revenue sharing arrangements and related matters. A significant number of the Company's telephone subsidiaries recover a portion of their costs under federal and state cost recovery mechanisms that traditionally have allowed LECs serving small communities and rural areas to provide communications services reasonably comparable to those available in urban areas and at reasonably comparable prices. As mandated by the 1996 Act, in May 2001 the FCC modified its existing universal service support mechanism for rural telephone companies. The FCC adopted an interim mechanism for a five-year period, effective July 1, 2001, based on embedded, or historical, costs that will provide predictable levels of support to rural local exchange carriers, including substantially all of the Company's local exchange carriers. During 2002 and 2001 the Company's telephone subsidiaries received $192.4 million (which included $9.9 million related to the Company's operations acquired from Verizon in 2002) and $168.7 million, respectively, from the federal Universal Service Fund, representing 9.8% and 8.0%, respectively, of the Company's consolidated revenues from continuing operations for 2002 and 2001. Increasingly, wireless carriers have sought and received payments from the Universal Service Fund, which the Company believes is currently enhancing their ability to compete with wireline services and, in the long term, could adversely impact the amount of funding available for LECs. In addition, the Company's telephone subsidiaries received $31.7 million and $31.5 million in 2002 and 2001, respectively, from intrastate support funds. In 1997, the FCC also established new programs to provide discounted telecommunications services annually to schools, libraries and rural health care providers. All communications carriers providing interstate telecommunications services, including the Company's LECs and long distance operations, are required to contribute to these programs. Prior to May 2001, the Company's LECs recovered their funding contributions in their rates for interstate services. Subsequent to May 2001, in accordance with a 2001 FCC order, such contributions are not recovered through access charges but instead are charged as an explicit item on customer's bills. The Company's contribution by its LEC and long distance operations, both of which is passed on to its customers, was approximately $10.6 million and $4.4 million, respectively, in 2002, and $6.4 million and $3.2 million, respectively, in 2001. In late 2002, the FCC requested that the Federal-State Joint Board ("FSJB") on Universal Service review various FCC rules governing high cost universal service support, including rules regarding eligibility to receive support payments in markets served by LECs and competitive carriers. On February 7, 2003, the FSJB issued a notice for public comment on whether present rules fulfill their purpose and whether or not modifications are needed. The Company has been active in various dockets before the FCC and various state commissions related to wireless carriers seeking support payments for service in the Company's service areas. In January 2003, the Louisiana Public Service Commission directed its staff to review the feasibility of converting the $42 million Louisiana Local Optional Service Fund ("LOS Fund") into a state universal service fund. A recommendation by the Commission staff is expected by the end of 2003. Currently, the LOS Fund is funded primarily by BellSouth, which proposes to expand the base of contributors into the LOS Fund. The Company currently receives approximately $21 million from the LOS Fund each year. There can be no assurance that this funding will remain at current levels. Some of the Company's telephone subsidiaries operate in states where traditional cost recovery mechanisms, including rate structures, are under evaluation or have been modified. See "- State Regulation." There can be no assurance that these states will continue to provide for cost recovery at current levels. Substantially all of the Company's LECs (except for the properties acquired from Verizon in 2002) concur with the common line tariff and certain of the Company's LECs concur with the traffic sensitive tariffs filed by the NECA; such LECs participate in the access revenue sharing arrangements administered by the NECA for interstate services. All of the intrastate network access revenues of the Company's LECs are based on access charges, cost separation studies or special settlement arrangements. See "- Services." Certain long distance carriers continue to request that certain of the Company's LECs reduce intrastate access tariffed rates. Long distance carriers have also aggressively pursued regulatory or legislative changes that would reduce access rates. See "Services - Network Access" above for additional information. Developments affecting competition. The communications industry continues to undergo fundamental changes which are likely to significantly impact the future operations and financial performance of all communications companies. Primarily as a result of legislative and regulatory initiatives and technological changes, competition has been introduced and encouraged in each sector of the telephone industry. As a result, the number of companies offering competitive services has increased substantially. As indicated above, in February 1996 Congress enacted the 1996 Act, which obligates LECs to permit competitors to interconnect their facilities to the LEC's network and to take various other steps that are designed to promote competition. The 1996 Act imposes several duties on a LEC if it receives a specific request from another entity which seeks to connect with or provide services using the LEC's network. In addition, each incumbent LEC is obligated to (i) negotiate interconnection agreements in good faith, (ii) provide "unbundled" access to all aspects of the LEC's network, (iii) offer resale of its telecommunications services at wholesale rates and (iv) permit competitors to collocate their physical plant on the LEC's property, or provide virtual collocation if physical collocation is not practicable. On February 20, 2003, the FCC revised its rules outlining the obligations of incumbent LECs to lease elements of their networks on an unbundled basis to competitors. The new framework eliminates the prior obligation of incumbent LECs to lease their high-speed data lines to competitors. Incumbent LECs will remain obligated to offer other telecommunications services to resellers at wholesale rates. This new rule also provides for a significant role of state regulatory commissions in implementing these new guidelines and establishing wholesale service rates. Under the 1996 Act's rural telephone company exemption, approximately 50% of the Company's telephone access lines are exempt from certain of these interconnection requirements unless and until the appropriate state regulatory commission overrides the exemption upon receipt from a competitor of a bona fide request meeting certain criteria. States are permitted to adopt laws or regulations that provide for greater competition than is mandated under the 1996 Act. Management believes that competition in its telephone service areas has increased and will continue to increase as a result of the 1996 Act and additional FCC interpretations related to interconnection and the portability of universal service support. While competition through use of the Company's network is still limited in most of its markets, the Company will continue to witness competition from a variety of resellers and facilities-based service providers, including wireless and cable companies. In addition to these changes in federal regulation, all of the 22 states in which the Company provides telephone services have taken legislative or regulatory steps to further introduce competition into the LEC business. As a result of these regulatory developments, incumbent LECs ("ILECs") increasingly face competition from competitive local exchange carriers ("CLECs"), particularly in high population areas. CLECs provide competing services through reselling the ILECs' local services, through use of the ILECs' unbundled network elements or through their own facilities. The number of companies which have requested authorization to provide local exchange service in the Company's service areas has increased substantially in recent years, especially in the Company's Verizon markets acquired in 2002 and 2000, and it is anticipated that similar action may be taken by others in the future. In addition to facing direct competition from CLECs, ILECs increasingly face competition from alternate communication systems constructed by long distance carriers, large customers or alternative access vendors. These systems, which have become more prevalent as a result of the 1996 Act, are capable of originating or terminating calls without use of the ILECs' networks. Customers may also use wireless or Internet voice service to bypass ILECs' switching services. In addition, technological and regulatory developments have increased the feasibility of competing services offered by cable television companies, several of whom are pursuing these opportunities. Other potential sources of competition include noncarrier systems that are capable of bypassing ILECs' local networks, either partially or completely, through substitution of special access for switched access or through concentration of telecommunications traffic on a few of the ILECs' access lines. The Company anticipates that all these trends will continue and lead to increased competition with the Company's LECs. Wireless telephone services increasingly constitute a significant source of competition with LEC services, especially as wireless carriers expand and improve their network coverage and continue to lower their prices. As a result, some customers have chosen to completely forego use of traditional wireline phone service and instead rely solely on wireless service. This trend is particularly evident among younger customers, and in urban areas. The Company anticipates this trend will continue, particularly if wireless service rates continue to decline and the quality of wireless service in the Company's markets improves. Technological and regulatory developments in cellular telephone, personal communications services, digital microwave, coaxial cable, fiber optics, local multipoint distribution services and other wired and wireless technologies are expected to further permit the development of alternatives to traditional landline services. Historically, ILECs had little or no competition associated with intra-LATA long distance calls in their service areas. Principally as a result of recent state regulatory changes, companies offering competing toll services have emerged in the Company's local exchange markets. To the extent that the telephone industry increasingly experiences competition, the size and resources of each respective competitor may increasingly influence its prospects. Many companies currently providing or planning to provide competitive communication services have substantially greater financial and marketing resources than the Company, and several are not subject to the same regulatory constraints as the Company. The Company anticipates that the traditional operations of LECs will continue to be impacted by continued technological developments as well as legislative and regulatory initiatives affecting the ability of LECs to provide new services and the capability of long distance companies, CLECs, wireless companies, cable television companies and others to provide competitive LEC services. Competition relating to services traditionally provided by LECs has thus far affected large urban areas to a greater extent than rural, suburban and small urban areas such as those in which the Company operates. The Company intends to actively monitor these developments, to observe the effect of emerging competitive trends in initial competitive markets and to continue to evaluate new business opportunities that may arise out of future technological, legislative and regulatory developments. The Company anticipates that regulatory changes and competitive pressures will continue to place downward pressure on its telephone revenues. However, the Company anticipates that such reductions may be minimized by increases in revenues attributable to the continued demand for enhanced services and new product offerings. The Company expects its internal telephone revenues (exclusive of the properties acquired from Verizon in 2002) to decline in 2003 primarily due to continued access line loss and reduced intrastate revenues; however, the Company expects its internal consolidated revenues to increase in 2003 primarily due to expected increased demand for its long distance, DSL and other product offerings, as discussed further below. OTHER OPERATIONS The Company provides long distance, Internet access, competitive local exchange services, fiber network, security monitoring, and other communications and business information services in certain local and regional markets. The results of these operations, which accounted for 12.1% and 7.6%, respectively, of the Company's operating revenues and operating income during 2002, are reflected for financial reporting purposes in the "Other operations" section. Long distance. In 1996 the Company began marketing long distance service in its equal access telephone operating areas. At December 31, 2002, the Company provided long distance services to approximately 648,800 customers. Approximately 75% of the Company's long distance revenues are derived from service provided to residential customers. Although the Company owns and operates switches in LaCrosse, Wisconsin; Shreveport, Louisiana and Vancouver, Washington which are utilized to provide long distance services, it anticipates that most of its near-term long distance service revenues will be provided by reselling service purchased from other facilities-based long distance providers. The Company intends to continue to expand its long distance business, principally through reselling arrangements. Internet access. The Company began offering traditional Internet access services to its telephone customers in 1995. In late 1999, the Company began offering in select markets digital subscriber line ("DSL") Internet access services, a high-speed premium-priced data service. At December 31, 2002, the Company provided Internet access services to a total of approximately 179,400 customers, 131,500 of which receive traditional dial-up Internet service in select markets in 17 states (which markets represent 85% of the access lines served by the Company's LECs), and 47,900 of which receive retail DSL services in markets that cover approximately 59% of the access lines served by the Company's LECs. Competitive local exchange services. In late 2000, the Company began offering competitive local exchange telephone services, coupled with long distance, Internet access and other Company services, to small to medium-sized businesses in Monroe and Shreveport, Louisiana. On February 28, 2002, the Company purchased the fiber network and customer base of KMC Telecom's operations in Monroe and Shreveport, Louisiana, which allowed the Company to offer broadband and competitive local exchange services to customers in these markets. At December 31, 2002, the Company had approximately 141,000 equivalent access lines in its competitive local exchange carrier business. Fiber network. In connection with its long-range plans to sell capacity to other carriers and certain businesses in or near certain of its select markets, the Company began providing service in the second quarter of 2001 to customers over a 700-mile fiber optic ring connecting several communities in southern and central Michigan. On February 13, 2003, a federal bankruptcy court approved the Company's $38 million bid to acquire the assets of Digital Teleport, Inc., a regional fiber optics communication company providing wholesale data transport services to other communications carriers over a currently usable 3,800 route mile network located in Missouri, Arkansas, Oklahoma and Kansas. The Company intends to use the acquired assets to sell services to new and existing customers and to reduce the Company's reliance on third party transport providers. The transaction is expected to be completed in the second quarter of 2003, subject to regulatory approvals and other closing conditions. Security monitoring. The Company offers 24-hour burglary and fire monitoring services to approximately 8,600 customers in select markets in Louisiana, Arkansas, Mississippi, Texas and Ohio. The Company also provides audiotext services; printing, database management and direct mail services; and cable television services. From time to time the Company also makes investments in other domestic or foreign communications companies. Certain service subsidiaries of the Company provide installation and maintenance services, materials and supplies, and managerial, technical, accounting and administrative services to the telephone and other operating subsidiaries. In addition, the Company provides and bills management services to subsidiaries and in certain instances makes interest-bearing advances to finance construction of plant, purchases of equipment or acquisitions of other businesses. These transactions are recorded by the Company's regulated telephone subsidiaries at their cost to the extent permitted by regulatory authorities. Intercompany profit on transactions with regulated affiliates is limited to a reasonable return on investment and has not been eliminated in connection with consolidating the results of operations of CenturyTel and its subsidiaries. Such intercompany profit is reflected as a reduction of cost of sales and operating expenses in "Other operations". OTHER DEVELOPMENTS The Company is in the process of developing an integrated billing and customer care system which will provide the Company with, in addition to standard billing functionality currently being provided by our legacy system, custom built hardware and software technology for more efficient and effective customer care, billing and provisioning systems. The costs to develop such system have been capitalized in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," and aggregated $139.5 million at December 31, 2002. A portion of these billing system costs related to the wireless business ($30.5 million) was written off as a component of discontinued operations in the third quarter of 2002 as a result of the sale of substantially all of the Company's wireless operations on August 1, 2002. Excluding this write-off, the Company's aggregate billing system costs are expected to approximate $180 million upon completion and are expected to be amortized over a twenty-year period. The Company expects to begin amortizing the billing system in 2003 as customer groups are migrated to this new system. In addition, the Company expects to incur duplicative system costs in 2003 until such time as all customers are migrated to the new system. Such amortization and duplicative system costs are expected to reduce diluted earnings per share by $.04 for 2003. The system remains in the development stage and has required substantially more time and money to develop than originally anticipated. Although the Company expects to complete all phases of the system in early 2004, there is no assurance that this deadline (or the Company's budget) will be met or that the system will function as anticipated. If the system does not function as anticipated, the Company may have to write off part or all of its remaining costs. SPECIAL CONSIDERATIONS Risk Factors We have a substantial amount of indebtedness. Principally, as a result of our recent acquisitions, we have a substantial amount of indebtedness. This could hinder our ability to adjust to changing market and economic conditions, as well as our ability to access the capital markets to refinance maturing debt in the ordinary course of business. In connection with executing our business strategies, we are continuously evaluating the possibility of acquiring additional communications assets, and we may elect to finance acquisitions by incurring additional indebtedness. If we incur significant additional indebtedness, our credit ratings could be adversely affected. As a result, our borrowing costs would likely increase, our access to capital may be adversely affected and our ability to satisfy our obligations under our current indebtedness could be adversely affected. Our operations have undergone material changes, and our actual operating results will differ from the results indicated in our historical and pro forma financial statements. As a result of our recently completed Verizon acquisitions and wireless divestiture, our mix of operating assets differs materially from those operations upon which our historical financial statements are based. Consequently, our historical financial statements may not be reliable as an indicator of future results. Moreover, the pro forma financial information that we have filed with the Securities and Exchange Commission, while helpful in illustrating certain effects of our recently completed transactions and related financings, does not attempt to predict or suggest future operating results. The pro forma information was prepared for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if such transactions had been consummated on the dates and in accordance with the assumptions described in such information, nor is it necessarily indicative of our future operating results or financial position. The results of operations for the Verizon assets acquired are reflected in our consolidated results of operations subsequent to each acquisition. Our future results will suffer if we do not effectively manage our growth. Recently, we have rapidly expanded our operations primarily through acquisitions and new product and service offerings, and we intend to pursue similar growth opportunities in the future. Our future success depends, in part, upon our ability to manage our growth, including our ability to: o upgrade our billing and other information systems o retain and attract technological, managerial and other key personnel to work at our Monroe, Louisiana headquarters and regional offices o effectively manage our day to day operations while attempting to execute our business strategy of expanding our wireline operations and our emerging businesses o realize the projected growth and revenue targets developed b management for our newly acquired and emerging businesses, and o continue to identify new acquisition or growth opportunities that we can finance, complete and operate on attractive terms. Our rapid growth poses substantial challenges for us to integrate new operations into our existing business in an efficient and timely manner, to successfully monitor our operations, costs, regulatory compliance and service quality, and to maintain other necessary internal controls. We cannot assure you that these efforts will be successful, or that we will realize our expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits. If we are not able to meet these challenges effectively, our results of operations may be harmed. We cannot assure you that we will acquire additional properties. We hope to grow primarily through acquisitions of properties similar to those currently operated by us. However, we cannot assure you that properties will be available for purchase on terms attractive to us, particularly if they are burdened by regulations, pricing plans or levels of competitive pressures that are new or different from those historically applicable to our incumbent properties. Moreover, we cannot assure you that we will be able to arrange additional financing on terms acceptable to us. If we cannot expand through acquisitions, our growth could be limited primarily to growth associated with providing new or additional services. Our access lines (exclusive of acquisitions) declined 1.1% in 2002 and 0.2% in 2001, and we expect to incur a further decline of 1 to 2% for 2003. We cannot assure you that our new billing system will be successful. We are developing a new integrated billing and customer care system. The system remains in the development stage and has required substantially more time and money to develop than originally anticipated. We expect our aggregate costs associated with the billing system to total $180 million upon completion of the system (excluding a write-off that we recorded in the third quarter of 2002). Although we expect to complete all phases of the system in early 2004, we cannot assure you that this deadline (or our budget) will be met or that the system will function as anticipated. If the system does not function as anticipated, we may have to write off part or all of our remaining costs. Our industry is highly regulated, and continues to undergo various fundamental regulatory changes. As a diversified full service incumbent local exchange carrier, or ILEC, we have traditionally been subject to significant regulation from federal, state and local authorities. This regulation restricts our ability to raise our rates and to compete, and imposes substantial compliance costs on us. In recent years, the communications industry has undergone various fundamental regulatory changes that have generally reduced the regulation of telephone companies and permitted competition in each segment of the telephone industry. These and subsequent changes could adversely affect us by reducing the fees that we are permitted to charge, altering our tariff structures, or otherwise changing the nature of our operations and competition in our industry. We are unable to predict the future actions of the various regulatory bodies that govern us, but such actions could materially affect our business. We face competition, which could adversely affect us. As a result of various technological, regulatory and other changes, the telecommunications industry has become increasingly competitive, and we expect these trends to continue. The number of companies that have requested authorization to provide local exchange service in our markets has increased in recent years, and we anticipate that others will take similar action in the future. As an ILEC, our competitors include competitive local exchange carriers, or CLECs, and other providers (or potential providers) of communications services, such as Internet service providers, wireless telephone companies, satellite companies, alternative access providers, neighboring ILECs, long distance companies and cable companies that may provide services competitive with ours or services that we intend to introduce. Wireless telephone services, in particular, increasingly constitute a significant source of competition with LEC services, especially as wireless owners expand and improve their network coverage and continue to lower their prices. We cannot assure you that we will be able to compete effectively with all of these industry participants. We expect competition to intensify as a result of new competitors and the development of new technologies, products and services. We cannot predict which future technologies, products or services will be important to maintain our competitive position or what funding will be required to develop and provide these technologies, products or services. Our ability to compete successfully will depend on how well we market our products and services, and on our ability to anticipate and respond to various competitive factors affecting the industry, including a changing regulatory environment that may affect us differently from our competitors, new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and discount pricing strategies by competitors. Many of our current and potential competitors have market presence, engineering, technical and marketing capabilities and financial, personnel and other resources substantially greater than ours. In addition, some of our competitors can raise capital at a lower cost than we can, and have substantially stronger brand names. Consequently, some competitors may be able to charge lower prices for their products and services, 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 than we can. While we expect our internal consolidated revenues to grow as the economy improves, we expect our internal telephone revenues (exclusive of the properties acquired from Verizon in 2002) to decline in 2003 primarily due to continued access line loss and reduced intrastate revenues. We could be harmed by rapid changes in technology. The communications industry is experiencing significant technological changes. Rapid changes in technology could result in the development of products or services that compete with or displace those offered by traditional LECs. If we cannot develop new products to keep pace with technological advances, or if such products are not widely embraced by our customers, we could be adversely impacted. We are reliant on support funds provided under federal and state laws. We receive a substantial portion of our revenues from the federal Universal Service Fund and, to a lesser extent, intrastate support funds. These governmental programs are reviewed and amended from time to time, and we cannot assure you that they will not be changed or impacted in a manner adverse to us. We could be harmed by the recent adverse developments affecting other communications companies. Recently, WorldCom, Inc. and several other large communications companies have declared bankruptcy or suffered financial difficulties, which caused our provision for uncollectible receivables to increase. Likewise, a number of our suppliers have recently experienced financial challenges, which could cause us to experience delays, interruptions or additional expenses associated with upgrading and expanding our information systems and networks and offering new products and services. Continued weakness in the communications industry could have additional future adverse effects on us, including reducing our ability to collect receivables and to access the capital markets on favorable terms. Our agreements and organizational documents and applicable law could limit another party's ability to acquire us at a premium. Under our articles of incorporation, each share of common stock that has been beneficially owned by the same person or entity continually since May 30, 1987 generally entitles the holder to ten votes on all matters duly submitted to a vote of shareholders. As of March 17, 2003, the holders of our ten-vote shares held approximately 42% of our total voting power. In addition, a number of other provisions in our agreements and organizational documents, including our shareholder rights plan, and various provisions of applicable law may delay, defer or prevent a future takeover of CenturyTel unless the takeover is approved by our board of directors. This could deprive our shareholders of any related takeover premium. Forward-Looking Statements This report on Form 10-K and other documents filed by us under the federal securities laws include, and future oral or written statements or press releases by us and our management may include, certain forward-looking statements, including without limitation statements with respect to our anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, business prospects, regulatory and competitive outlook, investment and expenditure plans, investment results, financing opportunities and sources (including the impact of financings on our financial position, financial performance or credit ratings), pricing plans, strategic alternatives, business strategies, and other similar statements of expectations or objectives that are highlighted by words such as "expects," "anticipates," "intends," "plans," "believes," "projects," "seeks," "estimates," "hopes," "should," and "may," and variations thereof and similar expressions. Such forward-looking statements are inherently speculative and are based upon several assumptions concerning future events, many of which are outside of our control. These forward-looking statements, and the assumptions upon which such statements are based, are subject to uncertainties that could cause our actual results to differ materially from such statements. These uncertainties include but are not limited to those set forth below: o our ability to effectively manage our growth, including without limitation our ability to (i) integrate newly-acquired operations into our operations, (ii) attract and retain technological, managerial and other key personnel to work at our Monroe, Louisiana headquarters or regional offices, (iii) achieve projected economies of scale and cost savings, (iv) achieve projected growth and revenue targets developed by management in valuing newly-acquired businesses, (v) successfully upgrade our billing and other information systems in a timely and cost-efficient manner and (vi) otherwise monitor our operations, costs, regulatory compliance, and service quality and maintain other necessary internal controls. o the risks inherent in rapid technological change, including without limitation the risk that technologies will not be developed or embraced by us on a timely or cost-effective basis or perform according to expectations. o the effects of ongoing changes in the regulation of the communications industry, including without limitation (i) changes as a result of the 1996 Act and other similar federal and state legislation and federal and state regulations enacted thereunder, (ii) greater than anticipated interconnection requests or competition in our predominately rural local exchange telephone markets resulting therefrom, (iii) greater than anticipated reductions in revenues received from the federal Universal Service Fund or other current or future federal and state support funds designed to compensate LECs that provide services in high-cost markets, (iv) our failure to successfully transition from "rate of return" regulation to alternative regulation plans, (v) the final outcome of regulatory and judicial proceedings with respect to interconnection agreements and (vi) future judicial or regulatory actions taken in response to the 1996 Act. o the effects of greater than anticipated competition, including competition from wireless carriers, competitive local exchange companies or cable television companies in our local exchange markets. o possible changes in the demand for, or pricing of, our products and services, including without limitation (i) reduced demand for traditional telephone services caused by greater use of wireless or Internet communications or other factors, (ii) reduced demand for second lines, (iii) lower than anticipated demand for premium telephone services, (iv) lower than anticipated demand for our DSL Internet access services, CLEC services or broadband services and (v) reduced demand for our access or billing and collection services. o our ability to successfully introduce new product or service offerings on a timely and cost-effective basis, including without limitation our ability to (i) expand successfully our long distance and Internet offerings to new or acquired markets, (ii) offer bundled service packages on terms attractive to our customers and (iii) successfully initiate competitive local exchange and data services in our targeted markets. o our ability to collect receivables from financially troubled communications companies. o regulatory limits on our ability to change the prices for telephone services in response to competitive pressures. o any difficulties in our ability to expand through attractively priced acquisitions, whether caused by regulatory impediments, financing constraints, a decrease in the pool of attractive target companies, or competition for acquisitions from other interested buyers. o the possibility of the need to make abrupt and potentially disruptive changes in our business strategies due to changes in competition, regulation, technology, product acceptance or other factors. o the lack of assurance that we can compete effectively against better- capitalized competitors. o the impact of terrorist attacks on our business. o other risks referenced from time to time in our filings with the Securities and Exchange Commission. o the effects of more general factors, including without limitation: * changes in general industry and market conditions and growth rates * changes in interest rates or other general national, regional or local economic conditions * changes in legislation, regulation or public policy, including changes in federal rural financing programs * unanticipated increases in capital, operating or administrative costs, or the impact of new business opportunities requiring significant up-front investments * the continued availability of financing in amounts, and on terms and conditions, necessary to support our operations * changes in our relationships with vendors, or the failure of these vendors to provide competitive products on a timely basis * changes in our senior debt ratings * unfavorable outcomes of regulatory or legal proceedings, including rate proceedings and environmental proceedings * losses or unfavorable returns on our investments in other communications companies * delays in the construction of our networks * changes in accounting policies or practices adopted voluntarily or as required by generally accepted accounting principles. For additional information, see the description of our business included above, as well as Item 7 of this report. Due to these uncertainties, you are cautioned not to place undue reliance upon these forward-looking statements, which speak only as of the date made. We undertake no obligation to update or revise any of our forward-looking statements for any reason, whether as a result of new information, future events or developments, or otherwise. OTHER MATTERS The Company has certain obligations based on federal, state and local laws relating to the protection of the environment. Costs of compliance through 2002 have not been material and the Company currently has no reason to believe that such costs will become material. For additional information concerning the business and properties of the Company, see Item 7 elsewhere herein, and the Consolidated Financial Statements and notes 2, 5, 6, 13, and 18 thereto set forth in Item 8 elsewhere herein. Item 2. Properties. The Company's properties consist principally of telephone lines, central office equipment, and land and buildings related to telephone operations. As of December 31, 2002 and 2001, the Company's gross property, plant and equipment of approximately $6.9 billion and $5.7 billion, respectively, consisted of the following: <TABLE> <CAPTION> December 31, 2002 2001 ------------------------------------------------------------------------------- <S> <C> <C> Telephone operations Cable and wire 53.0% 52.5 Central office 31.3 31.9 General support 6.9 5.9 Information origination/termination equipment 0.6 0.7 Construction in progress 0.5 1.1 Other 0.1 0.1 ------------------------------------------------------------------------------- 92.4 92.2 ------------------------------------------------------------------------------- Other operations 7.6 7.8 ------------------------------------------------------------------------------- 100.0% 100.0 =============================================================================== </TABLE> "Cable and wire" facilities consist primarily of buried cable and aerial cable, poles, wire, conduit and drops. "Central office equipment" consists primarily of switching equipment, circuit equipment and related facilities. "General support" consists primarily of land, buildings, tools, furnishings, fixtures, motor vehicles and work equipment. "Information origination/termination equipment" consists primarily of premise equipment (private branch exchanges and telephones) for official company use. "Construction in progress" includes property of the foregoing categories that has not been placed in service because it is still under construction. The properties of certain of the Company's telephone subsidiaries are subject to mortgages securing the debt of such companies. The Company owns substantially all of the central office buildings, local administrative buildings, warehouses, and storage facilities used in its telephone operations. The Company's property in its Other Operations consist primarily of (i) corporate general support assets, (ii) the fiber network in Michigan and (iii) equipment to provide competitive local exchange and Internet access services. For further information on the location and type of the Company's properties, see the descriptions of the Company's operations in Item 1. Item 3. Legal Proceedings. Following the Company's rejection of an acquisition proposal publicly disclosed by Alltel Corporation on August 15, 2001, the Company and its directors were named as defendants in Hannahs v. CenturyTel, Inc., et al., a case filed August 20, 2001 in the Fourth Judicial District Court, State of Louisiana, which asserted breach of fiduciary duty and related claims and sought injunctive relief pertaining to the Company's rejection of the acquisition proposal, as well as unspecified monetary damages. This case was dismissed without prejudice on March 24, 2003. Two other similar shareholder suits were previously either voluntarily dismissed or stayed and administratively closed. On December 26, 2001, AT&T Corp. and one of its subsidiaries filed a complaint in the U.S. District Court for the Western District of Washington (Case No. CV0121512) seeking money damages against CenturyTel of the Northwest, Inc. The plaintiffs claim, among other things, that CenturyTel of the Northwest, Inc. has breached its obligations under a 1994 stock purchase agreement to indemnify the plaintiffs for various environmental costs and damages relating to properties sold to the plaintiffs under such 1994 agreement. The Company has investigated this claim and believes it has numerous defenses available. If the plaintiffs are successful in recovering any sums under this litigation, the Company believes it is entitled to indemnification under agreements with third parties. On March 13, 2002, the Arkansas Court of Appeals vacated two orders issued by the Arkansas Public Service Commission ("APSC") in connection with the Company's acquisition of its Arkansas LECs from Verizon in July 2000, and remanded the case back to the APSC for further hearings. The Court took these actions in response to challenges to the rates the Company has charged other LECs for intrastate switched access service. On December 20, 2002, the APSC approved the access rates established by the Company at the time of acquisition. On January 29, 2003, AT&T filed with the APSC a petition for rehearing related to this ruling. From time to time, the Company is involved in other litigation incidental to its business, including administrative hearings of state public utility commissions relating primarily to rate making, actions relating to employee claims, occasional grievance hearings before labor regulatory agencies and miscellaneous third party tort actions. Currently, there are no material legal proceedings of this nature. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Executive Officers of the Registrant Information concerning the Company's Executive Officers, set forth at Item 10 in Part III hereof, is incorporated in Part I of this Report by reference. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters CenturyTel's common stock is listed on the New York Stock Exchange and is traded under the symbol CTL. The following table sets forth the high and low sales prices, along with the quarterly dividends, for each of the quarters indicated. <TABLE> <CAPTION> Sales prices ------------ Dividend per High Low common share ---- --- ------------ <S> <C> <C> <C> 2002: First quarter $ 35.50 28.80 .0525 Second quarter $ 34.45 27.00 .0525 Third quarter $ 30.60 21.13 .0525 Fourth quarter $ 31.65 22.35 .0525 2001: First quarter $ 39.88 25.45 .0500 Second quarter $ 30.42 26.90 .0500 Third quarter $ 36.50 28.30 .0500 Fourth quarter $ 35.79 30.25 .0500 </TABLE> Common stock dividends during 2002 and 2001 were paid each quarter. As of February 28, 2003, there were approximately 4,890 stockholders of record of CenturyTel's common stock. For information regarding shares of CenturyTel common stock authorized for issuance under CenturyTel's equity compensation plans, see Item 12. Item 6. Selected Financial Data. The following table presents certain selected consolidated financial data (from continuing operations) as of and for each of the years ended in the five-year period ended December 31, 2002: <TABLE> <CAPTION> Selected Income Statement Data Year ended December 31, ------------------------------------------------------------------ 2002 2001 2000 1999 1998 ------------------------------------------------------------------ (Dollars, except per share amounts, and shares expressed in thousands) <S> <C> <C> <C> <C> <C> Operating revenues Telephone $ 1,733,592 1,505,733 1,253,969 1,126,112 1,077,343 Other 238,404 173,771 148,388 128,288 91,915 ------------------------------------------------------------------ Total operating revenues $ 1,971,996 1,679,504 1,402,357 1,254,400 1,169,258 ================================================================== Operating income Telephone $ 543,113 423,420 376,290 351,559 334,604 Other 43,568 22,098 31,258 22,580 16,083 Corporate overhead costs allocable to discontinued operations (11,275) (20,213) (21,411) (19,416) (14,957) ------------------------------------------------------------------ Total operating income $ 575,406 425,305 386,137 354,723 335,730 ================================================================== Nonrecurring gains and losses (pre-tax) $ 3,709 33,043 - 11,284 28,085 ================================================================== Income from continuing operations $ 189,919 144,146 124,229 135,520 117,128 ================================================================== Basic earnings per share from continuing operations $ 1.34 1.02 .88 .97 .85 ================================================================== Basic earnings per share from continuing operations, as adjusted for goodwill amortization $ 1.34 1.35 1.15 1.20 1.08 ================================================================== Diluted earnings per share from continuing operations $ 1.33 1.01 .88 .96 .84 ================================================================== Diluted earnings per share from continuing operations, as adjusted for goodwill amortization $ 1.33 1.34 1.13 1.18 1.06 ================================================================== Dividends per common share $ .210 .200 .190 .180 .173 ================================================================== Average basic shares outstanding 141,613 140,743 140,069 138,848 137,010 ================================================================== Average diluted shares outstanding 142,879 142,307 141,864 141,432 140,105 ================================================================== </TABLE> <TABLE> <CAPTION> Selected Balance Sheet Data December 31, ------------------------------------------------------------------------ 2002 2001 2000 1999 1998 ------------------------------------------------------------------------ (Dollars in thousands) <S> <C> <C> <C> <C> <C> Net property, plant and equipment $ 3,531,645 2,736,142 2,698,010 2,000,789 2,093,526 Goodwill $ 3,427,281 2,087,158 2,108,344 1,267,908 1,500,532 Total assets $ 7,770,408 6,318,684 6,393,290 4,705,407 4,935,455 Long-term debt $ 3,578,132 2,087,500 3,050,292 2,075,212 2,551,963 Stockholders' equity $ 3,088,004 2,337,380 2,032,079 1,847,992 1,531,482 ------------------------------------------------------------------------ </TABLE> See Items 7 and 8 for a discussion of the Company's discontinued wireless operations. The following table presents certain selected consolidated operating data as of the end of each of the years in the five-year period ended December 31, 2002: <TABLE> <CAPTION> Year ended December 31, --------------------------------------------------------------------- 2002 2001 2000 1999 1998 --------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Telephone access lines 2,414,564 1,797,643 1,800,565 1,272,867 1,346,567 Long distance customers 648,797 465,872 363,307 303,722 226,730 --------------------------------------------------------------------- </TABLE> See Items 1 and 2 in Part I and Items 7 and 8 elsewhere herein for additional information. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations OVERVIEW CenturyTel, Inc. and its subsidiaries (the "Company") is a regional integrated communications company engaged primarily in providing local exchange, long distance, Internet access and data services to customers in 22 states. On July 1, 2002, the Company acquired the local exchange telephone operations of Verizon Communications, Inc. ("Verizon") in the state of Alabama for approximately $1.022 billion cash. On August 31, 2002, the Company acquired the local exchange telephone operations of Verizon in the state of Missouri for approximately $1.179 billion cash. The results of operations for the Verizon assets acquired are reflected in the Company's consolidated results of operations subsequent to each respective acquisition. See "Acquisitions" below and Note 2 of Notes to Consolidated Financial Statements for additional information. On August 1, 2002, the Company sold substantially all of its wireless operations to an affiliate of ALLTEL Corporation ("Alltel") and certain other purchasers in exchange for an aggregate of approximately $1.59 billion in cash. As a result, the Company's wireless operations for the years ended December 31, 2002, 2001 and 2000 have been reflected as discontinued operations on the Company's consolidated statements of income and cash flows. For further information, see "Discontinued Operations" below. On July 31, 2000 and September 29, 2000, affiliates of the Company acquired over 490,000 telephone access lines and related local exchange assets in Arkansas, Missouri and Wisconsin from affiliates of Verizon for an aggregate of approximately $1.5 billion cash. The operations of these acquired properties are included in the Company's results of operations beginning on the respective dates of acquisition. See "Acquisitions" below and Note 2 of Notes to Consolidated Financial Statements for additional information. During the three years ended December 31, 2002, the Company has acquired and sold various other operations, the impact of which has not been material to the financial position or results of operations of the Company. The net income of the Company for 2002 was $801.6 million, compared to $343.0 million during 2001 and $231.5 million during 2000. Diluted earnings per share for 2002 was $5.61 compared to $2.41 in 2001 and $1.63 in 2000. Income from continuing operations (and diluted earnings per share from continuing operations) was $189.9 million ($1.33), $144.1 million ($1.01) and $124.2 million ($.88) for 2002, 2001 and 2000, respectively. In accordance with the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), amortization of goodwill ceased effective January 1, 2002. Had the results of operations for the years ended December 31, 2001 and 2000 been subject to the provisions of SFAS 142, income from continuing operations (and diluted earnings per share) would have been $190.5 million ($1.34) for 2001 and $160.8 million ($1.13) for 2000 and net income (and diluted earnings per share) would have been $399.3 million ($2.81) for 2001 and $278.0 million ($1.96) for 2000. <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) <S> <C> <C> <C> Operating income Telephone $ 543,113 423,420 376,290 Other 43,568 22,098 31,258 Corporate overhead costs allocable to discontinued operations (11,275) (20,213) (21,411) ---------------------------------------------------------------------------------------------------------- 575,406 425,305 386,137 Nonrecurring gains and losses, net 3,709 33,043 - Interest expense (221,845) (225,523) (183,302) Other income and expense (63,814) 32 4,936 Income tax expense (103,537) (88,711) (83,542) --------------------------------------------------------------------------------------------------------- Income from continuing operations 189,919 144,146 124,229 Discontinued operations, net of tax 611,705 198,885 107,245 --------------------------------------------------------------------------------------------------------- Net income $ 801,624 343,031 231,474 ========================================================================================================= Net income, as adjusted for goodwill amortization $ 801,624 399,297 278,029 ========================================================================================================= Basic earnings per share From continuing operations $ 1.34 1.02 .88 From continuing operations, as adjusted for goodwill amortization $ 1.34 1.35 1.15 From discontinued operations $ 4.32 1.41 .77 From discontinued operations, as adjusted for goodwill amortization $ 4.32 1.48 .84 Basic earnings per share $ 5.66 2.43 1.65 Basic earnings per share, as adjusted for goodwill amortization $ 5.66 2.83 1.98 Diluted earnings per share From continuing operations $ 1.33 1.01 .88 From continuing operations, as adjusted for goodwill amortization $ 1.33 1.34 1.13 From discontinued operations $ 4.28 1.40 .76 From discontinued operations, as adjusted for goodwill amortization $ 4.28 1.47 .83 Diluted earnings per share $ 5.61 2.41 1.63 Diluted earnings per share, as adjusted for goodwill amortization $ 5.61 2.81 1.96 Average basic shares outstanding 141,613 140,743 140,069 ========================================================================================================= Average diluted shares outstanding 142,879 142,307 141,864 ========================================================================================================= </TABLE> During the three years ended December 31, 2002, the Company has recorded certain nonrecurring items. Net income (and diluted earnings per share) excluding nonrecurring items for 2002, 2001 and 2000 was $325.0 million ($2.27), $225.7 million ($1.59; $1.98, as adjusted), and $228.8 million ($1.61; $1.94, as adjusted), respectively. The Company believes this presentation of results of operations excluding nonrecurring items is useful to investors because it (i) reflects management's view of recurring operations upon which management bases financial, operational, compensation and planning decisions and (ii) prevents investors from misconstruing the significance of financial data impacted by nonrecurring events. The following reconciliation table shows how the amounts of various line items reported under generally accepted accounting principles were impacted by these nonrecurring items. <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars, except per share amounts, in thousands) <S> <C> <C> <C> Operating income, as reported $ 575,406 425,305 386,137 Less nonrecurring items: Reserve for uncollectible receivables, primarily WorldCom (15,000) - - Refund of access charges to interexchange carriers (7,645) - - Other (1,929) (2,000) (504) --------------------------------------------------------------------------------------------------------- Operating income, excluding nonrecurring items $ 599,980 427,305 386,641 ========================================================================================================= Nonrecurring gains and losses, net, as reported $ 3,709 33,043 - Less nonrecurring items: Gain on sale of assets 3,709 58,523 - Write down of non-operating assets - (25,480) - --------------------------------------------------------------------------------------------------------- Nonrecurring gains and losses, net, excluding nonrecurring items $ - - - ========================================================================================================= Other income and expense, as reported $ (63,814) 32 4,936 Less nonrecurring items: Redemption premium on remarketable notes, net of unamortized premium (59,949) - - Write-off of nonoperating investment (781) - - Costs associated with unsolicited takeover proposal (3,000) (6,000) - Settlement of interest rate hedge contracts - - (7,947) ---------------------------------------------------------------------------------------------------------- Other income and expense, excluding nonrecurring items $ (84) 6,032 12,883 ========================================================================================================= Income tax expense, as reported $ (103,537) (88,711) (83,542) Less: Tax effect of nonrecurring items 29,608 (8,666) 2,957 --------------------------------------------------------------------------------------------------------- Income tax expense, excluding nonrecurring items $ (133,145) (80,045) (86,499) ========================================================================================================= Discontinued operations, net of tax, as reported $ 611,705 198,885 107,245 Less nonrecurring items: Gain on sale of assets 805,628 185,133 20,593 Write down of wireless portion of billing system (30,491) - - Write down of non-operating assets (1,702) (18,205) - Proportionate share of nonrecurring charges recorded by entities in which the Company owns a minority interest - (10,054) (5,330) Company's share of gain on sale of assets - 2,164 - Minority interest effect of gain on sale of assets - (13) - Tax effect of nonrecurring items (241,810) (58,032) (7,123) ---------------------------------------------------------------------------------------------------------- Income from discontinued operations, net of tax, excluding nonrecurring items $ 80,080 97,892 99,105 ========================================================================================================= Net income, as reported $ 801,624 343,031 231,474 Less: Effect of nonrecurring items 476,638 117,370 2,646 --------------------------------------------------------------------------------------------------------- Net income, excluding nonrecurring items $ 324,986 225,661 228,828 ========================================================================================================= Basic earnings per share, as reported $ 5.66 2.43 1.65 Less: Effect of nonrecurring items 3.37 .83 .02 --------------------------------------------------------------------------------------------------------- Basic earnings per share, excluding nonrecurring items $ 2.29 1.60 1.63 ========================================================================================================= Basic earnings per share, excluding nonrecurring items, as adjusted $ 2.29 2.00 1.96 ========================================================================================================= Diluted earnings per share, as reported $ 5.61 2.41 1.63 Less: Effect of nonrecurring items 3.34 .82 .02 --------------------------------------------------------------------------------------------------------- Diluted earnings per share, excluding nonrecurring items $ 2.27 1.59 1.61 ========================================================================================================= Diluted earnings per share, excluding nonrecurring items, as adjusted $ 2.27 1.98 1.94 ========================================================================================================= </TABLE> For additional information concerning the nonrecurring items described in the above table, see "Telephone Operations", "Nonrecurring Gains and Losses, Net", "Other Income and Expense", and "Discontinued Operations". Contributions to operating revenues and operating income by the Company's telephone and other operations for each of the years in the three-year period ended December 31, 2002 were as follows: <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ------------------------------------------------------------------------------ <S> <C> <C> <C> Operating revenues Telephone operations 87.9 % 89.7 89.4 Other operations 12.1 % 10.3 10.6 Operating income Telephone operations 94.4 % 99.6 97.4 Other operations 7.6 % 5.2 8.1 Corporate overhead costs allocable to discontinued operations (2.0)% (4.8) (5.5) ------------------------------------------------------------------------------ </TABLE> In addition to historical information, management's discussion and analysis includes certain forward-looking statements regarding events and financial trends that may affect the Company's future operating results and financial position. Such forward-looking statements are subject to uncertainties that could cause the Company's actual results to differ materially from such statements. Such uncertainties include but are not limited to: the Company's ability to effectively manage its growth, including integrating newly-acquired businesses into the Company's operations, hiring adequate numbers of qualified staff and successfully upgrading its billing and other information systems; the risks inherent in rapid technological change; the effects of ongoing changes in the regulation of the communications industry; the effects of greater than anticipated competition in the Company's markets; possible changes in the demand for, or pricing of, the Company's products and services; the Company's ability to successfully introduce new product or service offerings on a timely and cost-effective basis; the Company's ability to collect its receivables from financially troubled communications companies; and the effects of more general factors such as changes in interest rates, in general market or economic conditions or in legislation, regulation or public policy. These and other uncertainties related to the business are described in greater detail in Item 1 included herein. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to update any of its forward-looking statements for any reason. TELEPHONE OPERATIONS The Company conducts its telephone operations in rural, suburban and small urban communities in 22 states. As of December 31, 2002, approximately 91% of the Company's 2.4 million access lines were in Wisconsin, Missouri, Alabama, Arkansas, Washington, Michigan, Louisiana, Colorado, Ohio and Oregon. The operating revenues, expenses and income of the Company's telephone operations for 2002, 2001 and 2000 are summarized below. <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Operating revenues Local service $ 604,580 491,529 408,538 Network access 972,303 874,458 727,797 Other 156,709 139,746 117,634 ------------------------------------------------------------------------------- 1,733,592 1,505,733 1,253,969 ------------------------------------------------------------------------------- Operating expenses Plant operations 433,187 380,466 290,062 Customer operations 148,502 117,080 105,950 Corporate and other 211,924 186,483 163,761 Depreciation and amortization 396,866 398,284 317,906 ------------------------------------------------------------------------------- 1,190,479 1,082,313 877,679 ------------------------------------------------------------------------------- Operating income $ 543,113 423,420 376,290 =============================================================================== </TABLE> Local service revenues. Local service revenues are derived from the monthly provision of local exchange telephone services in the Company's service areas. Of the $113.1 million (23.0%) increase in local service revenues in 2002, $102.8 million was due to the acquisition of the Verizon properties in 2002. The remaining $10.3 million increase was primarily due to a $7.6 million increase resulting from the provision of custom calling features to more customers and a $1.8 million increase due to increased rates in certain jurisdictions. Of the $83.0 million (20.3%) increase in local service revenues in 2001, $73.7 million was due to the acquisition of the Verizon properties in 2000. The remaining $9.3 million increase was due to a $6.9 million increase due to increased rates in certain jurisdictions and an increase in the number of customer access lines in incumbent markets during most of 2001 and a $3.9 million increase due to the increased provision of custom calling features. Internal access lines declined 1.1% and 0.2% during 2002 and 2001, respectively. Internal access line growth during 2000 was 2.8%. The Company believes the decline in the number of access lines during 2002 and 2001 is primarily due to declines in second lines, soft general economic conditions in the Company's markets and the displacement of traditional wireline telephone services by other competitive service providers. Even when the economy recovers, the Company believes that any rebound in access lines will be limited by continued declines in second lines caused primarily by digital subscriber line substitution and the impact of competitive services. Based on current conditions, the Company expects to incur a decline in access lines of 1 to 2% for 2003. Network access revenues. Network access revenues are primarily derived from charges to long distance companies and other customers for access to the Company's local exchange carrier ("LEC") networks in connection with the completion of interstate or intrastate long distance telephone calls. Certain of the Company's interstate network access revenues are based on tariffed access charges filed directly with the Federal Communications Commission ("FCC"); the remainder of such revenues are derived under revenue sharing arrangements with other LECs administered by the National Exchange Carrier Association. Intrastate network access revenues are based on tariffed access charges filed with state regulatory agencies or are derived under revenue sharing arrangements with other LECs. Network access revenues increased $97.8 million (11.2%) in 2002 and $146.7 million (20.2%) in 2001 due to the following factors: <TABLE> <CAPTION> 2002 2001 increase increase (decrease) (decrease) -------------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> Acquisitions of Verizon properties in third quarter 2002 $ 98,014 - Acquisitions of Verizon properties in third quarter 2000 - 139,866 Increased recovery from the federal Universal Service Fund ("USF") 13,832 8,507 One-time refund of access charges to interexchange carriers (7,645) - Intrastate revenues due to decreased minutes of use and decreased access rates in certain states (27,740) (3,048) Partial recovery of increased operating costs through revenue sharing arrangements with other telephone companies, increased recovery from state support funds and return on rate base 9,756 16,252 Rate changes in certain jurisdictions 5,600 (916) Revision of prior year revenue settlement agreements 1,912 (16,876) Other, net 4,116 2,876 -------------------------------------------------------------------------------------------------- $ 97,845 146,661 ================================================================================================== </TABLE> In 2002 the Company incurred a reduction in its intrastate revenues (exclusive of the properties acquired from Verizon in 2002) of approximately $27.7 million compared to 2001 primarily due to (i) a reduction in intrastate minutes (partially due to the displacement of minutes by wireless and instant messaging services) and (ii) decreased access rates in certain states. The Company believes such trend of decreased intrastate minutes will continue in 2003. Although the magnitude of such decrease cannot be precisely estimated, the Company believes such decrease will be less than that incurred in 2002. Other revenues. Other revenues include revenues related to (i) leasing, selling, installing, maintaining and repairing customer premise telecommunications equipment and wiring ("CPE services"), (ii) providing billing and collection services for long distance carriers and (iii) participating in the publication of local directories. Other revenues increased $17.0 million (12.1%) in 2002, of which $18.2 million was due to the properties acquired from Verizon in 2002. Other revenues increased $22.1 million in 2001, primarily due to a $20.5 million increase attributable to revenues contributed by the properties acquired from Verizon in 2000. The remainder of the increase in 2001 was due primarily to a $7.0 million increase in revenues from CPE services (primarily due to an increase in rates) which was partially offset by a $5.0 million decrease in billing and collection revenues. Operating expenses. Plant operations expenses during 2002 and 2001 increased $52.7 million (13.9%) and $90.4 million (31.2%), respectively. Of the $52.7 million increase in 2002, $58.4 million was attributable to the properties acquired from Verizon in 2002 and $13.8 million related to increases in salaries and benefits. Such increases were partially offset by a $16.4 million decrease in access expenses primarily as a result of changes in certain optional calling plans in Arkansas approved in late 2001 and a $3.0 million decrease in repairs and maintenance expense. Of the $90.4 million increase in 2001, $87.3 million was attributable to the properties acquired from Verizon in 2000. The remaining $3.1 million increase was primarily due to a $6.1 million increase in salaries and benefits, a $2.7 million increase in network operations expenses and a $2.6 million increase in digital subscriber line ("DSL") expenses. Such increases were substantially offset by a $9.9 million decrease in engineering expenses. Customer operations, corporate and other expenses increased $56.9 million (18.7%) in 2002 and $33.9 million (12.6%) in 2001. Of the $56.9 million increase in 2002, $47.2 million related to the Verizon acquisitions in 2002. The remaining increase of $9.7 million was due primarily to a $7.7 million increase in salaries and benefits, a $4.6 million increase in customer service expenses and a $3.9 million increase in the provision for doubtful accounts. Such increases were partially offset by a $5.0 million decrease in operating taxes and a $1.4 million decrease in expenses related to the provision of CPE services. The Company recorded a provision for uncollectible receivables for telecommunications carriers, primarily related to the bankruptcy of WorldCom, Inc., in the amount of $15.0 million during 2002. Such increase was partially offset by an $11.1 million reduction in the provision for uncollectible receivables for non-carrier customers. Of the $33.9 million increase in customer operations, corporate and other expenses in 2001, $42.5 million related to the Verizon properties acquired in 2000. The remaining $8.6 million decrease in 2001 was primarily due to a $4.3 million decrease in the provision for uncollectible receivables and a $3.1 million decrease in operating taxes. Depreciation and amortization decreased $1.4 million (0.4%) in 2002 and increased $80.4 million (25.3%) in 2001. Of the $1.4 million decrease in 2002, $58.0 million related to ceasing amortization of goodwill effective January 1, 2002 in accordance with the provisions of SFAS 142. Such decrease was substantially offset by $38.0 million of depreciation and amortization related to the properties acquired from Verizon in 2002 and a $21.8 million increase in depreciation expense due to higher levels of plant in service in incumbent markets. Of the $80.4 million increase in 2001, $65.2 million was attributable to the properties acquired from Verizon in 2000 (which included $14.7 million of amortization of goodwill) and the remainder was primarily due to higher levels of plant in service in incumbent markets. The composite depreciation rate for the Company's regulated telephone properties was 6.9% for 2002, 6.8% for 2001 and 7.2% for 2000. Other. For additional information regarding certain matters that have impacted or may impact the Company's telephone operations, see "Regulation and Competition". OTHER OPERATIONS Other operations includes the results of continuing operations of subsidiaries of the Company which are not included in the telephone segment including, but not limited to, the Company's nonregulated long distance operations, Internet operations, competitive local exchange carrier ("CLEC") operations, fiber network business and security monitoring operations. The operating revenues, expenses and income of the Company's other operations for 2002, 2001 and 2000 are summarized below. <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 -------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Operating revenues Long distance $ 146,536 117,363 104,435 Internet 58,665 39,057 23,491 Other 33,203 17,351 20,462 -------------------------------------------------------------------------------------- 238,404 173,771 148,388 -------------------------------------------------------------------------------------- Operating expenses Cost of sales and operating expenses 180,076 142,919 112,219 Depreciation and amortization 14,760 8,754 4,911 -------------------------------------------------------------------------------------- 194,836 151,673 117,130 -------------------------------------------------------------------------------------- Operating income $ 43,568 22,098 31,258 ====================================================================================== </TABLE> Long distance revenues increased $29.2 million (24.9%) and $12.9 million (12.4%) in 2002 and 2001, respectively. The $29.2 million increase in 2002 was primarily attributable to the growth in the number of customers and increased average minutes of use ($34.8 million), partially offset by a decrease in the average rate charged by the Company per minute of use ($5.8 million). The $12.9 million increase in 2001 was due primarily to the growth in the number of customers and increased minutes of use, primarily due to penetration of the markets acquired from Verizon in 2000. The number of long distance customers as of December 31, 2002, 2001, and 2000 was approximately 648,790, 465,870, and 363,300, respectively. Internet revenues increased $19.6 million (50.2%) in 2002 due to growth in the number of customers, primarily due to the expansion of the Company's DSL product offering. Internet revenues increased $15.6 million (66.3%) in 2001 primarily due to a $12.6 million increase due to growth in the number of customers (including growth in the Company's DSL product offering) and a $1.8 million increase due to Internet operations acquired in mid-2000. Other revenues increased $15.9 million in 2002, of which $15.1 million was due to increased revenues in the Company's CLEC business, primarily due to an acquisition of certain CLEC operations in the first quarter of 2002. Other revenues decreased $3.1 million in 2001 primarily due to the winding down of the Company's third party call center operations during 2000. Cost of sales and operating expenses increased $37.2 million (26.0%) in 2002 primarily due to (i) a $23.9 million increase in expenses associated with the Company's long distance operations (of which $13.4 million was due to increased payments to other carriers due to higher minutes of use partially offset by a decrease in the rate per minute of use; $5.3 million related to increased sales and marketing costs; $2.2 million was due to an increase in the provision for doubtful accounts; and $2.3 million was due to an increase in billing and collection costs); (ii) an $11.8 million increase in expenses associated with the Company's CLEC operations primarily due to the expansion of the business and operations acquired in the first quarter of 2002; and (iii) a $12.3 million increase associated with expanding the Company's Internet operations. Such increases were partially offset by a $7.4 million reduction in expenses primarily due to the increased intercompany profit with regulated affiliates (the recognition of which in accordance with regulatory accounting principles acts to offset operating expenses). Cost of sales and operating expenses increased $30.7 million (27.4%) in 2001 primarily due to (i) a $23.5 million increase in expenses related to the provision of Internet access primarily due to the expansion of the Company's DSL product offering, (ii) an increase of $9.3 million in expenses of the Company's long distance operations primarily due to an increase in the number of customers and an increase in marketing expenses, and (iii) an $8.3 million increase due to the expansion of the Company's CLEC business. Such increases were partially offset by a $6.5 million reduction in expenses due to the winding down of the Company's third party call center operations during 2000. Depreciation and amortization increased $6.0 million in 2002 and $3.8 million in 2001 primarily due to increased depreciation expense in the Company's CLEC, Internet and fiber network businesses. The Company incurred combined operating losses in 2002 and 2001 of $16.7 million and $16.5 million, respectively, in its CLEC and fiber network businesses, and expects to incur a combined operating loss ranging from $13 to $18 million in 2003 related to these operations. Certain of the Company's service subsidiaries provide managerial, operational, technical, accounting and administrative services, along with materials and supplies, to the Company's telephone subsidiaries. In accordance with regulatory accounting, intercompany profit on transactions with regulated affiliates has not been eliminated in connection with consolidating the results of operations of the Company. When the regulated operations of the Company no longer qualify for the application of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"), such intercompany profit will be eliminated in subsequent financial statements, the primary result of which will be a decrease in operating expenses applicable to the Company's telephone operations and an increase in operating expenses applicable to the Company's other operations. The amount of intercompany profit with regulated affiliates which was not eliminated was approximately $29.5 million, $22.0 million and $17.1 million in 2002, 2001 and 2000, respectively. For additional information applicable to SFAS 71, see "Regulation and Competition -- Other Matters." NONRECURRING GAINS AND LOSSES, NET In 2002, the Company recorded a pre-tax gain of $3.7 million from the sale of a PCS license. In 2001, the Company's net favorable nonrecurring pre-tax gains were $33.0 million. The Company recorded a pre-tax gain on the sale of its remaining shares of Illuminet Holdings, Inc. ("Illuminet") common stock aggregating $54.6 million ($35.5 million after-tax; $.25 per diluted share) and a pre-tax gain of $4.0 million ($2.6 million after-tax; $.02 per diluted share) on the sale of certain other assets. Additionally in 2001, the Company recorded pre-tax charges of $25.5 million ($16.6 million after-tax; $.12 per diluted share) due to the write-down in the value of certain non-operating investments in which the Company owns a minority interest. Certain other nonrecurring items for the three-year period ended December 31, 2002 are reflected in other line items of the Company's consolidated financial statements. See "Results of Operations - Overview". INTEREST EXPENSE Interest expense decreased $3.7 million in 2002 compared to 2001 due to a decrease in average debt outstanding and decreased rates. Interest expense increased $42.2 million in 2001 compared to 2000 primarily due to an increase in interest expense related to outstanding indebtedness incurred to acquire the Verizon operations. OTHER INCOME AND EXPENSE Other expense was $63.8 million in 2002 compared to other income of $32,000 in 2001. Such decrease was primarily due to a $59.9 million pre-tax charge related to the Company's payment of premium in connection with redeeming its Series I remarketable notes, net of unamortized premium. Other income decreased $4.9 million in 2001 compared to 2000 primarily due to $6.0 million of costs incurred in 2001 associated with responding to an unsolicited takeover proposal; a $1.7 million increase in minority interest expense due primarily to increased profitability of certain of the Company's majority-owned affiliates; and to other expense increases. These 2001 expense increases were partially offset by a favorable comparison to expenses in 2000, when the Company recorded a $7.9 million charge related to the settlement of certain interest rate hedge contracts entered into in connection with financing the 2000 Verizon acquisitions. INCOME TAX EXPENSE The Company's effective income tax rate (from continuing operations) was 35.3%, 38.1% and 40.2% in 2002, 2001 and 2000, respectively. The decrease in the effective tax rate in 2002 compared to 2001 is primarily attributable to the effect of ceasing amortization of goodwill (some of which was nondeductible for tax purposes) effective January 1, 2002 in accordance with the provisions of SFAS 142. DISCONTINUED OPERATIONS On August 1, 2002, the Company sold substantially all of its wireless operations to Alltel and certain other purchasers for an aggregate of approximately $1.59 billion in cash. As a result, the Company's wireless operations for 2002 have been reflected as discontinued operations in the Company's consolidated financial statements. The results of operations for 2001 and 2000 have been restated to conform to the 2002 presentation. The following table summarizes certain information concerning the Company's wireless operations for the periods presented. <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ------------------------------------------------------------------------------------------------ (Dollars in thousands) <S> <C> <C> <C> Operating revenues $ 246,705 437,965 443,569 Operating expenses, exclusive of corporate overhead costs of $11.3 million, $20.2 million and $21.4 million (175,447) (305,351) (304,293) Income from unconsolidated cellular entities 31,350 27,460 26,986 Minority interest expense (8,569) (11,510) (11,598) Gain on sale of discontinued operations 803,905 - - Nonrecurring gains - 166,928 20,593 Other income 188 4,707 3,157 Income tax expense (286,427) (121,314) (71,169) ------------------------------------------------------------------------------------------------ Income from discontinued operations, net of tax $ 611,705 198,885 107,245 ================================================================================================ </TABLE> Included in operating expenses for 2002 is a $30.5 million charge associated with a write-off of all amounts expended to develop the wireless portion of the Company's billing system currently in development. Depreciation and amortization of long-lived assets and amortizable intangibles related to the Company's wireless operations ceased effective March 19, 2002, the date of the Company's definitive sales agreement with Alltel. Such cessation of depreciation and amortization had the effect of reducing depreciation and amortization expense approximately $20 million in 2002 and thereby contributing approximately $.08 to the Company's diluted earnings per share for 2002. The Company recorded an $803.9 million pre-tax gain on the sale of substantially all of its wireless business in the third quarter of 2002. Nonrecurring gains for 2001 relate to the sale of 30 PCS licenses to Leap Wireless International, Inc. Nonrecurring gains for 2000 relate to the sale of the Company's remaining Alaska cellular operations and its minority interest in one other market. For further information, see Notes 3 and 13 to the Company's consolidated financial statements appearing elsewhere in this report. ACQUISITIONS AND RELATED FINANCING ARRANGEMENTS Verizon 2002 Acquisitions. On July 1, 2002, the Company completed the acquisition of approximately 300,000 telephone access lines in the state of Alabama from Verizon for approximately $1.022 billion cash. On August 31, 2002, the Company completed the acquisition of approximately 350,000 telephone access lines in the state of Missouri from Verizon for approximately $1.179 billion cash. On May 6, 2002, the Company issued and sold in an underwritten public offering $500 million of equity units. Net proceeds to the Company from this issuance were approximately $483.4 million. Each of the 20 million equity units issued was priced at $25 and consists initially of a beneficial interest in a CenturyTel senior unsecured note with a principal amount of $25 and a contract to purchase shares of CenturyTel common stock no later than May 2005. The senior notes mature in May 2007. Each purchase contract will generally require the holder to purchase between .6944 and .8741 of a share of CenturyTel common stock in May 2005 based on the then current stock price of CenturyTel common stock in exchange for $25, subject to certain adjustments and exceptions. Accordingly, upon full settlement of the purchase contracts in May 2005, the Company will receive proceeds of $500 million and will deliver between 13.9 million and 17.5 million common shares in the aggregate. The senior notes are pledged by the holders to secure their obligations under the purchase contracts. The total distributions on the equity units will be at an initial annual rate of 6.875%, consisting of interest (6.02%) and contract adjustment payments (0.855%), each payable quarterly. On or after mid-February 2005, the senior notes will be remarketed, at which time the remarketing agent will reset the interest rate on the senior notes in order to generate sufficient proceeds to secure the holder's obligation under the purchase contract. In the event of an unsuccessful remarketing, the Company will exercise its right as a secured party to dispose of the senior notes and satisfy in full the holder's obligation to purchase common stock under the purchase contract. On July 22, 2002, the Company entered into $800 million of credit facilities, consisting of a $533 million three-year facility and a $267 million 364-day revolving facility with a one-year term-out option. These facilities replaced credit facilities that matured during the third quarter of 2002. In the third quarter of 2002, the Company issued $500 million of senior notes due 2012 (which bear interest at 7.875%) and $165 million of convertible senior debentures (which bear interest at 4.75% and which may be converted into shares of CenturyTel common stock at a conversion price of $40.455 per share). The Company used proceeds from the sale of equity units, senior notes and convertible senior debentures, along with the $1.59 billion cash proceeds received from the sale of substantially all of the Company's wireless operations and utilization of its credit facilities, to finance the third quarter 2002 acquisitions of telephone properties in Alabama and Missouri from Verizon which aggregated $2.201 billion, the redemption of $400 million principal amount in remarketable debt securities (plus an associated $71.1 million premium payment) in October 2002, and the Company's fourth quarter 2002 estimated tax payment, which aggregated $290 million and included the obligation to pay taxes associated with the sale of substantially all of its wireless operations. Verizon 2000 Acquisitions. On July 31, 2000 and September 29, 2000, affiliates of the Company acquired over 490,000 telephone access lines and related assets from Verizon in four separate transactions for approximately $1.5 billion in cash. Under these transactions: o On July 31, 2000, the Company purchased approximately 231,000 telephone access lines and related local exchange assets comprising 106 exchanges throughout Arkansas for approximately $842 million in cash. o On July 31, 2000, Spectra Communications Group, LLC ("Spectra") purchased approximately 127,000 telephone access lines and related local exchange assets comprising 107 exchanges throughout Missouri for approximately $297 million cash. The Company currently owns 75.7% of Spectra, which was organized to acquire and operate these Missouri properties. At closing, the Company made a preferred equity investment in Spectra of approximately $55 million (which represented a 57.1% interest) and financed substantially all of the remainder of the purchase price. In the first quarter of 2001, the Company purchased an additional 18.6% interest in Spectra for $47.1 million. o On September 29, 2000, the Company purchased approximately 70,500 telephone access lines and related local exchange assets comprising 42 exchanges throughout Wisconsin for approximately $197 million in cash. o On September 29, 2000, Telephone USA of Wisconsin, LLC ("TelUSA") purchased approximately 62,900 telephone access lines and related local exchange assets comprising 35 exchanges throughout Wisconsin for approximately $172 million in cash. The Company owns 89% of TelUSA, which was organized to acquire and own these Wisconsin properties. At closing, the Company made an equity investment in TelUSA of approximately $37.8 million and financed substantially all of the remainder of the purchase price. To finance these acquisitions on a short-term basis, the Company borrowed $1.157 billion on a floating-rate basis under its $1.5 billion credit facility with Bank of America, N.A. and Citibank, N.A. and borrowed $300 million on a floating-rate basis under its 1997 credit facility with Bank of America, N.A. On October 19, 2000, the Company issued $500 million of 8.375% Senior Notes, Series H, due 2010, and $400 million of 7.75% Remarketable Senior Notes, Series I, due 2012 (with a remarketing date of October 15, 2002). The net proceeds of approximately $908 million (excluding the Company's payments of approximately $12.3 million associated with related interest rate hedging) were used to repay a portion of the $1.457 billion of aggregate indebtedness the Company incurred under its credit facilities in connection with the Verizon acquisitions. ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and SFAS 142. SFAS 141 requires all business combinations consummated after June 30, 2001 to be accounted for under the purchase method of accounting; the pooling of interests method is no longer permitted. The Company adopted SFAS 141 on July 1, 2001. SFAS 142 requires goodwill recorded in a business combination to be reviewed for impairment at least annually and to be written down only in periods in which the recorded amount of goodwill exceeds its fair value. Effective January 1, 2002, systematic amortization of goodwill is no longer permitted. The Company adopted SFAS 142 effective January 1, 2002. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The Company adopted the provisions of SFAS 144 on January 1, 2002. The Company's wireless operations have been reflected as discontinued operations for 2002 in accordance with the provisions of SFAS 144. Results of operations for 2001 and 2000 have been restated to conform to this presentation. The adoption of the impairment portion of SFAS 144 did not have a material effect on the results of operations of the Company. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143, effective beginning January 1, 2003, addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and be capitalized as part of the book value of the long-lived asset. Although the Company generally has had no legal obligation to remove assets, depreciation rates of certain assets established by regulatory authorities for the Company's telephone operations subject to SFAS 71 have historically included a component for removal costs in excess of the related estimated salvage value. SFAS 71 requires the Company to not remove this accumulated liability for removal costs in excess of salvage value even though there is no legal obligation to remove the assets. For the Company's telephone operations not subject to SFAS 71 (the properties acquired from Verizon in 2002) and its other operations, the Company has not accrued a liability for anticipated removal costs in the past and will continue to expense the costs of removal as incurred since there is no legal obligation to remove assets. The Company does not expect the adoption of SFAS 143 to have a material effect on its financial statements. In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation" ("SFAS 148"). SFAS 148, effective for fiscal years ending after December 15, 2002, amends Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The Company has elected to account for employee stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as allowed by SFAS 123. CRITICAL ACCOUNTING POLICIES The Company's financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management continually evaluates its estimates and judgments including those related to (i) revenue recognition, (ii) allowance for doubtful accounts, (iii) purchase price allocation, (iv) pension and postretirement benefits and (v) long-lived assets. Actual results may differ from these estimates. The Company believes the following critical accounting policies involve a higher degree of judgment or complexity. Revenue recognition. Certain of the Company's telephone subsidiaries participate in revenue sharing arrangements with other telephone companies for interstate revenue and for certain intrastate revenue. Under such sharing arrangements, which are typically administered by quasi-governmental agencies, participating telephone companies contribute toll revenue or access charges within state jurisdictions and access charges in the interstate market. These revenues are pooled by the administrative agencies and used to reimburse exchange carriers for their costs. Typically, participating companies have 24 months to update or correct data previously submitted. As a result, revenues earned through the various sharing arrangements are initially recorded based on the Company's estimates. Historically, revisions of previous revenue estimates have not been material. Allowance for doubtful accounts. In evaluating the collectibility of its accounts receivable, the Company assesses a number of factors, including a specific customer's or carrier's ability to meet its financial obligations to the Company, the length of time the receivable has been past due and historical collection experience. Based on these assessments, the Company records both specific and general reserves for uncollectible accounts receivable to reduce the related accounts receivable to the amount the Company ultimately expects to collect from customers and carriers. If circumstances change or economic conditions worsen such that the Company's past collection experience is no longer relevant, the Company's estimate of the recoverability of its accounts receivable could be further reduced from the levels reflected in the accompanying consolidated balance sheet. Purchase price allocation. For the properties acquired from Verizon in 2002, the Company allocated the aggregate purchase price to the assets acquired and liabilities assumed based on fair value at the date of acquisition. The fair value of property, plant and equipment and identifiable intangible assets was determined by an independent appraisal of such assets. The fair value of the postretirement benefit obligation was determined through actuarial valuations. The fair value of current assets and current liabilities was assumed to approximate the recorded value at acquisition due to their short maturity. The remaining unallocated acquisition cost was considered goodwill. Pension and postretirement benefits. The amounts recognized in the financial statements related to pension and postretirement benefits are determined on an actuarial basis, which utilizes many assumptions in the calculation of such amounts. A significant assumption used in determining the Company's pension and postretirement expense is the expected long-term rate of return on plan assets. For 2002, such expected return was assumed to range between 8-10%, with 10% being used on the plans with the greatest amount of assets. For the past several years, our actual return on plan assets has been significantly lower than the 8-10% range. For 2003, the Company lowered its expected long-term rate of return on plan assets to range from 8-8.25%, reflecting the expected moderation of long-term rates of return in the financial markets. Another assumption used in the determination of the Company's pension and postretirement benefit plan obligations is the appropriate discount rate, which is generally based on the yield on high-quality corporate bonds. The Company lowered its assumed discount rate to 6.75% at December 31, 2002 from 7.00% at December 31, 2001. Changes in the discount rate do not have a material impact on the Company's results of operations. See "Pension and Medical Costs" for additional information. Long-lived assets. Effective January 1, 2002, the Company was subject to test for impairment of long-lived assets under two new accounting standards, Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), and SFAS 144. SFAS 142 requires goodwill recorded in business combinations to be reviewed for impairment and requires write-downs only in periods in which the recorded amount of goodwill exceeds the fair value. Under SFAS 142, impairment of goodwill is tested by comparing the fair value of the reporting unit to its carrying value (including goodwill). Estimates of the fair value of the reporting unit are based on valuation models using techniques such as multiples of earnings. If the fair value of the reporting unit is less than the carrying value, a second calculation is required in which the implied fair value of goodwill is compared to its carrying value. If the implied fair value of goodwill is less than its carrying value, goodwill must be written down to its implied fair value. The Company completed the initial transitional goodwill impairment test (as of January 1, 2002) as well as the required annual test (as of September 30, 2002) of SFAS 142 and has determined its goodwill is not impaired. Prior to January 1, 2002, substantially all of the Company's goodwill was amortized over 40 years. The Company's amortization of goodwill for the years ended December 31, 2001 and 2000 totaled approximately $69.2 million and $60.1 million, respectively. Under SFAS 144, the carrying value of long-lived assets other than goodwill is reviewed for impairment whenever events or circumstances indicate that such carrying amount cannot be recoverable by assessing the recoverability of the carrying value through estimated undiscounted net cash flows expected to be generated by the assets. If the undiscounted net cash flows are less than the carrying value, an impairment loss would be measured as the excess of the carrying value of a long-lived asset over its fair value. For additional information on the Company's critical accounting policies, see "Accounting Pronouncements" and "Regulation and Competition - Other Matters", and the footnotes to the Company's consolidated financial statements. INFLATION The effects of increased costs historically have been mitigated by the Company's ability to recover certain costs applicable to its regulated telephone operations through the rate-making process. While the rate-making process does not permit the Company to immediately recover the costs of replacing its physical plant, the Company has historically been able to recapture these costs over time. Possible future regulatory changes may alter the Company's ability to recover increased costs in its regulated operations. For the properties acquired from Verizon in 2002, which are regulated under price-cap regulation for interstate purposes, price changes are limited to the rate of inflation, minus a productivity offset. For additional information regarding the current regulatory environment, see "Regulation and Competition." As operating expenses in the Company's nonregulated lines of business increase as a result of inflation, the Company, to the extent permitted by competition, attempts to recover the costs by increasing prices for its services and equipment. MARKET RISK The Company is exposed to market risk from changes in interest rates on its long-term debt obligations. The Company has estimated its market risk using sensitivity analysis. Market risk is defined as the potential change in the fair value of a fixed-rate debt obligation due to a hypothetical adverse change in interest rates. Fair value on long-term debt obligations is determined based on a discounted cash flow analysis, using the rates and maturities of these obligations compared to terms and rates currently available in the long-term markets. The results of the sensitivity analysis used to estimate market risk are presented below, although the actual results may differ from these estimates. At December 31, 2002, the fair value of the Company's long-term debt was estimated to be $3.9 billion based on the overall weighted average rate of the Company's long-term debt of 6.0% and an overall weighted maturity of 11 years compared to terms and rates currently available in long-term financing markets. With respect to the Company's fixed-rate long-term debt obligations, market risk is estimated as the potential decrease in fair value of the Company's fixed rate long-term debt resulting from a hypothetical increase of 60 basis points in interest rates (ten percent of the Company's overall weighted average borrowing rate). Such an increase in interest rates would result in approximately a $149.4 million decrease in fair value of the Company's long-term debt. As of December 31, 2002, after giving effect to interest rate swaps currently in place, approximately 86% of the Company's long-term debt obligations were fixed rate. The Company seeks to maintain a favorable mix of fixed and variable rate debt in an effort to limit interest costs and cash flow volatility resulting from changes in rates. From time to time, the Company uses derivative instruments to (i) lock-in or swap its exposure to changing or variable interest rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instrument activities. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. Management periodically reviews the Company's exposure to interest rate fluctuations and implements strategies to manage the exposure. At December 31, 2002, the Company had outstanding a fair value interest rate hedge associated with $500 million aggregate principal amount of its Series H senior notes, due 2010, that pays interest at a fixed rate of 8.375%. This hedge is a "fixed to variable" interest rate swap that effectively converts the Company's fixed rate interest payment obligations under these notes into obligations to pay variable rates equal to the six-month London InterBank Offered Rate ("LIBOR") plus 3.59% with settlement and rate reset dates occurring each six months through the expiration of the hedge in October 2010. At December 31, 2002, the Company realized a rate under this hedge of 4.96%. Interest expense was reduced by $7.8 million in 2002 as a result of this hedge. The fair market value of this hedge was $22.2 million at December 31, 2002 and is reflected as an asset and as an adjustment to the underlying debt on the December 31, 2002 balance sheet. With respect to this hedge, market risk is estimated as the potential change in the fair value of the hedge resulting from a hypothetical 10% increase in the forward rates used to determine the fair value. A hypothetical 10% increase in the forward rates would result in a $14.5 million decrease in the fair value of this hedge. At December 31, 2002, the Company also had outstanding a cash flow hedge associated with $400 million of borrowings under its $800 million credit facilities. Such hedge expires in October 2003. This hedge is designed to swap the Company's future obligation to pay variable rate interest based on LIBOR into obligations that lock-in a fixed rate of 2.49%. The fair value of this hedge was $1.3 million at December 31, 2002 and is reflected as a liability and Accumulated Other Comprehensive Loss (net of tax) on the December 31, 2002 balance sheet. A hypothetical 10% increase in the forward rates would result in a $622,000 decrease in the fair value (liability) of this hedge. DEVELOPMENT OF BILLING SYSTEM The Company is in the process of developing an integrated billing and customer care system. The costs to develop such system have been capitalized in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," and aggregated $139.5 million at December 31, 2002. A portion of these billing system costs related to the wireless business ($30.5 million) was written off as a component of discontinued operations in the third quarter of 2002 as a result of the sale of substantially all of the Company's wireless operations on August 1, 2002. See Note 4 to the Company's consolidated financial statements appearing elsewhere in this report. Excluding this write-off, the Company's aggregate billing system costs are expected to approximate $180 million upon completion and are expected to be amortized over a twenty-year period. The Company expects to begin amortization of the billing system in 2003 as customer groups are migrated to this new system. In addition, the Company expects to incur duplicative system costs in 2003 until such time as all customers are migrated to the new system. Such amortization and duplicative system costs are expected to reduce diluted earnings per share by $.04 for 2003. The system remains in the development stage and has required substantially more time and money to develop than originally anticipated. Although the Company expects to complete all phases of the system in early 2004, there is no assurance that this deadline (or the Company's budget) will be met or that the system will function as anticipated. If the system does not function as anticipated, the Company may have to write off part or all of its remaining costs. PENSION AND MEDICAL COSTS The decline in equity markets in recent years, coupled with record low interest rates and rising medical costs, have increased the Company's employee benefits expenses, including defined benefit pension expenses and pre- and post-retirement medical expenses. The Company expects these conditions will result in higher pension and pre- and post-retirement medical expenses in 2003. Based on the Company's current estimates, such costs are expected to increase between $15 - 25 million in 2003 compared to 2002 amounts. As a result of continued increases in medical costs, the Company discontinued its practice of subsidizing post-retirement medical benefits for persons hired after January 1, 2003. OTHER In connection with the acquisitions of telephone properties from Verizon in 2002, the Company had an independent appraisal performed to determine the fair value of the property, plant and equipment acquired from Verizon. Such appraisal was not completed until March 2003; therefore, the Company's December 31, 2002 balances of property, plant and equipment and goodwill, as presented in the Company's fourth quarter 2002 earnings news release contained in a Current Report on Form 8-K filed January 31, 2003, differ from those presented elsewhere herein. As a result of the appraisal, property, plant and equipment was increased by $202.6 million and goodwill was decreased by a like amount. Depreciation expense calculated based on the appraised values of property, plant and equipment is not materially different from that previously presented in the above-described Form 8-K and therefore has not been changed. LIQUIDITY AND CAPITAL RESOURCES Excluding cash used for acquisitions, the Company relies on cash provided by operations to provide for its cash needs. The Company's operations have historically provided a stable source of cash flow which has helped the Company continue its long-term program of capital improvements. Operating activities. Net cash provided by operating activities from continuing operations was $795.4 million, $575.5 million and $438.2 million in 2002, 2001 and 2000, respectively. The Company's accompanying consolidated statements of cash flows identify major differences between net income and net cash provided by operating activities for each of those years. For additional information relating to the continuing and discontinued operations of the Company, see Results of Operations. Investing activities. Net cash used in investing activities from continuing operations was $2.629 billion, $420.9 million and $1.914 billion in 2002, 2001 and 2000, respectively. Cash used for acquisitions was $2.245 billion in 2002 (substantially all of which relates to the 2002 Verizon acquisitions), $47.1 million in 2001 and $1.536 billion in 2000 (substantially all of which relates to the 2000 Verizon acquisitions). Proceeds from the sales of assets were $4.1 million in 2002 (excluding the Company's 2002 wireless divestiture) and $58.2 million in 2001. Capital expenditures from continuing operations for 2002 were $319.5 million for telephone operations and $66.7 million for other operations. Capital expenditures from continuing operations during 2001 and 2000 were $435.5 million and $391.1 million, respectively. Financing activities. Net cash provided by (used in) financing activities from continuing operations was $506.3 million in 2002, ($395.4) million in 2001 and $1.314 billion in 2000. Proceeds from the issuance of debt, net of debt payments, were $531.4 million during 2002, compared to net payments of debt of $375.6 million during 2001. Net proceeds from the issuance of debt was $1.340 billion during 2000 primarily due to an increase in borrowings due to the purchase of assets from Verizon. On May 6, 2002, the Company issued and sold in an underwritten public offering $500 million of equity units. Net proceeds to the Company from this issuance were approximately $483.4 million. Each of the 20 million equity units issued was priced at $25 and consists initially of a beneficial interest in a CenturyTel senior unsecured note with a principal amount of $25 and a contract to purchase shares of CenturyTel common stock no later than May 2005. The senior notes will mature in May 2007. Each stock purchase contract will generally require the holder to purchase between .6944 and .8741 of a share of CenturyTel common stock in May 2005 in exchange for $25, subject to certain adjustments and exceptions. The total distributions on the equity units will be at an initial annual rate of 6.875%, consisting of interest (6.02%) and contract adjustment payments (0.855%). For additional information, see Note 6 to the Company's consolidated financial statements appearing elsewhere in this report. On July 22, 2002, the Company entered into $800 million of credit facilities, consisting of a $533 million three-year facility and a $267 million 364-day revolving facility with a one-year term-out option. These facilities replaced credit facilities that matured during the third quarter of 2002. In the third quarter of 2002, the Company issued $500 million of senior notes due 2012 (which bear interest at 7.875%) and $165 million of convertible senior debentures (which bear interest at 4.75% and which may be converted into shares of CenturyTel common stock at a conversion price of $40.455 per share). Holders of the convertible senior debentures will have the right to require the Company to purchase all or a portion of the debentures on August 1, 2006, August 1, 2010 and August 1, 2017 at par plus any accrued and unpaid interest to the purchase date. For additional information, see Note 6 to the Company's consolidated financial statements appearing elsewhere in this report. On August 1, 2002, the Company sold substantially all of its wireless operations to Alltel and certain other purchasers for an aggregate of approximately $1.59 billion cash. The Company used proceeds from the sale of equity units, senior notes and convertible senior debentures, along with the proceeds received from the sale of the Company's wireless operations and utilization of its $800 million credit facilities, to finance the third quarter 2002 acquisitions of telephone properties in Alabama and Missouri from Verizon which aggregated $2.201 billion, the redemption of $400 million principal amount in remarketable debt securities (plus an associated $71.1 million premium payment) in October 2002 and the Company's fourth quarter 2002 estimated tax payment, which aggregated $290 million and included the obligation to pay taxes associated with the sale of substantially all of its wireless operations. In second quarter 2001, the Company completed the sale of 30 PCS operating licenses for an aggregate of $195 million to Leap. The Company received approximately $108 million of the purchase price in cash at closing and the remainder was collected in installments through the fourth quarter of 2001. Such proceeds, and the proceeds from the Company's above-described divestiture of its wireless operations in 2002, are included as net cash provided by discontinued operations on the statements of cash flows appearing elsewhere in this report. In third quarter 2001, the Company sold its remaining shares of its investment in Illuminet common stock for an aggregate of approximately $58.2 million. Proceeds from these sales were used to repay indebtedness. Other. Budgeted capital expenditures for 2003 total $370 million for telephone operations and $30 million for other operations. The Company anticipates that capital expenditures in its telephone operations will continue to include the upgrading of its plant and equipment, including its digital switches, to provide enhanced services, particularly in its newly acquired markets, and the installation of fiber optic cable. The Company continually evaluates the possibility of acquiring additional telecommunications operations and expects to continue its long-term strategy of pursuing the acquisition of attractive communications properties in exchange for cash, securities or both. At any given time, the Company may be engaged in discussions or negotiations regarding additional acquisitions. The Company generally does not announce its acquisitions until it has entered into a preliminary or definitive agreement. Over the past few years, the amount and size of communications properties available to be purchased by the Company has increased substantially. The Company may require additional financing in connection with any such acquisitions, the consummation of which could have a material impact on the Company's financial condition or operations. Approximately 4.1 million shares of CenturyTel common stock and 200,000 shares of CenturyTel preferred stock remain available for future issuance in connection with acquisitions under CenturyTel's acquisition shelf registration statement. The following table contains certain information concerning the Company's material contractual obligations as of December 31, 2002. <TABLE> <CAPTION> Payments due by period ------------------------------------------------------------------------------------------ Total contractual Less than After obligations Total 1 year 1-3 years 4-5 years 5 years ------------------------------------------------------------------------------------------ (Dollars in thousands) <S> <C> <C> <C> <C> <C> <C> <C> Long-term debt, including current maturities and capital lease obligations $ 3,648,869 70,737 702,188 635,619 (1) 2,240,325 (2) ------------------------------------------------------------------------------------------- </TABLE> (1) Includes $500 million aggregate principal amount of the Company's senior notes, Series J, due 2007, which the Company is committed to remarket in 2005. (2) Includes $165 million aggregate principal amount of the Company's convertible debentures, Series K, due 2032, which can be put to the Company at various dates beginning in 2006. As of December 31, 2002, the Company had available $415.0 million of undrawn committed bank lines of credit and the Company's telephone subsidiaries had available for use $123.0 million of commitments for long-term financing from the Rural Utilities Service and Rural Telephone Bank. In addition, in October 2000 the Company implemented a commercial paper program that authorizes the Company to have outstanding up to $1.5 billion in commercial paper at any one time. As of December 31, 2002, the Company had no commercial paper outstanding under such program. The Company also has access to debt and equity capital markets, including its shelf registration statements. Moody's Investors Service ("Moody's") rates CenturyTel's long-term debt Baa2 (with a stable outlook) and Standard & Poor's ("S&P") rates CenturyTel's long-term debt BBB+ (with a stable outlook). The Company's commercial paper program is rated P2 by Moody's and A2 by S&P. The following table reflects the Company's debt to total capitalization percentage and ratio of earnings to fixed charges and preferred stock dividends as of and for the years ended December 31: <TABLE> <CAPTION> 2002 2001 2000 --------------------------------------------------------------------------- <S> <C> <C> <C> Debt to total capitalization 54.2% 57.0 63.1 Ratio of earnings from continuing operations to fixed charges and preferred stock dividends 2.30 2.00 2.07 --------------------------------------------------------------------------- </TABLE> REGULATION AND COMPETITION The communications industry continues to undergo various fundamental regulatory, legislative, competitive and technological changes. These changes may have a significant impact on the future financial performance of all communications companies. Events affecting the communications industry. In 1996, the United States Congress enacted the Telecommunications Act of 1996 (the "1996 Act"), which obligates LECs to permit competitors to interconnect their facilities to the LEC's network and to take various other steps that are designed to promote competition. The 1996 Act provides certain exemptions for rural LECs such as those operated by the Company. Under the 1996 Act's rural telephone company exemption, approximately 50% of the Company's telephone access lines are exempt from certain of these interconnection requirements unless and until the appropriate state regulatory commission overrides the exemption upon receipt from a competitor of a bona fide request meeting certain criteria. On February 20, 2003, the FCC revised its rules outlining the obligations of incumbent LECs to lease elements of their networks on an unbundled basis to competitors. The new framework eliminates the prior obligation of incumbent LECs to lease their high-speed data lines to competitors. Incumbent LECs will remain obligated to offer other telecommunications services to resellers at wholesale rates. This new rule also provides for a significant role of state regulatory commissions in implementing these new guidelines and establishing wholesale service rates. Prior to and since the enactment of the 1996 Act, the FCC and a number of state legislative and regulatory bodies have also taken steps to foster local exchange competition. Coincident with this recent movement toward increased competition has been the gradual reduction of regulatory oversight of LECs. These cumulative changes have led to the continued growth of various companies providing services that compete with LECs' services. Wireless services entities also increasingly constitute a significant source of competition with LECs. As mandated by the 1996 Act, in May 2001 the FCC modified its existing universal service support mechanism for rural telephone companies. The FCC adopted an interim mechanism for a five-year period, effective July 1, 2001, based on embedded, or historical, costs that will provide predictable levels of support to rural local exchange carriers, including substantially all of the Company's local exchange carriers. During 2002 the Company's interstate revenues from the federal universal service fund totaled approximately $192.4 million (which includes $9.9 million from the Verizon properties acquired in 2002). During 2001 and 2000, such revenues totaled $168.7 million and $146.4 million, respectively. Increasingly, wireless carriers have sought and received payments from the Universal Service Fund, which the Company believes is currently enhancing their ability to compete with wireline services and, in the long term, could adversely impact the amount of funding available for LECs. On October 11, 2001, the FCC modified its interstate access charge rules and universal service support system for rate of return local exchange carriers, which includes the Company's local exchange carriers (excluding the properties acquired from Verizon in 2002). This order, among other things, (i) increased the caps on the subscriber line charges ("SLC") to the levels paid by most subscribers nationwide; (ii) allowed limited SLC deaveraging, which is expected to enhance the competitiveness of rate of return carriers by giving them pricing flexibility; (iii) lowered per minute rates collected for federal access charges, which might increase competition with CenturyTel's long distance operations to the extent other carriers seek to take advantage of this change; (iv) created a new explicit universal service support mechanism that will replace other implicit support mechanisms in a manner designed to ensure that rate structure changes do not affect the overall recovery of interstate access costs by rate of return carriers serving high cost areas and (v) terminated the FCC's proceeding on the represcription of the authorized rate of return for rate of return LECs, which will remain at 11.25%. The effect of this order on the Company was revenue neutral for interstate purposes; however, intrastate revenues were adversely effected in Arkansas and Ohio as the intrastate access rates in these states mirror the interstate access rates. Recent events affecting the Company. During the last few years, several states in which the Company has substantial operations took legislative or regulatory steps to further introduce competition into the LEC business. The number of companies which have requested authorization to provide local exchange service in the Company's service areas has increased in recent years, especially in the markets acquired from Verizon in 2002 and 2000, and it is anticipated that similar action may be taken by others in the future. State alternative regulation plans recently adopted by certain of the Company's LECs have also affected revenue growth recently. Certain long distance carriers continue to request that the Company reduce intrastate access tariffed rates for certain of its LECs. In addition, the Company has recently experienced reductions in intrastate traffic, partially due to the displacement of minutes by wireless services. In 2002 the Company incurred a reduction in its intrastate revenues (exclusive of the properties acquired from Verizon in 2002) of approximately $27.7 million compared to 2001 primarily due to these factors. The Company believes such trend of decreased intrastate minutes will continue in 2003. Although the magnitude of such decrease cannot be precisely estimated, the Company believes such decrease will be less than that incurred in 2002. In August 2001, the Company was awarded an interim access rate increase by the Wisconsin Public Service Commission ("WPSC") for the former Verizon properties in Wisconsin in an amount of approximately $7.9 million annually. In October 2002, the Company was awarded a permanent rate increase which will result in an additional $8 to $10 million annually above the $7.9 million awarded on an interim basis. On August 29, 2002, the Wisconsin Court of Appeals upheld a ruling upon appeal that ordered the Company to refund intrastate access charges collected from interexchange carriers from December 1998 through December 2000 on the Wisconsin properties acquired from Ameritech in December 1998. As a result of this ruling, the Company recorded a one-time charge of $7.6 million ($.03 per share) related to this refund in the third quarter of 2002. On October 31, 2001, the WPSC approved a permanent rate increase of $8.3 million annually for these properties. This increase was partially offset by a one-time reduction in revenue of approximately $300,000 arising out of the WPSC's order to refund a portion of the previously approved interim rates. In August 2001, the Arkansas Public Utility Commission ("APUC") approved tariff amendments that limited the number of minutes included for a flat rate in certain optional calling plans in certain of the markets acquired from Verizon in 2000. These revisions resulted in reductions of the Company's operating expenses of approximately $17.5 million during 2002 compared to 2001. On March 13, 2002, the Arkansas Court of Appeals vacated two orders issued by the Arkansas Public Service Commission ("APSC") in connection with the Company's acquisition of its Arkansas LECs from Verizon in July 2000, and remanded the case back to the APSC for further hearings. The Court took these actions in response to challenges to the rates the Company has charged other LECs for intrastate switched access service. On December 20, 2002, the APSC approved the access rates established by the Company at the time of acquisition. On January 29, 2003, AT&T filed with the APSC a petition for rehearing related to this ruling. In January 2003, the Louisiana Public Service Commission directed its staff to review the feasibility of converting the $42 million Louisiana Local Optional Service Fund ("LOS Fund") into a state universal service fund. A recommendation by the Commission staff is expected by the end of 2003. Currently, the LOS Fund is funded primarily by BellSouth, which proposes to expand the base of contributors into the LOS Fund. The Company currently receives approximately $21 million from the LOS Fund each year. There can be no assurance that this funding will remain at current levels. Competition to provide traditional telephone services has thus far affected large urban areas to a greater extent than rural, suburban and small urban areas such as those in which the Company's telephone operations are located. Although the Company does not believe that the increased competition it has thus far experienced is likely to materially affect it in the near term, the Company anticipates that regulatory changes and competitive pressures may result in future revenue reductions. The Company expects its internal telephone revenues (exclusive of the properties acquired from Verizon in 2002) to decline in 2003 primarily due to continued access line loss and reduced intrastate revenues; however, the Company expects its internal consolidated revenues to increase in 2003 primarily due to expected increased demand for its long distance, DSL and other product offerings. Other matters. The Company's regulated telephone operations (except for the properties acquired from Verizon in 2002) are subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"). Actions by regulators can provide reasonable assurance of the existence of an asset, reduce or eliminate the value of an asset and impose a liability on a regulated enterprise. Such regulatory assets are required to be recorded and, accordingly, reflected in the balance sheet of an entity subject to SFAS 71. The Company is monitoring the ongoing applicability of SFAS 71 to its regulated telephone operations due to the changing regulatory, competitive and legislative environments, and it is possible that changes in regulation, legislation or competition or in the demand for regulated services or products could result in the Company's telephone operations no longer being subject to SFAS 71 in the near future. Statement of Financial Accounting Standards No. 101, "Regulated Enterprises - Accounting for the Discontinuance of Application of FASB Statement No. 71" ("SFAS 101"), specifies the accounting required when an enterprise ceases to meet the criteria for application of SFAS 71. SFAS 101 requires the elimination of the effects of any actions of regulators that have been recognized as assets and liabilities in accordance with SFAS 71 but would not have been recognized as assets and liabilities by nonregulated enterprises. SFAS 101 further provides that the carrying amounts of property, plant and equipment are to be adjusted only to the extent the assets are impaired and that impairment shall be judged in the same manner as for nonregulated enterprises. The Company's consolidated balance sheet as of December 31, 2002 included regulatory assets of approximately $3.2 million (primarily related to deferred financing costs, regulatory proceedings and income taxes) and regulatory liabilities of approximately $1.7 million (related to income taxes). Net deferred income tax liabilities related to the regulatory assets and liabilities quantified above were $1.1 million. When the Company's regulated operations no longer qualify for the application of SFAS 71, the Company does not expect to record any impairment charge related to the carrying value of the property, plant and equipment of its regulated telephone operations. Additionally, upon the discontinuance of SFAS 71, the Company would be required to revise the lives of its property, plant and equipment to reflect the estimated useful lives of the assets. The Company does not expect such revisions in asset lives to have a material impact on the Company's results of operations. For regulatory purposes, the accounting and reporting of the Company's telephone subsidiaries will not be affected by the discontinued application of SFAS 71. The Company has certain obligations based on federal, state and local laws relating to the protection of the environment. Costs of compliance through 2002 have not been material, and the Company currently has no reason to believe that such costs will become material. Item 7a. Quantitative and Qualitative Disclosure About Market Risk The Company is exposed to market risk from changes in interest rates on its long-term debt obligations. The Company has estimated its market risk using sensitivity analysis. Market risk is defined as the potential change in the fair value of a fixed-rate debt obligation due to a hypothetical adverse change in interest rates. Fair value on long-term debt obligations is determined based on a discounted cash flow analysis, using the rates and maturities of these obligations compared to terms and rates currently available in the long-term markets. The results of the sensitivity analysis used to estimate market risk are presented below, although the actual results may differ from these estimates. At December 31, 2002, the fair value of the Company's long-term debt was estimated to be $3.9 billion based on the overall weighted average rate of the Company's long-term debt of 6.0% and an overall weighted maturity of 11 years compared to terms and rates currently available in long-term financing markets. Market risk is estimated as the potential decrease in fair value of the Company's fixed rate long-term debt resulting from a hypothetical increase of 60 basis points in interest rates (ten percent of the Company's overall weighted average borrowing rate). Such an increase in interest rates would result in approximately a $149.4 million decrease in fair value of the Company's long-term debt. As of December 31, 2002, after giving effect to interest rate swaps currently in place, approximately 86% of the Company's long-term debt obligations were fixed rate. The Company seeks to maintain a favorable mix of fixed and variable rate debt in an effort to limit interest costs and cash flow volatility resulting from changes in rates. From time to time, the Company uses derivative instruments to (i) lock-in or swap its exposure to changing or variable interest rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instrument activities. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. Management periodically reviews the Company's exposure to interest rate fluctuations and implements strategies to manage the exposure. At December 31, 2002, the Company had outstanding a fair value interest rate hedge associated with $500 million aggregate principal amount of its Series H senior notes, due 2010, that pay interest at a fixed rate of 8.375%. This hedge is a "fixed to variable" interest rate swap that effectively converts the Company's fixed rate interest payment obligations under these notes into obligations to pay variable rates equal to the six-month London InterBank Offered Rate ("LIBOR") plus 3.59% with settlement and rate reset dates occurring each six months through the expiration of the hedge in October 2010. At December 31, 2002, the Company realized a rate under this hedge of 4.96%. Interest expense was reduced by $7.8 million in 2002 as a result of this hedge. The fair market value of this hedge was $22.2 million at December 31, 2002 and is reflected as an asset and as an adjustment to the underlying debt on the December 31, 2002 balance sheet. With respect to this hedge, market risk is estimated as the potential change in the fair value of the hedge resulting from a hypothetical 10% increase in the forward rates used to determine the fair value. A hypothetical 10% increase in the forward rates would result in a $14.5 million decrease in the fair value of this hedge. At December 31, 2002, the Company also had outstanding a cash flow hedge associated with $400 million of borrowings incurred in the fourth quarter of 2002 under its $800 million credit facilities. Such hedge expires in October 2003. This hedge is designed to swap the Company's future obligation to pay variable rate interest based on LIBOR into obligations that lock-in a fixed rate of 2.49%. The fair value of this hedge was $1.3 million at December 31, 2002 and is reflected as a liability and Accumulated Other Comprehensive Loss (net of tax) on the December 31, 2002 balance sheet. A hypothetical 10% increase in the forward rates would result in a $622,000 decrease in the fair value (liability) of this hedge. Item 8. Financial Statements and Supplementary Data Report of Management -------------------- The Shareholders CenturyTel, Inc.: Management has prepared and is responsible for the Company's consolidated financial statements. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and necessarily include amounts determined using our best judgments and estimates with consideration given to materiality. The Company maintains internal control systems and related policies and procedures designed to provide reasonable assurance that the accounting records accurately reflect business transactions and that the transactions are in accordance with management's authorization. The design, monitoring and revision of the systems of internal control involve, among other things, our judgment with respect to the relative cost and expected benefits of specific control measures. Additionally, the Company maintains an internal auditing function which independently evaluates the effectiveness of internal controls, policies and procedures and formally reports on the adequacy and effectiveness thereof. The Company's consolidated financial statements have been audited by KPMG LLP, independent certified public accountants, who have expressed their opinion with respect to the fairness of the consolidated financial statements. Their audit was conducted in accordance with auditing standards generally accepted in the United States of America, which include the consideration of the Company's internal controls to the extent necessary to form an independent opinion on the consolidated financial statements prepared by management. The Audit Committee of the Board of Directors is composed of independent directors who are not officers or employees of the Company. The Committee meets periodically with the independent certified public accountants, internal auditors and management. The Committee considers the independence of the external auditors and the audit scope and discusses internal control, financial and reporting matters. Both the independent and internal auditors have free access to the Committee. /s/ R. Stewart Ewing, Jr. R. Stewart Ewing, Jr. Executive Vice President and Chief Financial Officer

Independent Auditors' Report ---------------------------- The Board of Directors CenturyTel, Inc.: We have audited the consolidated financial statements of CenturyTel, Inc. and subsidiaries as listed in Item 15a(i). In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in Item 15a(ii). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CenturyTel, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets in 2002. /s/ KPMG LLP KPMG LLP Shreveport, Louisiana January 29, 2003

<TABLE> <CAPTION> CENTURYTEL, INC. Consolidated Statements of Income Year ended December 31, --------------------------------------------------------------------------------------------------- 2002 2001 2000 --------------------------------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) <S> <C> <C> <C> OPERATING REVENUES Telephone $ 1,733,592 1,505,733 1,253,969 Other 238,404 173,771 148,388 --------------------------------------------------------------------------------------------------- Total operating revenues 1,971,996 1,679,504 1,402,357 --------------------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of sales and operating expenses (exclusive of depreciation and amortization) 973,689 826,948 671,992 Corporate overhead costs allocable to discontinued operations 11,275 20,213 21,411 Depreciation and amortization 411,626 407,038 322,817 --------------------------------------------------------------------------------------------------- Total operating expenses 1,396,590 1,254,199 1,016,220 --------------------------------------------------------------------------------------------------- OPERATING INCOME 575,406 425,305 386,137 --------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE) Nonrecurring gains and losses, net 3,709 33,043 - Interest expense (221,845) (225,523) (183,302) Other income and expense (63,814) 32 4,936 --------------------------------------------------------------------------------------------------- Total other income (expense) (281,950) (192,448) (178,366) --------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE 293,456 232,857 207,771 Income tax expense 103,537 88,711 83,542 --------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 189,919 144,146 124,229 DISCONTINUED OPERATIONS Income from discontinued operations, net of $286,427, $121,314, and $71,169 tax 611,705 198,885 107,245 --------------------------------------------------------------------------------------------------- NET INCOME $ 801,624 343,031 231,474 =================================================================================================== NET INCOME, AS ADJUSTED FOR GOODWILL AMORTIZATION $ 801,624 399,297 278,029 =================================================================================================== </TABLE>

<TABLE> <CAPTION> CENTURYTEL, INC. Consolidated Statements of Income (Continued) Year ended December 31, ----------------------------------------------------------------------------------------------- 2002 2001 2000 ----------------------------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) <S> <C> <C> <C> BASIC EARNINGS PER SHARE From continuing operations $ 1.34 1.02 .88 From continuing operations, as adjusted for goodwill amortization $ 1.34 1.35 1.15 From discontinued operations $ 4.32 1.41 .77 From discontinued operations, as adjusted for goodwill amortization $ 4.32 1.48 .84 Basic earnings per share $ 5.66 2.43 1.65 Basic earnings per share, as adjusted for goodwill amortization $ 5.66 2.83 1.98 DILUTED EARNINGS PER SHARE From continuing operations $ 1.33 1.01 .88 From continuing operations, as adjusted for goodwill amortization $ 1.33 1.34 1.13 From discontinued operations $ 4.28 1.40 .76 From discontinued operations, as adjusted for goodwill amortization $ 4.28 1.47 .83 Diluted earnings per share $ 5.61 2.41 1.63 Diluted earnings per share, as adjusted for goodwill amortization $ 5.61 2.81 1.96 DIVIDENDS PER COMMON SHARE $ .21 .20 .19 =============================================================================================== AVERAGE BASIC SHARES OUTSTANDING 141,613 140,743 140,069 =============================================================================================== AVERAGE DILUTED SHARES OUTSTANDING 142,879 142,307 141,864 =============================================================================================== </TABLE> See accompanying notes to consolidated financial statements.

<TABLE> <CAPTION> CENTURYTEL, INC. Consolidated Statements of Comprehensive Income Year ended December 31, ------------------------------------------------------------------------------------------------ 2002 2001 2000 ------------------------------------------------------------------------------------------------ (Dollars in thousands) <S> <C> <C> <C> NET INCOME $ 801,624 343,031 231,474 OTHER COMPREHENSIVE INCOME, NET OF TAXES Unrealized holding gains (losses): Unrealized holding gains (losses) related to marketable equity securities arising during period, net of $5,385 and ($20,941) tax - 9,999 (38,891) Less: reclassification adjustment for gains included in net income, net of ($19,100) tax - (35,470) - Minimum pension liability adjustment: Minimum pension liability adjustment, net of ($19,312) tax (35,864) - - Derivative instruments: Net losses on derivatives hedging variability of cash flows, net of ($496) tax (921) - - Less: reclassification adjustment for losses included in net income, net of $44 tax 82 - - ------------------------------------------------------------------------------------------------ COMPREHENSIVE INCOME $ 764,921 317,560 192,583 ================================================================================================ COMPREHENSIVE INCOME, AS ADJUSTED FOR GOODWILL AMORTIZATION $ 764,921 373,826 239,138 ================================================================================================ </TABLE> See accompanying notes to consolidated financial statements.

<TABLE> <CAPTION> CENTURYTEL, INC. Consolidated Balance Sheets December 31, 2002 2001 ------------------------------------------------------------------------------------------------ (Dollars in thousands) ASSETS <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $ 3,661 3,496 Accounts receivable Customers, less allowance of $15,314 and $13,908 161,319 118,376 Interexchange carriers and other, less allowance of $18,648 in 2002 111,673 87,614 Materials and supplies, at average cost 10,150 10,916 Other 9,099 9,511 ------------------------------------------------------------------------------------------------ Total current assets 295,902 229,913 ------------------------------------------------------------------------------------------------ NET PROPERTY, PLANT AND EQUIPMENT 3,531,645 2,736,142 ------------------------------------------------------------------------------------------------ INVESTMENTS AND OTHER ASSETS Goodwill 3,427,281 2,087,158 Other 503,775 420,043 ------------------------------------------------------------------------------------------------ Total investments and other assets 3,931,056 2,507,201 ------------------------------------------------------------------------------------------------ ASSETS HELD FOR SALE 11,805 845,428 ------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 7,770,408 6,318,684 ================================================================================================ LIABILITIES AND EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 70,737 955,834 Short-term debt - 53,000 Accounts payable 64,825 61,056 Accrued expenses and other current liabilities Salaries and benefits 63,937 46,588 Income taxes 40,897 4,554 Other taxes 28,183 23,383 Interest 59,045 49,191 Other 18,596 15,968 Advance billings and customer deposits 41,884 29,308 ------------------------------------------------------------------------------------------------ Total current liabilities 388,104 1,238,882 ------------------------------------------------------------------------------------------------ LONG-TERM DEBT 3,578,132 2,087,500 ------------------------------------------------------------------------------------------------ DEFERRED CREDITS AND OTHER LIABILITIES 716,168 506,052 ------------------------------------------------------------------------------------------------ LIABILITIES RELATED TO ASSETS HELD FOR SALE - 148,870 ------------------------------------------------------------------------------------------------ STOCKHOLDERS' EQUITY Common stock, $1.00 par value, authorized 350,000,000 shares, issued and outstanding 142,955,839 and 141,232,806 shares 142,956 141,233 Paid-in capital 537,804 524,668 Accumulated other comprehensive income (loss), net of tax (36,703) - Retained earnings 2,437,472 1,666,004 Unearned ESOP shares (1,500) (2,500) Preferred stock - non-redeemable 7,975 7,975 ------------------------------------------------------------------------------------------------ Total stockholders' equity 3,088,004 2,337,380 ------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND EQUITY $ 7,770,408 6,318,684 ================================================================================================ </TABLE> See accompanying notes to consolidated financial statements.

<TABLE> <CAPTION> CENTURYTEL, INC. Consolidated Statements of Cash Flows Year ended December 31, --------------------------------------------------------------------------------------------------------- 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> OPERATING ACTIVITIES FROM CONTINUING OPERATIONS Net income $ 801,624 343,031 231,474 Adjustments to reconcile net income to net cash provided by operating activities from continuing operations Income from discontinued operations, net of tax (611,705) (198,885) (107,245) Depreciation and amortization 411,626 407,038 322,817 Deferred income taxes 71,112 57,944 31,854 Nonrecurring gains and losses, net (3,709) (33,043) - Changes in current assets and current liabilities Accounts receivable (13,481) 34,266 (74,736) Accounts payable 3,769 (29,485) 36,493 Accrued taxes 43,046 1,078 (309) Other current assets and other current liabilities, net 34,939 9,083 11,902 Increase in noncurrent assets (30,543) (65,698) (46,026) Increase in other noncurrent liabilities 33,719 9,919 10,677 Other, net 55,005 40,295 21,332 --------------------------------------------------------------------------------------------------------- Net cash provided by operating activities from continuing operations 795,402 575,543 438,233 --------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES FROM CONTINUING OPERATIONS Acquisitions, net of cash acquired (2,245,026) (47,131) (1,535,683) Payments for property, plant and equipment (386,267) (435,515) (391,069) Proceeds from sale of assets 4,144 58,184 - Contribution from minority investor - - 20,000 Purchase of life insurance investment, net - (1,086) (5,753) Other, net (1,378) 4,639 (1,089) --------------------------------------------------------------------------------------------------------- Net cash used in investing activities from continuing operations (2,628,527) (420,909) (1,913,594) --------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES FROM CONTINUING OPERATIONS Proceeds from issuance of debt 2,123,618 3,896 2,715,852 Payments of debt (1,592,246) (379,516) (1,375,895) Payment of deferred hedge contracts - - (4,345) Proceeds from issuance of common stock 29,125 7,351 7,996 Payment of debt issuance costs (12,999) - (4,274) Payment of equity unit issuance costs (15,867) - - Cash dividends (30,156) (28,653) (26,815) Other, net 4,866 1,549 1,289 --------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities from continuing operations 506,341 (395,373) 1,313,808 --------------------------------------------------------------------------------------------------------- Net cash provided by discontinued operations 1,326,949 232,828 116,815 --------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 165 (7,911) (44,738) Cash and cash equivalents at beginning of year 3,496 11,407 56,145 --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,661 3,496 11,407 ========================================================================================================= </TABLE> See accompanying notes to consolidated financial statements.

<TABLE> <CAPTION> CENTURYTEL, INC. Consolidated Statements of Stockholders' Equity Year ended December 31, --------------------------------------------------------------------------------------------------------- 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars and shares in thousands) <S> <C> <C> <C> COMMON STOCK Balance at beginning of year $ 141,233 140,667 139,946 Conversion of convertible securities into common stock - 254 254 Issuance of common stock through dividend reinvestment, incentive and benefit plans 1,723 312 467 --------------------------------------------------------------------------------------------------------- Balance at end of year 142,956 141,233 140,667 --------------------------------------------------------------------------------------------------------- PAID-IN CAPITAL Balance at beginning of year 524,668 509,840 493,432 Equity unit issuance costs and initial contract adjustment liability (24,377) - - Conversion of convertible securities into common stock - 3,046 3,046 Issuance of common stock through dividend reinvestment, incentive and benefit plans 27,402 7,039 7,529 Amortization of unearned compensation and other 10,111 4,743 5,833 --------------------------------------------------------------------------------------------------------- Balance at end of year 537,804 524,668 509,840 --------------------------------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Balance at beginning of year - 25,471 64,362 Change in other comprehensive income (loss) (net of reclassification adjustment in 2001), net of tax (36,703) (25,471) (38,891) --------------------------------------------------------------------------------------------------------- Balance at end of year (36,703) - 25,471 --------------------------------------------------------------------------------------------------------- RETAINED EARNINGS Balance at beginning of year 1,666,004 1,351,626 1,146,967 Net income 801,624 343,031 231,474 Cash dividends declared Common stock - $.21, $.20 and $.19 per share (29,757) (28,254) (26,416) Preferred stock (399) (399) (399) --------------------------------------------------------------------------------------------------------- Balance at end of year 2,437,472 1,666,004 1,351,626 --------------------------------------------------------------------------------------------------------- UNEARNED ESOP SHARES Balance at beginning of year (2,500) (3,500) (4,690) Release of ESOP shares 1,000 1,000 1,190 --------------------------------------------------------------------------------------------------------- Balance at end of year (1,500) (2,500) (3,500) --------------------------------------------------------------------------------------------------------- PREFERRED STOCK - NON-REDEEMABLE Balance at beginning and end of year 7,975 7,975 7,975 --------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY $ 3,088,004 2,337,380 2,032,079 ========================================================================================================= COMMON SHARES OUTSTANDING Balance at beginning of year 141,233 140,667 139,946 Conversion of convertible securities into common stock - 254 254 Issuance of common stock through dividend reinvestment, incentive and benefit plans 1,723 312 467 --------------------------------------------------------------------------------------------------------- Balance at end of year 142,956 141,233 140,667 ========================================================================================================= </TABLE> See accompanying notes to consolidated financial statements.

CENTURYTEL, INC. Notes to Consolidated Financial Statements December 31, 2002 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation - The consolidated financial statements of CenturyTel, Inc. and its subsidiaries (the "Company") include the accounts of CenturyTel, Inc. ("CenturyTel") and its majority-owned subsidiaries and partnerships. Certain of the Company's regulated telephone operations are subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation." Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Revenue recognition - Revenues are generally recognized when services are provided or when products are delivered to customers. Revenue that is billed in advance includes monthly recurring network access services, special access services and monthly recurring local line charges. The unearned portion of this revenue is initially deferred as a component of advanced billings and customer deposits on the Company's balance sheet and recognized as revenue over the period that the services are provided. Revenue that is billed in arrears includes nonrecurring network access services, nonrecurring local services and long distance services. The earned but unbilled portion of this revenue is recognized as revenue in the period that the services are provided. Certain of the Company's telephone subsidiaries participate in revenue sharing arrangements with other telephone companies for interstate revenue and for certain intrastate revenue. Such sharing arrangements are funded by toll revenue and/or access charges within state jurisdictions and by access charges in the interstate market. Revenues earned through the various sharing arrangements are initially recorded based on the Company's estimates. Property, plant and equipment - Telephone plant is stated at original cost. Normal retirements of telephone plant are charged against accumulated depreciation, along with the costs of removal, less salvage, with no gain or loss recognized. Renewals and betterments of plant and equipment are capitalized while repairs, as well as renewals of minor items, are charged to operating expense. Depreciation of telephone plant is provided on the straight line method using class or overall group rates acceptable to regulatory authorities; such rates range from 1.8% to 25%. Non-telephone property is stated at cost and, when sold or retired, a gain or loss is recognized. Depreciation of such property is provided on the straight line method over estimated service lives ranging from three to 30 years. Long-lived assets - In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under SFAS 142, effective January 1, 2002, systematic amortization of goodwill is no longer permitted; instead, SFAS 142 requires goodwill recorded in a business combination to be reviewed for impairment and to be written down only in periods in which the recorded amount of goodwill exceeds its fair value. Impairment of goodwill is tested at least annually by comparing the fair value of the reporting unit to its carrying value (including goodwill). Estimates of the fair value of the reporting unit are based on valuation models using criterion such as multiples of earnings. Each adjustment reflected in the consolidated statements of income and comprehensive income by use of the term "as adjusted for goodwill amortization" reflects the effects of SFAS 142, as more fully described in Note 4. Prior to January 1, 2002, substantially all of the Company's goodwill was amortized over 40 years. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets (exclusive of goodwill) and also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. As a result of the Company's agreement in March 2002 to sell its wireless operations (which was consummated on August 1, 2002) (see Note 3), such operations have been reflected as discontinued operations for the year ended December 31, 2002. Assets and liabilities related to the Company's wireless operations are reflected as "Held for sale" on the accompanying consolidated balance sheets. Results of operations for 2001 and 2000 have been restated to conform to this presentation. Affiliated transactions - Certain service subsidiaries of CenturyTel provide installation and maintenance services, materials and supplies, and managerial, operational, technical, accounting and administrative services to subsidiaries. In addition, CenturyTel provides and bills management services to subsidiaries and in certain instances makes interest bearing advances to finance construction of plant and purchases of equipment. These transactions are recorded by the Company's telephone subsidiaries at their cost to the extent permitted by regulatory authorities. Intercompany profit on transactions with regulated affiliates is limited to a reasonable return on investment and has not been eliminated in connection with consolidating the results of operations of CenturyTel and its subsidiaries. Intercompany profit on transactions with nonregulated affiliates has been eliminated. Income taxes - CenturyTel files a consolidated federal income tax return with its eligible subsidiaries. The Company uses the asset and liability method of accounting for income taxes under which deferred tax assets and liabilities are established for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Investment tax credits related to telephone plant have been deferred and are being amortized as a reduction of federal income tax expense over the estimated useful lives of the assets giving rise to the credits. Derivative financial instruments - Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires all derivative instruments be recognized as either assets or liabilities at fair value on the balance sheet. The Company uses derivative instruments to (i) lock-in or swap its exposure to changing or variable interest rates for fixed interest rates or (ii) swap obligations to pay fixed interest rates for variable interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instrument activities. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. Management periodically reviews the Company's exposure to interest rate fluctuations and implements strategies to manage the exposure. Earnings per share - Basic earnings per share amounts are determined on the basis of the weighted average number of common shares outstanding during the year. Diluted earnings per share gives effect to all potential dilutive common shares that were outstanding during the period. Stock-based compensation - The Company accounts for employee stock compensation plans using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as allowed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Options have been granted to employees at a price either equal to or exceeding the then-current market price. Accordingly, the Company has not recognized compensation cost in connection with issuing stock options. During 2002 the Company granted 1,983,150 options (the "2002 Options") at market price. The weighted average fair value of each of the 2002 Options was estimated as of the date of grant to be $11.66 using an option-pricing model with the following assumptions: dividend yield - .7%; expected volatility - 30%; risk-free interest rate - 3.4%; and expected option life - seven years. During 2001 the Company granted 1,971,750 options (the "2001 Options") at market price. The weighted average fair value of each of the 2001 Options was estimated as of the date of grant to be $11.16 using an option-pricing model with the following assumptions: dividend yield - .6%; expected volatility - 30%; risk-free interest rate - 4.8%; and expected option life - seven years. During 2000 the Company granted 1,565,750 options (the "2000 Options") at market price. The weighted average fair value of each of the 2000 Options was estimated as of the date of grant to be $12.46 using an option-pricing model with the following assumptions: dividend yield - .5%; expected volatility - 25%; risk-free interest rate - 5.3%; and expected option life - seven years. If compensation cost for CenturyTel's options had been determined consistent with SFAS 123, the Company's net income and earnings per share on a pro forma basis for 2002, 2001 and 2000 would have been as follows: <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ------------------------------------------------------------------------------------------ (Dollars in thousands, except per share amounts) <S> <C> <C> <C> Net income, as reported $ 801,624 343,031 231,474 Less: Total stock-based employee compensation expense determined under fair value based method, net of tax $ (15,001) (8,971) (6,310) -------------------------------------- Pro forma net income $ 786,623 334,060 225,164 ====================================== Basic earnings per share As reported $ 5.66 2.43 1.65 Pro forma $ 5.56 2.37 1.60 Diluted earnings per share As reported $ 5.61 2.41 1.63 Pro forma $ 5.51 2.35 1.59 ------------------------------------------------------------------------------------------ </TABLE> Cash equivalents - The Company considers short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. Discontinued operations - Pursuant to a definitive agreement signed March 19, 2002, on August 1, 2002, the Company sold substantially all of its wireless operations to an affiliate of ALLTEL Corporation ("Alltel") and certain partners in the Company's markets that exercised "first refusal" purchase rights for an aggregate of approximately $1.59 billion in cash. As a result, the Company's wireless operations have been reflected as discontinued operations for all periods presented. See Note 3 for additional information. Reclassifications - Certain amounts previously reported for prior years have been reclassified to conform with the 2002 presentation. (2) ACQUISITIONS On July 1, 2002, the Company completed the acquisition of approximately 300,000 telephone access lines in the state of Alabama from Verizon Communications, Inc ("Verizon") for approximately $1.022 billion cash. On August 31, 2002, the Company completed the acquisition of approximately 350,000 telephone access lines in the state of Missouri from Verizon for approximately $1.179 billion cash. The assets purchased include (i) telephone access lines and related property and equipment comprising Verizon's local exchange operations in predominantly rural markets throughout Alabama and Missouri, (ii) Verizon's assets used to provide digital subscriber line ("DSL") and other high speed data services within the purchased exchanges and (iii) approximately 2,800 route miles of fiber optic cable within the purchased exchanges. The acquired assets did not include Verizon's cellular, personal communications services ("PCS"), long distance, dial-up Internet, or directory publishing operations, or rights under various Verizon contracts, including those relating to customer premise equipment. The Company did not assume any liabilities of Verizon other than (i) those associated with contracts, facilities and certain other assets transferred in connection with the purchase and (ii) certain employee-related liabilities, including liabilities for postretirement health benefits. For financing arrangements related to these acquisitions, see Note 6. The results of operations of the acquired properties are included in the Company's results of operations from and after the respective acquisition dates. The following table presents the Company's allocation of its aggregate purchase price to the assets acquired and liabilities assumed in connection with the acquisitions. <TABLE> <CAPTION> (In thousands) ------------- <S> <C> Accounts receivable $ 49,716 Materials and supplies 1,458 Property, plant and equipment 855,752 Goodwill 1,304,786 Other assets 58,000 Accrued expenses and other liabilities (1,195) Advanced billings and customer deposits (10,362) Deferred credits and other liabilities (56,897) ------------- Aggregate purchase price $ 2,201,258 ============= </TABLE> The Company believes the entire amount of goodwill will be deductible for income tax purposes. The following pro forma information represents the consolidated results of continuing operations of the Company for the years ended December 31, 2002 and 2001 as if the Verizon acquisitions in 2002 had been consummated as of January 1, 2002 and 2001, respectively. <TABLE> <CAPTION> 2002 2001 ----------- --------- (Dollars in thousands, except per share amounts) <S> <C> <C> Operating revenues from continuing operations $ 2,285,866 2,231,631 Income from continuing operations $ 214,638 181,936 Basic earnings per share from continuing operations, as adjusted $ 1.51 1.62 Diluted earnings per share from continuing operations, as adjusted $ 1.50 1.60 </TABLE> The pro forma information is based on various assumptions and estimates, and on the above-mentioned allocations of the aggregate Verizon purchase price to the Verizon assets acquired. The pro forma information (i) reflects the effect of reduced interest expense after August 1, 2002 as a result of reducing outstanding indebtedness from utilization of proceeds received from the August 1, 2002 sale of substantially all of the Company's wireless operations described in Note 3 and (ii) makes no pro forma adjustments to reflect any assumed consummation of such sale (or any use of such sale proceeds) prior to August 1, 2002. The pro forma information is not necessarily indicative of the operating results that would have occurred if the Verizon acquisitions had been consummated as of January 1 of each respective period, nor is it necessarily indicative of future operating results. The pro forma information does not give effect to any potential revenue enhancements or cost synergies or other operating efficiencies that could result from the acquisitions. The actual results of operations of the Verizon properties are included in the consolidated financial statements only from the respective dates of acquisition. On July 31, 2000 and September 29, 2000, affiliates of the Company acquired over 490,000 telephone access lines and related assets from Verizon in four separate transactions for approximately $1.5 billion in cash. Under these transactions: o On July 31, 2000, the Company purchased approximately 231,000 telephone access lines and related local exchange assets comprising 106 exchanges throughout Arkansas for approximately $842 million in cash. o On July 31, 2000, Spectra Communications Group, LLC ("Spectra") purchased approximately 127,000 telephone access lines and related local exchange assets comprising 107 exchanges throughout Missouri for approximately $297 million cash. The Company currently owns 75.7% of Spectra, which was organized to acquire and operate these Missouri properties. At closing, the Company made a preferred equity investment in Spectra of approximately $55 million (which represented a 57.1% interest) and financed substantially all of the remainder of the purchase price. In the first quarter of 2001, the Company purchased an additional 18.6% interest in Spectra for $47.1 million. o On September 29, 2000, the Company purchased approximately 70,500 telephone access lines and related local exchange assets comprising 42 exchanges throughout Wisconsin for approximately $197 million in cash. o On September 29, 2000, Telephone USA of Wisconsin, LLC ("TelUSA") purchased approximately 62,900 telephone access lines and related local exchange assets comprising 35 exchanges throughout Wisconsin for approximately $172 million in cash. The Company owns 89% of TelUSA, which was organized to acquire and operate these Wisconsin properties. At closing, the Company made an equity investment in TelUSA of approximately $37.8 million and financed substantially all of the remainder of the purchase price. (3) DISCONTINUED OPERATIONS Pursuant to a definitive agreement signed March 19, 2002, on August 1, 2002, the Company sold substantially all of its wireless operations to Alltel and certain partners in the Company's markets that exercised "first refusal" purchase rights for an aggregate of approximately $1.59 billion in cash. In connection with this transaction, the Company divested its (i) interests in its majority-owned and operated cellular systems, which at June 30, 2002 served approximately 783,000 customers and had access to approximately 7.8 million pops, (ii) minority cellular equity interests representing approximately 1.8 million pops at June 30, 2002, and (iii) licenses to provide PCS covering 1.3 million pops in Wisconsin and Iowa. Proceeds from the sale of the wireless operations were used to partially fund the Company's acquisitions of telephone properties in Alabama and Missouri during the third quarter of 2002. As a result of the sale, the Company's wireless operations have been reflected as discontinued operations in the Company's consolidated statements of income and cash flows for the years ended December 31, 2002, 2001 and 2000. Assets and liabilities related to the Company's wireless operations are reflected as "Held for sale" on the accompanying consolidated balance sheets. The depreciation and amortization of long-lived and amortizable intangible assets related to the wireless operations ceased on March 19, 2002, the date of the definitive agreement to sell such operations. The Company had no outstanding indebtedness directly related to its wireless operations; therefore, no interest expense was allocated to discontinued operations. The following table represents certain summary income statement information related to the Company's wireless operations that is reflected in discontinued operations. <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ------------------------------------------------------------------------------------------ (Dollars in thousands) <S> <C> <C> <C> Operating revenues $ 246,705 437,965 443,569 ------------------------------------------------------------------------------------------ Operating income (1) $ 71,258 132,614 139,276 Nonrecurring gains and losses, net - 166,928 20,593 Income from unconsolidated cellular entities 31,350 27,460 26,986 Minority interest expense (8,569) (11,510) (11,598) Gain on sale of discontinued operations 803,905 - - Other income 188 4,707 3,157 ------------------------------------------------------------------------------------------ Pre-tax income from discontinued operations $ 898,132 320,199 178,414 Income tax expense (286,427) (121,314) (71,169) ------------------------------------------------------------------------------------------ Income from discontinued operations $ 611,705 198,885 107,245 ========================================================================================== </TABLE> (1) Excludes corporate overhead costs of $11.3 million, $20.2 million and $21.4 million for 2002, 2001 and 2000, respectively, allocated to the wireless operations. Included as a reduction in operating income for 2002 is a $30.5 million charge associated with the write-off of all amounts expended to develop the wireless portion of the Company's billing system currently in development. The following table represents certain summary cash flow statement information related to the Company's wireless operations reflected as discontinued operations. <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ----------------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> <C> Net cash provided by (used in) operating activities $ (250,684) (1) 87,585 117,096 Net cash provided by (used in) investing activities 1,577,633 (2) 145,243 (482) Net cash provided by financing activities - - 201 ------------------------------------------------------------------------------------------------------ Net cash provided by discontinued operations $ 1,326,949 232,828 116,815 ====================================================================================================== </TABLE> (1) Includes approximately $305 million estimated tax payment related to sale of wireless operations. (2) Includes cash proceeds of $1.59 billion from the sale of substantially all of the Company's wireless operations. The following table represents the net assets of the discontinued wireless operations as of December 31, 2002 and December 31, 2001 that are classified as held for sale on the consolidated balance sheets. <TABLE> <CAPTION> December 31, 2002 2001 ---------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> Current assets $ - 70,360 Net property, plant and equipment - 263,421 Goodwill - 384,326 Other assets (1) 11,805 127,321 ---------------------------------------------------------------------------- Assets held for sale $ 11,805 845,428 ============================================================================ Current liabilities $ - 55,074 Deferred credits and other liabilities - 93,796 ---------------------------------------------------------------------------- Liabilities related to assets held for sale $ - 148,870 ============================================================================ </TABLE> (1) At December 31, 2002, represents the Company's minority interest in a cellular partnership that the Company has agreed to sell to Alltel upon the satisfaction of various closing conditions. The Company is currently in discussions regarding whether these closing conditions have been met. No assurance can be given that this sale will occur. (4) INVESTMENTS AND OTHER ASSETS Investments and other assets at December 31, 2002 and 2001 were composed of the following: <TABLE> <CAPTION> December 31, 2002 2001 ----------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> Goodwill $ 3,427,281 2,087,158 Billing system development costs 139,451 139,503 Cash surrender value of life insurance contracts 93,664 99,835 Prepaid pension asset 54,695 42,353 Franchise costs 35,300 - Customer base, less accumulated amortization of $729 21,971 - Deferred interest rate hedge contracts 33,635 35,192 Debt issuance costs, net 23,491 12,108 Fair value of interest rate swap 22,163 - Other 79,405 91,052 -------------------------------------------------------------------------------- $ 3,931,056 2,507,201 ================================================================================ </TABLE> The following information relates to the Company's goodwill as of December 31, 2002 and 2001: <TABLE> <CAPTION> December 31, 2002 2001 ------------------------------------------------------------------------------ (Dollars in thousands) <S> <C> <C> Carrying amount of goodwill Telephone segment $ 3,382,113 2,074,036 Other operations 45,168 13,122 ------------------------------------------------------------------------------ Total goodwill $ 3,427,281 2,087,158 ============================================================================== </TABLE> During 2002, the Company completed the initial transitional goodwill impairment test and the required annual test of SFAS 142 and determined its goodwill was not impaired in either test. The increase in goodwill in the telephone segment since December 31, 2001 is primarily due to the Verizon acquisitions consummated in third quarter 2002 (see Note 2). The following is a reconciliation of reported net income and reported earnings per share to the amounts that would have been reported had the Company been subject to SFAS 142 during 2001 and 2000. <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ----------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) <S> <C> <C> <C> Net income, as reported $ 801,624 343,031 231,474 Goodwill amortization, net of taxes - 56,266 46,555 ----------------------------------------------------------------------------- Net income, as adjusted $ 801,624 399,297 278,029 ============================================================================= Basic earnings per share, as reported $ 5.66 2.43 1.65 Goodwill amortization, net of taxes - .40 .33 ----------------------------------------------------------------------------- Basic earnings per share, as adjusted $ 5.66 2.83 1.98 ============================================================================= Diluted earnings per share, as reported $ 5.61 2.41 1.63 Goodwill amortization, net of taxes - .40 .33 ----------------------------------------------------------------------------- Diluted earnings per share, as adjusted $ 5.61 2.81 1.96 ============================================================================= </TABLE> Amortization of goodwill and other intangibles from continuing operations of $729,000, $58.4 million and $43.6 million for 2002, 2001 and 2000, respectively, is included in "Depreciation and amortization" in the Company's Consolidated Statements of Income. In accordance with SFAS 142, effective January 1, 2002, goodwill is no longer subject to amortization but instead is tested for impairment at least annually. The Company is in the process of developing an integrated billing and customer care system. The costs to develop such system have been capitalized in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," and aggregated $139.5 million at both December 31, 2002 and 2001. A portion of these billing costs related to the wireless business ($30.5 million) was written off as a component of discontinued operations in the third quarter of 2002 as a result of the sale of substantially all of the Company's wireless operations on August 1, 2002. Excluding this write-off, the Company's aggregate billing system costs are expected to approximate $180 million upon completion and are expected to be amortized over a twenty-year period. The Company expects to begin amortization of the billing system in 2003 as customer groups are migrated to this new system. In connection with the acquisitions of properties from Verizon in 2002, the Company assigned $35.3 million as an intangible asset associated with franchise costs (which includes amounts necessary to maintain eligibility to provide telecommunications services in its licensed service areas). Such asset has an indefinite life and therefore is not subject to amortization currently. The Company assigned $22.7 million to a customer base intangible asset in connection with the acquisitions of Verizon properties in 2002. Such asset is being amortized over 15 years; amortization expense for 2002 was $729,000 and is expected to be $1.5 million for each of the next five years. (5) PROPERTY, PLANT AND EQUIPMENT Net property, plant and equipment at December 31, 2002 and 2001 was composed of the following: <TABLE> <CAPTION> December 31, 2002 2001 ------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> Telephone Cable and wire $ 3,643,167 3,009,720 Central office 2,150,217 1,829,945 General support 474,022 340,416 Information origination/termination 44,198 42,038 Construction in progress 32,507 64,560 Other 3,789 5,576 ------------------------------------------------------------------------------- 6,347,900 5,292,255 Accumulated depreciation (3,136,107) (2,839,268) ------------------------------------------------------------------------------- 3,211,793 2,452,987 ------------------------------------------------------------------------------- Other, at cost General support 346,037 309,500 Fiber network 74,305 72,410 Other 100,950 65,010 ------------------------------------------------------------------------------- 521,292 446,920 Accumulated depreciation (201,440) (163,765) ------------------------------------------------------------------------------- 319,852 283,155 ------------------------------------------------------------------------------- Net property, plant and equipment $ 3,531,645 2,736,142 =============================================================================== </TABLE> Depreciation expense was $410.9 million, $348.6 million and $279.2 million in 2002, 2001 and 2000, respectively. The composite depreciation rate for telephone properties was 6.9% for 2002, 6.8% for 2001 and 7.2% for 2000. (6) LONG-TERM AND SHORT-TERM DEBT The Company's long-term debt as of December 31, 2002 and 2001 was as follows: <TABLE> <CAPTION> December 31, 2002 2001 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> CenturyTel 2.05%* senior credit facilities, due through 2005 $ 385,000 - Senior credit facility - 300,000 4.85% note - 199,125 Senior notes and debentures: 7.75% Series A, due 2004 50,000 50,000 8.25% Series B, due 2024 100,000 100,000 6.55% Series C, due 2005 50,000 50,000 7.20% Series D, due 2025 100,000 100,000 6.15% Series E, due 2005 100,000 100,000 6.30% Series F, due 2008 240,000 240,000 6.875% Series G, due 2028 425,000 425,000 8.375% Series H, due 2010 500,000 500,000 7.75% Series I - 400,000 6.02% Series J, due 2007 (remarketable 2005) 500,000 - 4.75% Series K, due 2032 165,000 - 7.875% Series L, due 2012 500,000 - 9.38% notes, due through 2003 2,800 7,975 6.86%** Employee Stock Ownership Plan commitment, due in installments through 2004 1,500 2,500 Unamortized net (discount) premium (5,084) 11,036 Fair value of derivative instrument related to Series H senior notes 22,163 - Other 146 175 --------------------------------------------------------------------------------------------------------- Total CenturyTel 3,136,525 2,485,811 --------------------------------------------------------------------------------------------------------- Subsidiaries First mortgage debt 5.92%** notes, payable to agencies of the U. S. government and cooperative lending associations, due in installments through 2025 250,325 265,240 7.98% notes, due through 2017 5,500 5,419 Other debt 7.02%** unsecured medium-term notes, due through 2008 244,124 271,135 7.03%** notes, due in installments through 2020 5,361 6,725 6.46%** capital lease obligations, due through 2008 7,034 9,004 --------------------------------------------------------------------------------------------------------- Total subsidiaries 512,344 557,523 --------------------------------------------------------------------------------------------------------- Total long-term debt 3,648,869 3,043,334 Less current maturities 70,737 955,834 --------------------------------------------------------------------------------------------------------- Long-term debt, excluding current maturities $ 3,578,132 2,087,500 ========================================================================================================= </TABLE> * variable interest rate at December 31, 2002 ** weighted average interest rate at December 31, 2002 The approximate annual debt maturities for the five years subsequent to December 31, 2002 are as follows: 2003 - $70.7 million; 2004 - $71.8 million; 2005 - $630.4 million; 2006 - $113.4 million (assuming the Company is not required to purchase any of its Series K debentures in 2006 pursuant to the put rights described below); and 2007 - $522.3 million. Certain of the loan agreements of CenturyTel and its subsidiaries contain various restrictions, among which are limitations regarding issuance of additional debt, payment of cash dividends, reacquisition of capital stock and other matters. In addition, the transfer of funds from certain consolidated subsidiaries to CenturyTel is restricted by various loan agreements. Subsidiaries which have loans from government agencies and cooperative lending associations, or have issued first mortgage bonds, generally may not loan or advance any funds to CenturyTel, but may pay dividends if certain financial ratios are met. At December 31, 2002, restricted net assets of subsidiaries were $264.7 million and subsidiaries' retained earnings in excess of amounts restricted by debt covenants totaled $1.377 billion. At December 31, 2002, all of the consolidated retained earnings reflected on the balance sheet was available under CenturyTel's loan agreements for the declaration of dividends. Some of the Company's telephone property, plant and equipment is pledged to secure the long-term debt of subsidiaries. On May 6, 2002, the Company issued and sold in an underwritten public offering $500 million of equity units. Net proceeds to the Company from this issuance were approximately $483.4 million. Each of the 20 million equity units issued was priced at $25 and consists initially of a beneficial interest in a CenturyTel senior unsecured note (Series J) with a principal amount of $25 and a contract to purchase shares of CenturyTel common stock no later than May 2005. The senior notes will mature in May 2007. Each purchase contract will generally require the holder to purchase between .6944 and .8741 of a share of CenturyTel common stock in May 2005 based on the then current stock price of CenturyTel common stock in exchange for $25, subject to certain adjustments and exceptions. Accordingly, upon full settlement of the purchase contracts in May 2005, the Company will receive proceeds of $500 million and will deliver between 13.9 million and 17.5 million common shares in the aggregate. The senior notes are pledged by the holders to secure their obligations under the purchase contracts. The total distributions on the equity units will be at an initial annual rate of 6.875%, consisting of interest (6.02%) and contract adjustment payments (0.855%), each payable quarterly. On or after mid-February 2005, the senior notes will be remarketed, at which time the remarketing agent will reset the interest rate on the senior notes in order to generate sufficient proceeds to secure the holder's obligation under the purchase contract. In the event of an unsuccessful remarketing, the Company will exercise its right as a secured party to dispose of the senior notes and satisfy in full the holder's obligation to purchase common stock under the purchase contract. The senior note portion of the equity units is reflected on the balance sheet as long-term debt in the amount of $500 million. Interest expense on the senior notes is accrued at a rate of 6.02%, the initial interest rate. The present value of the aggregate contract adjustment payments has been recorded as an $11.6 million reduction to paid-in capital and as an equivalent liability. The Company will amortize the difference between the aggregate amount of all payments and the present value thereof as interest expense over the three-year term of the purchase contracts. Upon making each such payment, the Company will allocate most of the payment to the reduction of its $11.6 million liability, and record the remainder as interest expense. The issuance costs of the equity units have been allocated to the units' debt and equity components. The debt issuance costs ($3.3 million) were computed based on typical costs of a debt transaction and will be amortized to interest expense over the term of the senior notes. The remainder of the issuance costs ($12.6 million) were treated as a cost of raising equity and recorded as a charge to paid-in capital. On July 22, 2002, the Company entered into $800 million of credit facilities, consisting of a $533 million three-year facility and a $267 million 364-day revolving facility with a one-year term-out option. The Company had $385 million outstanding under these facilities at December 31, 2002. These facilities replaced credit facilities that matured during the third quarter of 2002. In the third quarter of 2002, the Company issued $500 million of senior notes, Series L, due 2012 (which bear interest at 7.875%) and $165 million of convertible senior debentures, Series K, due 2032 (which bear interest at 4.75% and which may be converted into shares of CenturyTel common stock at a conversion price of $40.455 per share). Holders of the convertible senior debentures will have the right to require the Company to purchase all or a portion of the debentures on August 1, 2006, August 1, 2010 and August 1, 2017. In each case, the purchase price payable will be equal to 100% of the principal amount of the debentures to be purchased plus any accrued and unpaid interest to the purchase date. The Company will pay cash for all debentures so purchased on August 1, 2006. For any such purchases on or after August 1, 2010, the Company may choose to pay the purchase price in cash or shares of its common stock, or any combination thereof (except that the Company will pay any accrued and unpaid interest in cash). On October 15, 2002, the Company redeemed $400 million principal amount of its Series I Remarketable Senior Notes at par value, plus accrued interest. In connection with such redemption, the Company also paid a premium of approximately $71.1 million in accordance with the redemption provisions of the associated remarketing agreement. Such premium payment (net of $11.1 million of unamortized net premium primarily associated with the option payment received by the Company in 2000 in connection with the original issuance of the remarketable notes) is reflected as an Other Expense in the Company's results of operations for year ended December 31, 2002. At December 31, 2002, the Company had available $415.0 million of undrawn committed bank lines of credit and the Company's telephone subsidiaries had available for use $123.0 million of commitments for long-term financing from the Rural Utilities Service and Rural Telephone Bank. (7) DERIVATIVE INSTRUMENTS During 2002, the Company entered into the following derivative transactions: (a) A cash flow hedge designed to lock in a fixed interest rate for $100 million of the $500 million senior notes issued in the third quarter of 2002. Such hedge was settled in the third quarter of 2002 for a $1.1 million payment by the Company. Such amount will be amortized as additional interest expense over a ten-year period, which equates to the term of the debt issuance hedged. (b) A fair value hedge with respect to the Company's $500 million aggregate principal amount of 8.375% Series H senior notes, due 2010. This hedge is a "fixed to variable" interest rate swap that effectively converts the Company's fixed rate interest payment obligations under these notes into variable rate obligations. As of December 31, 2002, the Company realized an interest rate of 4.96% related to such hedge. Interest expense was reduced by $7.8 million in 2002 as a result of this hedge. The fair value of such hedge at December 31, 2002 was $22.2 million and is reflected on the accompanying balance sheet as both an asset (included in "Other assets") and as an increase in the underlying debt (included in "Long-term debt"). (c) A cash flow hedge designed to eliminate the variability of interest payments for $400 million of variable rate debt under the Company's $800 million credit facilities. Such hedge expires in October 2003 and is designed to swap the Company's future obligation to pay variable rate interest based on LIBOR into obligations that lock-in a fixed rate of 2.49%. Such hedge was deemed to be an effective hedge as of December 31, 2002 and its value on such date ($1.3 million) is reflected as a liability and Accumulated Other Comprehensive Loss (net of tax) on the accompanying balance sheet. (8) DEFERRED CREDITS AND OTHER LIABILITIES Deferred credits and other liabilities at December 31, 2002 and 2001 were composed of the following: <TABLE> <CAPTION> December 31, 2002 2001 -------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> Deferred federal and state income taxes $ 352,161 303,708 Accrued postretirement benefit costs 208,542 139,020 Additional minimum pension liability 56,388 - Minority interest 26,067 23,248 Other 73,010 40,076 -------------------------------------------------------------------------------- $ 716,168 506,052 ================================================================================ </TABLE> (9) STOCKHOLDERS' EQUITY Common stock - Unissued shares of CenturyTel common stock were reserved as follows: <TABLE> <CAPTION> December 31, 2002 ------------------------------------------------------------------------------ (In thousands) <S> <C> Incentive compensation programs 13,452 Acquisitions 4,064 Employee stock purchase plan 4,870 Dividend reinvestment plan 484 Conversion of convertible preferred stock 435 Other employee benefit plans 1,655 ------------------------------------------------------------------------------ 24,960 ============================================================================== </TABLE> Under CenturyTel's Articles of Incorporation each share of common stock beneficially owned continuously by the same person since May 30, 1987 generally entitles the holder thereof to ten votes per share. All other shares entitle the holder to one vote per share. At December 31, 2002, the holders of 9.6 million shares of common stock were entitled to ten votes per share. Preferred stock - As of December 31, 2002, CenturyTel had 2.0 million shares of authorized convertible preferred stock, $25 par value per share. At December 31, 2002 and 2001, there were 319,000 shares of outstanding preferred stock. Holders of outstanding CenturyTel preferred stock are entitled to receive cumulative dividends, receive preferential distributions equal to $25 per share plus unpaid dividends upon CenturyTel's liquidation and vote as a single class with the holders of common stock. Shareholders' Rights Plan - In 1996 the Board of Directors declared a dividend of one preference share purchase right for each common share outstanding. Such rights become exercisable if and when a potential acquiror takes certain steps to acquire 15% or more of CenturyTel's common stock. Upon the occurrence of such an acquisition, each right held by shareholders other than the acquiror may be exercised to receive that number of shares of common stock or other securities of CenturyTel (or, in certain situations, the acquiring company) which at the time of such transaction will have a market value of two times the exercise price of the right. (10) POSTRETIREMENT BENEFITS The Company sponsors health care plans that provide postretirement benefits to all qualified retired employees. The following is a reconciliation of the beginning and ending balances for the benefit obligation and the plan assets. <TABLE> <CAPTION> December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Change in benefit obligation Benefit obligation at beginning of year $ 215,872 165,266 156,724 Service cost 6,669 6,373 4,727 Interest cost 15,962 14,512 10,907 Participant contributions 617 548 677 Acquisitions 56,539 - 15,730 Actuarial (gain) loss (29,534) 40,005 (14,773) Benefits paid (12,363) (10,832) (8,726) --------------------------------------------------------------------------------------------------------- Benefit obligation at end of year $ 253,762 215,872 165,266 ========================================================================================================= Change in plan assets (primarily listed stocks and bonds) Fair value of plan assets at beginning of year $ 36,555 39,873 41,781 Return on assets (2,896) (1,379) (270) Employer contributions 6,784 8,345 6,411 Participant contributions 617 548 677 Benefits paid (12,363) (10,832) (8,726) --------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year $ 28,697 36,555 39,873 ========================================================================================================= </TABLE> Net periodic postretirement benefit cost for 2002, 2001 and 2000 included the following components: <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ---------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Service cost $ 6,669 6,373 4,727 Interest cost 15,962 14,512 10,907 Expected return on plan assets (3,656) (3,987) (4,178) Amortization of unrecognized actuarial loss 1,470 1,337 26 Amortization of unrecognized prior service cost (129) (129) (129) ---------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $ 20,316 18,106 11,353 ============================================================================================== </TABLE> The following table sets forth the amounts recognized as liabilities for postretirement benefits at December 31, 2002, 2001 and 2000. <TABLE> <CAPTION> December 31, 2002 2001 2000 ----------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Benefit obligation $ (253,762) (215,872) (165,266) Fair value of plan assets 28,697 36,555 39,873 Unamortized prior service cost (918) (1,046) (1,175) Unrecognized net actuarial (gain) loss 14,573 33,925 (9,621) ------------------------------------------------------------------------------------------ Accrued benefit cost $ (211,410) (146,438) (136,189) ========================================================================================== </TABLE> Assumptions used in accounting for postretirement benefits as of December 31, 2002 and 2001 were: <TABLE> <CAPTION> 2002 2001 ------------------------------------------------------------------------------ <S> <C> <C> Weighted average assumptions Discount rate 6.75% 7.0 Expected return on plan assets 10.0% 10.0 ------------------------------------------------------------------------------ </TABLE> For 2003, the Company lowered its expected return on plan assets from 10.0% to 8.25%. For measurement purposes, the annual rate in the per capita cost of covered health care benefits was assumed to range between 4.9%-5.7% for 2003, reaching an ultimate trend of 4.5% in 2015. A one-percentage-point change in assumed health care cost rates would have the following effects: <TABLE> <CAPTION> 1-Percentage 1-Percentage Point Increase Point Decrease -------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> Effect on total of service and interest cost components $ 1,474 (1,405) Effect on postretirement benefit obligation $ 16,604 (15,584) -------------------------------------------------------------------------------------- </TABLE> (11) RETIREMENT AND SAVINGS PLANS CenturyTel and certain subsidiaries sponsor defined benefit pension plans for substantially all employees. CenturyTel also sponsors an Outside Directors' Retirement Plan and a Supplemental Executive Retirement Plan to provide directors and officers, respectively, with supplemental retirement, death and disability benefits. The following is a reconciliation of the beginning and ending balances for the aggregate benefit obligation and the plan assets for the Company's retirement and savings plans. <TABLE> <CAPTION> December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Change in benefit obligation Benefit obligation at beginning of year $ 271,490 249,835 205,455 Service cost 10,353 7,760 5,928 Interest cost 20,053 17,829 15,381 Plan amendments - 1,205 3,387 Acquisitions 51,428 - 35,824 Actuarial (gain) loss 9,231 9,065 (3,726) Benefits paid (16,299) (14,204) (12,414) --------------------------------------------------------------------------------------------------------- Benefit obligation at end of year $ 346,256 271,490 249,835 ========================================================================================================= Change in plan assets (primarily listed stocks and bonds) Fair value of plan assets at beginning of year $ 283,448 329,459 319,901 Return on plan assets (43,564) (33,184) (14,991) Employer contributions 14,887 1,377 572 Acquisitions 51,428 - 36,391 Benefits paid (16,299) (14,204) (12,414) --------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year $ 289,900 283,448 329,459 ========================================================================================================= </TABLE> Net periodic pension expense (benefit) for 2002, 2001 and 2000 included the following components: <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Service cost $ 10,353 7,760 5,928 Interest cost 20,053 17,829 15,381 Expected return on plan assets (29,578) (31,901) (31,586) Recognized net (gains) losses 1,328 (2,325) (7,107) Net amortization and deferral 395 301 (602) --------------------------------------------------------------------------------------------------------- Net periodic pension expense (benefit) $ 2,551 (8,336) (17,986) ========================================================================================================= </TABLE> The following table sets forth the combined plans' funded status and amounts recognized in the Company's consolidated balance sheet at December 31, 2002, 2001 and 2000. <TABLE> <CAPTION> December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Benefit obligation $ (346,256) (271,490) (249,835) Fair value of plan assets 289,900 283,448 329,459 Unrecognized transition asset (1,152) (1,404) (1,648) Unamortized prior service cost 4,370 5,017 4,126 Unrecognized net actuarial (gain) loss 107,833 26,782 (49,336) --------------------------------------------------------------------------------------------------------- Prepaid pension cost $ 54,695 42,353 32,766 ========================================================================================================= </TABLE> As of December 31, 2002, substantially all of the pension plans had benefit obligations in excess of plan assets. Amounts recognized on the balance sheet consist of: <TABLE> <CAPTION> December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Prepaid pension cost $ 54,695 42,353 32,766 Additional minimum pension liability (reflected in Deferred Credits and Other Liabilities) (56,388) - - Intangible asset (reflected in Other Assets) 1,212 - - Accumulated Other Comprehensive Loss 55,176 - - --------------------------------------------------------------------------------------------------------- $ 54,695 42,353 32,766 ========================================================================================================= </TABLE> Assumptions used in accounting for the pension plans as of December 2002 and 2001 were: <TABLE> <CAPTION> 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> Discount rate 6.75% 7.0 Expected long-term rate of return on assets 8.0-10.0% 8.0-10.0 Weighted average rate of compensation increase 4.50% 4.50 -------------------------------------------------------------------------------- </TABLE> For 2003, the Company lowered its expected long-term rate of return on assets from 8-10% to 8-8.25%. CenturyTel sponsors an Employee Stock Ownership Plan ("ESOP") which covers most employees with one year of service with the Company and is funded by Company contributions determined annually by the Board of Directors. The Company's expense related to the ESOP during 2002, 2001 and 2000 was $9.3 million, $7.5 million, and $9.5 million, respectively. At December 31, 2002, the ESOP owned an aggregate of 7.6 million shares of CenturyTel common stock. CenturyTel and certain subsidiaries also sponsor qualified profit sharing plans pursuant to Section 401(k) of the Internal Revenue Code (the "401(k) Plans") which are available to substantially all employees of the Company. The Company's matching contributions to the 401(k) Plans were $6.7 million in 2002, $6.6 million in 2001 and $6.1 million in 2000. (12) INCOME TAXES Income tax expense from continuing operations included in the Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000 was as follows: <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Federal Current $ 21,019 24,032 42,295 Deferred 80,056 62,164 30,932 State Current 11,406 6,735 9,393 Deferred (8,944) (4,220) 922 ------------------------------------------------------------------------------- $ 103,537 88,711 83,542 =============================================================================== </TABLE> Income tax expense from continuing operations was allocated as follows: <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ------------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> Income tax expense in the consolidated statements of income $ 103,537 88,711 83,542 Stockholders' equity: Compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes (7,471) (1,051) (2,702) Tax effect of the change in accumulated other comprehensive income (loss) (19,763) (13,715) (20,941) ------------------------------------------------------------------------------------------------- </TABLE> The following is a reconciliation from the statutory federal income tax rate to the Company's effective income tax rate from continuing operations: <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------- (Percentage of pre-tax income) <S> <C> <C> <C> Statutory federal income tax rate 35.0% 35.0 35.0 State income taxes, net of federal income tax benefit .5 .7 3.2 Amortization of nondeductible goodwill - 3.4 3.7 Amortization of investment tax credits (.1) (.2) (.3) Amortization of regulatory liability (.3) (.7) (.8) Other, net .2 (.1) (.6) --------------------------------------------------------------------------------------------- Effective income tax rate 35.3% 38.1 40.2 ============================================================================================= </TABLE> In accordance with SFAS 142, effective January 1, 2002, goodwill amortization for financial reporting purposes ceased. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2002 and 2001 were as follows: <TABLE> <CAPTION> December 31, 2002 2001 -------------------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> Deferred tax assets Postretirement benefit costs $ 40,852 31,670 Regulatory support 11,414 12,163 Net state operating loss carryforwards 28,380 19,691 Other employee benefits 28,697 8,255 Other 18,720 21,036 -------------------------------------------------------------------------------------------- Gross deferred tax assets 128,063 92,815 Less valuation allowance (28,380) (19,691) -------------------------------------------------------------------------------------------- Net deferred tax assets 99,683 73,124 -------------------------------------------------------------------------------------------- Deferred tax liabilities Property, plant and equipment, primarily due to depreciation differences (189,663) (152,506) Goodwill (256,801) (218,461) Deferred debt costs (2,400) (2,582) Intercompany profits (2,980) (3,283) -------------------------------------------------------------------------------------------- Gross deferred tax liabilities (451,844) (376,832) -------------------------------------------------------------------------------------------- Net deferred tax liability $ (352,161) (303,708) ============================================================================================ </TABLE> As of December 31, 2002 and 2001, the Company had available tax benefits associated with state operating loss carryforwards of $28.4 million and $19.7 million, respectively, which expire through 2017. Such amounts were reserved in total through the valuation allowance as it is likely that such operating loss carryforwards will not be utilized prior to expiration. (13) NONRECURRING GAINS AND LOSSES, NET In the second quarter of 2002, the Company recorded a pre-tax gain of $3.7 million from the sale of a PCS license. In the second quarter of 2001, the Company recorded a pre-tax gain (reflected in discontinued operations) of approximately $185.1 million ($117.7 million after-tax; $.83 per diluted share) due to the sale of 30 PCS licenses to Leap Wireless International, Inc. ("Leap"). In conjunction with the sale of the licenses to Leap, the Company also recorded a pre-tax charge (reflected in discontinued operations) of $18.2 million ($11.6 million after-tax; $.08 per share) due to the write down in the value of certain non-operating assets. In the third quarter of 2001, the Company recorded a pre-tax gain on the sale of its remaining common shares of Illuminet Holdings, Inc. aggregating $54.6 million ($35.5 million after-tax; $.25 per diluted share). The Company also recorded a pre-tax gain of $4.0 million ($2.6 million after-tax; $.02 per diluted share) on the sale of certain other assets. Additionally in 2001, the Company recorded pre-tax charges of $25.5 million ($16.6 million after-tax; $.12 per diluted share) due to the write-down in the value of certain non-operating investments in which the Company owns a minority interest. In the first quarter of 2000 the Company recorded a pre-tax gain (reflected in discontinued operations) aggregating $9.9 million ($5.2 million after tax) due to the sale of its remaining Alaska cellular operations. In the third quarter of 2000 the Company recorded a pre-tax gain (reflected in discontinued operations) aggregating $10.7 million ($6.4 million after tax) due to the sale of its minority interest in a non-strategic cellular partnership. (14) EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations: <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars, except per share amounts, and shares in thousands) <S> <C> <C> <C> Income (Numerator): Income from continuing operations $ 189,919 144,146 124,229 Discontinued operations, net of tax 611,705 198,885 107,245 --------------------------------------------------------------------------------------------------------- Net income 801,624 343,031 231,474 Dividends applicable to preferred stock (399) (399) (399) --------------------------------------------------------------------------------------------------------- Net income applicable to common stock for computing basic earnings per share 801,225 342,632 231,075 Dividends applicable to preferred stock 399 399 399 Interest on convertible securities, net of taxes - - 132 --------------------------------------------------------------------------------------------------------- Net income as adjusted for purposes of computing diluted earnings per share $ 801,624 343,031 231,606 ========================================================================================================= Net income applicable to common stock for computing basic earnings per share, as adjusted for goodwill amortization $ 801,225 398,898 277,630 ========================================================================================================= Net income as adjusted for purposes of computing diluted earnings per share, as adjusted for goodwill amortization $ 801,624 399,297 278,161 ========================================================================================================= Shares (Denominator): Weighted average number of shares outstanding during period 141,796 141,021 140,440 Employee Stock Ownership Plan shares not committed to be released (183) (278) (371) --------------------------------------------------------------------------------------------------------- Weighted average number of shares outstanding during period for computing basic earnings per share 141,613 140,743 140,069 Incremental common shares attributable to dilutive securities: Shares issuable under convertible securities 435 435 707 Shares issuable under outstanding stock options 831 1,129 1,088 --------------------------------------------------------------------------------------------------------- Number of shares as adjusted for purposes of computing diluted earnings per share 142,879 142,307 141,864 ========================================================================================================= Basic earnings per share From continuing operations $ 1.34 1.02 .88 From continuing operations, as adjusted for goodwill amortization $ 1.34 1.35 1.15 From discontinued operations $ 4.32 1.41 .77 From discontinued operations, as adjusted for goodwill amortization $ 4.32 1.48 .84 Basic earnings per share $ 5.66 2.43 1.65 Basic earnings per share, as adjusted for goodwill amortization $ 5.66 2.83 1.98 Diluted earnings per share From continuing operations $ 1.33 1.01 .88 From continuing operations, as adjusted for goodwill amortization $ 1.33 1.34 1.13 From discontinued operations $ 4.28 1.40 .76 From discontinued operations, as adjusted for goodwill amortization $ 4.28 1.47 .83 Diluted earnings per share $ 5.61 2.41 1.63 Diluted earnings per share, as adjusted for goodwill amortization $ 5.61 2.81 1.96 </TABLE> The weighted average number of options to purchase shares of common stock that were excluded from the computation of diluted earnings per share because the exercise price of the option was greater than the average market price of the common stock was 3,285,000 for 2002, 1,346,000 for 2001 and 969,000 for 2000. (15) STOCK OPTION PROGRAMS CenturyTel maintains programs which allow the Board of Directors, through the Compensation Committee, to grant (i) incentives to certain employees in any one or a combination of several forms, including incentive and non-qualified stock options; stock appreciation rights; restricted stock; and performance shares and (ii) stock options to outside directors. As of December 31, 2002, CenturyTel had reserved 13.5 million shares of common stock which may be issued under CenturyTel's current incentive compensation programs. Under the Company's programs, options have been granted to employees at a price either equal to or exceeding the then-current market price. All of the options expire ten years after the date of grant and the vesting period ranges from immediate to three years. Stock option transactions during 2002, 2001 and 2000 were as follows: <TABLE> <CAPTION> Number Average of options price ------------------------------------------------------------------------------- <S> <C> <C> Outstanding December 31, 1999 3,485,842 14.92 Exercised (369,308) 12.46 Granted 1,565,750 33.00 Forfeited (1,125) 13.33 ----------------------------------------------------------------- Outstanding December 31, 2000 4,681,159 21.16 Exercised (149,806) 15.91 Granted 1,971,750 28.14 Forfeited (135,583) 18.42 ----------------------------------------------------------------- Outstanding December 31, 2001 6,367,520 23.51 Exercised (1,366,560) 13.97 Granted 1,983,150 32.28 Forfeited (88,308) 28.59 ----------------------------------------------------------------- Outstanding December 31, 2002 6,895,802 27.95 ================================================================= Exercisable December 31, 2002 3,991,753 25.68 ================================================================= Exercisable December 31, 2001 3,342,216 17.81 ================================================================= </TABLE> The following tables summarize certain information about CenturyTel's stock options at December 31, 2002. <TABLE> <CAPTION> Options outstanding ----------------------------------------------------------------------------------------------------- Weighted average Range of remaining contractual Weighted average exercise prices Number of options life outstanding exercise price ----------------------------------------------------------------------------------------------------- <C> <C> <C> <C> $ 11.67-17.64 1,382,141 2.8 $ 14.93 24.10-26.31 375,728 8.6 25.19 26.62-31.54 1,976,839 8.3 28.18 31.75-38.50 3,116,934 8.6 33.72 39.00-46.19 44,160 6.4 42.29 --------- 11.67-46.19 6,895,802 7.6 27.95 ========= </TABLE> <TABLE> <CAPTION> Options exercisable ----------------------------------------------------------------------------------------------------- Range of Number of Weighted average exercise prices options exercisable exercise price ----------------------------------------------------------------------------------------------------- <C> <C> <C> $ 11.67-17.64 1,382,141 $ 14.93 24.10-26.31 225,345 25.21 26.62-31.54 939,351 28.18 31.75-38.50 1,400,756 34.15 39.00-46.19 44,160 42.29 --------- 11.67-46.19 3,991,753 25.68 ========= </TABLE> (16) SUPPLEMENTAL CASH FLOW DISCLOSURES The amount of interest actually paid by the Company, net of amounts capitalized of $1.2 million, $3.5 million and $4.5 million during 2002, 2001 and 2000, respectively, was $210.9 million, $224.7 million and $164.0 million during 2002, 2001 and 2000, respectively. Income taxes paid were $325.5 million in 2002, $128.3 million in 2001 and $142.3 million in 2000. CenturyTel has consummated the acquisitions of various operations, along with certain other assets, during the three years ended December 31, 2002. In connection with these acquisitions, the following assets were acquired and liabilities assumed: <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ------------------------------------------------------------------------------------------ (Dollars in thousands) <S> <C> <C> <C> Property, plant and equipment, net $ 866,575 - 607,415 Goodwill 1,335,157 33,183 917,468 Other investments - - 1,972 Long-term debt - - (378) Deferred credits and other liabilities (56,897) 13,948 (44,465) Other assets and liabilities, excluding cash and cash equivalents 100,191 - 53,671 ------------------------------------------------------------------------------------------ Decrease in cash due to acquisitions $ 2,245,026 47,131 1,535,683 ========================================================================================== </TABLE> CenturyTel has disposed of various operations reflected within continuing operations, along with certain other assets, during the three years ended December 31, 2002. In connection with these dispositions, the following assets were sold, liabilities eliminated, assets received and gain recognized: <TABLE> <CAPTION> Year ended December 31, 2002 2001 2000 ------------------------------------------------------------------------------------------ (Dollars in thousands) <S> <C> <C> <C> Property, plant and equipment, net $ - (2,447) - Marketable equity securities - (3,614) - Other assets and liabilities, excluding cash and cash equivalents (435) (19,080) - Gain on sale of assets (3,709) (33,043) - ------------------------------------------------------------------------------------------ Increase in cash due to dispositions $ (4,144) (58,184) - ========================================================================================== </TABLE> For information on the Company's discontinued operations, see Note 3. (17) FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of certain of the Company's financial instruments at December 31, 2002 and 2001. <TABLE> <CAPTION> Carrying Fair Amount value -------------------------------------------------------------------------------------------- (Dollars in thousands) December 31, 2002 <S> <C> <C> <C> Financial assets Interest rate swaps $ 22,163 22,163 (2) Other $ 33,637 33,637 (2) Financial liabilities Long-term debt (including current maturities) $ 3,648,869 3,937,535 (1) Interest rate swaps $ 1,290 1,290 (2) Other $ 41,884 41,884 (2) -------------------------------------------------------------------------------------------- December 31, 2001 Financial assets $ 25,601 25,601 (2) Financial liabilities Long-term debt (including current maturities) $ 3,043,334 3,040,242 (1) Other $ 29,308 29,308 (2) -------------------------------------------------------------------------------------------- </TABLE> (1) Fair value was estimated by discounting the scheduled payment streams to present value based upon rates currently available to the Company for similar debt. (2) Fair value was estimated by the Company to approximate carrying value. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates the fair value due to the short maturity of these instruments and have not been reflected in the above table. (18) BUSINESS SEGMENTS The Company's only separately reportable business segment is its telephone operations. The operating income of this segment is reviewed by the chief operating decision maker to assess performance and make business decisions. Due to the sale of the Company's wireless operations, such operations (which were previously reported as a separate segment) are classified as discontinued operations. Other operations include, but are not limited to, the Company's nonregulated long distance operations, Internet operations, competitive local exchange carrier operations, fiber network business and security monitoring operations. The Company's telephone operations are conducted in rural, suburban and small urban communities in 22 states. Approximately 91% of the Company's telephone access lines are in Wisconsin, Missouri, Alabama, Arkansas, Washington, Michigan, Louisiana, Colorado, Ohio and Oregon. <TABLE> <CAPTION> Depreciation Operating and Operating revenues amortization income ---------------------------------------------------------------------------------------------------------- (Dollars in thousands) Year ended December 31, 2002 <S> <C> <C> <C> Telephone $ 1,733,592 396,866 543,113 Other operations 238,404 14,760 43,568 Corporate overhead costs allocable to discontinued operations - - (11,275) ---------------------------------------------------------------------------------------------------------- Total $ 1,971,996 411,626 575,406 ========================================================================================================== Year ended December 31, 2001 Telephone $ 1,505,733 398,284 423,420 Other operations 173,771 8,754 22,098 Corporate overhead costs allocable to discontinued operations - - (20,213) ----------------------------------------------------------------------------------------------------------- Total $ 1,679,504 407,038 425,305 ========================================================================================================== Year ended December 31, 2000 Telephone $ 1,253,969 317,906 376,290 Other operations 148,388 4,911 31,258 Corporate overhead costs allocable to discontinued operations - - (21,411) ---------------------------------------------------------------------------------------------------------- Total $ 1,402,357 322,817 386,137 ========================================================================================================== Year ended December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) Operating income $ 575,406 425,305 386,137 Nonrecurring gains and losses, net 3,709 33,043 - Interest expense (221,845) (225,523) (183,302) Other income and expense (63,814) 32 4,936 ---------------------------------------------------------------------------------------------------------- Income from continuing operations before income tax expense $ 293,456 232,857 207,771 ========================================================================================================== Year ended December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) Capital expenditures Telephone $ 319,536 351,010 275,523 Other operations 66,731 84,505 115,546 ---------------------------------------------------------------------------------------------------------- Total $ 386,267 435,515 391,069 ========================================================================================================== December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) Total assets Telephone $ 6,962,713 4,754,522 4,769,557 Other operations 795,890 718,734 721,600 Assets held for sale 11,805 845,428 902,133 ---------------------------------------------------------------------------------------------------------- Total assets $ 7,770,408 6,318,684 6,393,290 ========================================================================================================== </TABLE> Interexchange carriers and other accounts receivable on the balance sheets are primarily amounts due from various long distance carriers, principally AT&T, and several large local exchange operating companies. (19) COMMITMENTS AND CONTINGENCIES Construction expenditures and investments in vehicles, buildings and equipment during 2003 are estimated to be $370 million for telephone operations and $30 million for other operations. On August 29, 2002, the Wisconsin Court of Appeals upheld a ruling upon appeal that ordered the Company to refund access charges collected from interexchange carriers from December 1998 through 2000 on the former properties acquired from Ameritech. As a result of this ruling, the Company recorded a $7.6 million pre-tax charge related to this refund in the third quarter of 2002. On December 26, 2001, AT&T Corp. and one of its subsidiaries filed a complaint in the U.S. District Court for the Western District of Washington (Case No. CV0121512) seeking money damages against CenturyTel of the Northwest, Inc. The plaintiffs claim, among other things, that CenturyTel of the Northwest, Inc. has breached its obligations under a 1994 stock purchase agreement to indemnify the plaintiffs for various environmental costs and damages relating to properties sold to the plaintiffs under such 1994 agreement. The Company has investigated this claim and believes it has numerous defenses available. If the plaintiffs are successful in recovering any sums under this litigation, the Company believes it is entitled to indemnification under agreements with third parties. From time to time, the Company is involved in various other claims and legal actions relating to the conduct of its business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. CENTURYTEL, INC. Consolidated Quarterly Income Statement Information (Unaudited) <TABLE> <CAPTION> First Second Third Fourth quarter quarter quarter quarter --------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) 2002 (unaudited) --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating revenues $ 422,918 438,702 524,497 585,879 Operating income $ 119,049 109,531 157,716 189,110 Income from continuing operations $ 42,857 40,208 63,619 43,235 Net income $ 70,767 78,763 607,749 44,345 Basic earnings per share from continuing operations $ .30 .28 .45 .30 Basic earnings per share $ .50 .56 4.29 .31 Diluted earnings per share from continuing operations $ .30 .28 .45 .30 Diluted earnings per share $ .50 .55 4.26 .31 2001 --------------------------------------------------------------------------------------------------------- Operating revenues $ 411,602 409,250 423,973 434,679 Operating income $ 104,309 99,209 105,991 115,796 Income from continuing operations $ 26,851 21,069 59,570 36,657 Net income $ 46,722 154,241 92,305 49,763 Basic earnings per share from continuing operations $ .19 .15 .42 .26 Basic earnings per share from continuing operations, as adjusted $ .27 .23 .50 .34 Basic earnings per share $ .33 1.10 .65 .35 Basic earnings per share, as adjusted $ .43 1.20 .75 .45 Diluted earnings per share from continuing operations $ .19 .15 .42 .26 Diluted earnings per share from continuing operations, as adjusted $ .27 .23 .50 .34 Diluted earnings per share $ .33 1.09 .65 .35 Diluted earnings per share, as adjusted $ .43 1.19 .75 .45 --------------------------------------------------------------------------------------------------------- </TABLE> Diluted earnings per share for the third quarter of 2002 included $3.72 per share related to the gain on the sale of substantially all of the Company's wireless operations, net of amounts written off for costs expended related to the wireless portion of the new billing system currently in development. Diluted earnings per share for the fourth quarter of 2002 was negatively impacted by $.27 per share related to the redemption premium on the Company Series I remarketable notes that were redeemed in October 2002. On July 1 and August 31, 2002, the Company acquired nearly 650,000 telephone access lines and related assets from Verizon. See Note 2 for additional information. Diluted earnings per share for the second and third quarters of 2001 included $.75 and $.27 per share, respectively, of net gains on sales of assets. See Note 13 for additional information. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The name, age and office(s) held by each of the Registrant's executive officers are shown below. Each of the executive officers listed below serves at the pleasure of the Board of Directors. Name Age Office(s) held with CenturyTel ---- --- ------------------------------ Glen F. Post, III 50 Chairman of the Board of Directors and Chief Executive Officer Karen A. Puckett 42 President and Chief Operating Officer R. Stewart Ewing, Jr. 51 Executive Vice President and Chief Financial Officer Harvey P. Perry 58 Executive Vice President, Chief Administrative Officer, General Counsel and Secretary David D. Cole 45 Senior Vice President - Operations Support Michael Maslowski 55 Senior Vice President and Chief Information Officer Each of the Registrant's executive officers, except for Ms. Puckett and Mr. Maslowski, has served as an officer of the Registrant and one or more of its subsidiaries in varying capacities for more than the past five years. Mr. Maslowski has served as Senior Vice President and Chief Information Officer since March 1999 and as Senior Information Systems Executive for Lucent Technologies and for a joint venture between Lucent Technologies and Phillips Consumer Communications from 1996 to early 1999. Ms. Puckett has served as President and Chief Operating Officer since August 2002, as Executive Vice President and Chief Operating Officer from July 2000 through August 2002, as Sales and Marketing Senior Officer of BroadStream Communications from July 1999 through July 2000 and as Texas Region President for GTE Wireless from 1996 to mid-1999. Commco Technology LLC (formerly BroadStream Communications) filed for bankruptcy on December 18, 2000 in the United States Bankruptcy Court, District of Connecticut (Bridgeport). Ms. Puckett was an officer and employee of BroadStream Communications from July 1999 through July 2000. Mr. Post has served as Chairman of the Board since June 2002, and previously served as Vice Chairman of the Board from 1993 to 2002 and President from 1990 to 2002. In May 1999, Messrs. Ewing and Perry were promoted from Senior Vice President to Executive Vice President, and Mr. Perry was named Chief Administrative Officer. Mr. Cole has served as Senior Vice President - Operations Support since November 1998 and served as President - Wireless Group from October 1996 to October 1998. The balance of the information required by Item 10 is incorporated by reference to the Registrant's definitive proxy statement relating to its 2003 annual meeting of stockholders (the "Proxy Statement"), which Proxy Statement will be filed pursuant to Regulation 14A within the first 120 days of 2003. Item 11. Executive Compensation. The information required by Item 11 is incorporated by reference to the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table provides information as of December 31, 2002, concerning shares of CenturyTel common stock authorized for issuance under CenturyTel's existing equity compensation plans. <TABLE> <CAPTION> (c) Number of securities remaining available for (a) (b) future issuance under Number of securities to Weighted-average plans (excluding be issued upon conversion exercise price of securities reflected in Plan category of outstanding options outstanding options column (a)) ------------------ ------------------------- ------------------- ----------------------- <S> <C> <C> <C> Equity compensation plans approved by security holders 6,895,802 $ 27.95 4,744,400 Employee Stock Purchase Plan approved by shareholders - - 4,869,559 Equity compensation plans not approved by security holders - - 685,743 ------------------------------------------------------------------------------------------------ Totals 6,895,802 $ 27.95 10,299,702 ================================================================================================ </TABLE> The balance of the information required by Item 12 is incorporated by reference to the Proxy Statement. Item 13. Certain Relationships and Related Transactions. The information required by Item 13 is incorporated by reference to the Proxy Statement. Item 14. Controls and Procedures The Company's Chief Executive Officer, Glen F. Post, III, and the Company's Chief Financial Officer, R. Stewart Ewing, Jr., have evaluated the Company's disclosure controls and procedures within 90 days of the filing of this annual report. Based on the evaluation, Messrs. Post and Ewing have concluded that the Company's disclosure controls and procedures are effective in providing reasonable assurance that they are timely alerted of all material information required to be filed in this annual report. Since the date of Messrs. Post's and Ewing's most recent evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events and contingencies, and there can be no assurance that any design will succeed in achieving its stated goals. PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. a. Financial Statements (i) Consolidated Financial Statements: Independent Auditors' Report on Consolidated Financial Statements and Financial Statement Schedule Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Comprehensive Income for the years ended December 31, 2002, 2001 and 2000 Consolidated Balance Sheets - December 31, 2002 and 2001 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements Consolidated Quarterly Income Statement Information (unaudited) (ii) Schedules:* II Valuation and Qualifying Accounts * Those schedules not listed above are omitted as not applicable or not required. b. Reports on Form 8-K. The following items were reported in a Form 8-K filed October 8, 2002: Item 5. Other events and Regulation FD Disclosure - Updated information concerning Registrant's disposition of its wireless operations and acquisitions of telephone properties from Verizon. Item 7. Financial Statements and Exhibits - Historical financial statements of Verizon properties acquired and pro forma financial information. The following item was reported in a Form 8-K filed October 25, 2002: Item 5. Other events and Regulation FD Disclosure - News release announcing third quarter results of operations and fourth quarter 2002 earnings expectations. c. Exhibits: 3.1 Amended and Restated Articles of Incorporation of Registrant, dated as of May 6, 1999, (incorporated by reference to Exhibit 3(i) to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 3.2 Registrant's Bylaws, as amended through February 25, 2003, included elsewhere herein. 3.3 Governance Guidelines and Charters, all included elsewhere herein. (a) Corporate Governance Guidelines (b) Charter of the Audit Committee of the Board of Directors (c) Charter of the Compensation Committee of the Board of Directors (d) Charter of the Nominating and Corporate Governance Committee of the Board of Directors (e) Charter of the Risk Evaluation Committee of the Board of Directors 4.1 Note Purchase Agreement, dated September 1, 1989, between Registrant, Teachers Insurance and Annuity Association of America and the Lincoln National Life Insurance Company (incorporated by reference to Exhibit 4.23 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989). 4.2 Rights Agreement, dated as of August 27, 1996, between Registrant and Society National Bank, as Rights Agent, including the form of Rights Certificate (incorporated by reference to Exhibit 1 of Registrant's Current Report on Form 8-K filed August 30, 1996) and Amendment No.1 thereto, dated May 25, 1999 (incorporated by reference to Exhibit 4.2(ii) to Registrant's Report on Form 8-K dated May 25, 1999) and Amendment No. 2 thereto, dated and effective as of June 30, 2000, by and between the Registrant and Computershare Investor Services, LLC, as rights agent (incorporated by reference to Exhibit 4.1 of Registrant's Quarterly report on 10-Q for the quarter ended September 30, 2000). 4.3 Form of common stock certificate of the Registrant (incorporated by reference to Exhibit 4.3 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000). 4.4 Instruments relating to the Company's public senior debt (a) Indenture dated as of March 31, 1994 between the Company and Regions Bank (formerly First American Bank & Trust of Louisiana), as Trustee (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-3, Registration No. 33-52915). (b) Resolutions designating the terms and conditions of the Company's 7-3/4% Senior Notes, Series A, due 2004 and 8-1/4% Senior Notes, Series B, due 2024 (incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994). (c) Resolutions designating the terms and conditions of the Company's 6.55% Senior Notes, Series C, due 2005 and 7.2% Senior Notes, Series D, due 2025 (incorporated by reference to Exhibit 4.27 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995). (d) Resolutions designating the terms and conditions of the Company's 6.15% Senior Notes, Series E, due 2005; 6.30% Senior Notes, Series F, due 2008; and 6.875% Debentures, Series G, due 2028, (incorporated by reference to Exhibit 4.9 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997). (e) Form of Registrant's 8.375% Senior Notes, Series H, Due 2010, issued October 19, 2000 (incorporated by reference to Exhibit 4.2 of Registrant's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000). (f) For information on Registrant's Series J notes and related First Supplemental Indenture, see Item 4.8 below. (g) Second Supplemental Indenture dated as of August 20, 2002 between CenturyTel and Regions Bank (successor-in-interest to First American Bank & Trust of Louisiana and Regions Bank of Louisiana), as Trustee, designating and outlining the terms and conditions of CenturyTel's 4.75% Convertible Senior Debentures, Series K, due 2032 (incorporated by reference to Exhibit 4.3 of CenturyTel's registration statement on Form S-4, File No. 333-100480). (h) Form of 4.75% Convertible Debentures, Series K, due 2032 (included in Exhibit 4.4(g)). (i) Board resolutions designating the terms and conditions of CenturyTel's 7.875% Senior Notes, Series L, due 2012 (incorporated by reference to exhibit 4.2 of CenturyTel's registration statement on Form S-3, File No. 333-100481). (i) Form of 7.875% Senior Notes, Series L, due 2012 (included in Exhibit 4.4(i)). (k) Registration Rights Agreement dated as of August 26, 2002 by and among CenturyTel, and Banc of America Securities LLC, J.P. Morgan Securities Inc. and Wachovia Securities, Inc. (incorporated by reference to Exhibit 4.5 of CenturyTel's registration statement on Form S-4, File No. 333-100480). (l) Exchange and Registration Rights Agreement dated as of August 26, 2002 by and among CenturyTel and Banc of America Securities LLC, J.P. Morgan Securities Inc. and Wachovia Securities, Inc., as representatives of the initial purchasers named therein (incorporated by reference to Exhibit 4.4 of CenturyTel's registration statement on Form S-3, File No. 333-100481). 4.5 $533 Million Three-Year Revolving Credit Facility, dated July 22, 2002, between CenturyTel, Inc. and the lenders named therein (incorporated by reference to Exhibit 10.1 of Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2002). 4.6 $267 Million 364-Day Revolving Credit Facility, dated July 22, 2002, between CenturyTel, Inc. and the lenders named therein (incorporated by reference to Exhibit 10.2 of Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2002). 4.7 First Supplemental Indenture, dated as of November 2, 1998, to Indenture between CenturyTel of the Northwest, Inc. and The First National Bank of Chicago (incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 4.8 Agreements relating to equity units issued by CenturyTel in May 2002: (a) Purchase Contract Agreement, dated as of May 1, 2002, between CenturyTel and Wachovia Bank, National Association, as Purchase Contract Agent (incorporated by reference to Exhibit 4.13 to CenturyTel's Registration Statement on Form S-3, File No. 333-84276). (b) Pledge Agreement, dated as of May 1, 2002, by and among CenturyTel, JPMorgan Chase Bank, as Collateral Agent, Custodial Agent, and Securities Intermediary, and Wachovia Bank, National Association, as Purchase Contract Agent (incorporated by reference to Exhibit 4.15 to CenturyTel's Registration Statement on Form S-3, File No. 333-84276). (c) First Supplemental Indenture, dated as of May 1, 2002, between CenturyTel and Regions Bank, as Trustee, to the Indenture, dated as of March 31, 1994, between CenturyTel and Regions Bank, as Trustee, relating to CenturyTel's Senior Notes, Series J, due 2007 issued in connection with the equity units (incorporated by reference to Exhibit 4.2(b) to CenturyTel's Registration Statement on Form S-3, File No. 333-84276). 10.1 Qualified Employee Benefit Plans (excluding several narrow-based qualified plans that cover union employees or other limited groups of Company employees) (a) Registrant's Employee Stock Ownership Plan and Trust, as amended and restated February 28, 2002 and amendment thereto dated December 31, 2002, both included elsewhere herein. (b) Registrant's Dollars & Sense Plan and Trust, as amended and restated, effective September 1, 2000 and amendment thereto dated December 31, 2002, both included elsewhere herein. (c) Registrant's Amended and Restated Retirement Plan, effective as of February 28, 2002, and amendment thereto dated December 31, 2002, both included elsewhere herein. (d) Merger Agreement, dated September 18, 2001, between Registrant and Regions Bank of Louisiana, pursuant to which Registrant's Stock Bonus Plan and PAYSOP were merged into Registrant's Employee Stock Ownership Plan (incorporated by reference to Exhibit 10(b) of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001). 10.2 Stock-based Incentive Plans (a) Registrant's 1983 Restricted Stock Plan, dated February 21, 1984, as amended and restated as of November 16, 1995 (incorporated by reference to Exhibit 10.1(e) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995) and amendment thereto dated November 21, 1996, (incorporated by reference to Exhibit 10.1(e) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996), and amendment thereto dated February 25, 1997 (incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997), and amendment thereto dated April 25, 2001 (incorporated by reference to Exhibit 10.1 of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001), and amendment thereto dated April 17, 2000 (incorporated by reference to Exhibit 10.2(a) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). (b) Registrant's 1988 Incentive Compensation Program, as amended and restated August 22, 1989 (incorporated by reference to Exhibit 19.8 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989) and amendment thereto dated November 21, 1996 (incorporated by reference to Exhibit 10.1(g) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996). (c) Registrant's 1995 Incentive Compensation Plan approved by Registrant's shareholders on May 11, 1995 (incorporated by reference to Exhibit 4.4 to Registration No. 33-60061) and amendment thereto dated November 21, 1996 (incorporated by Reference to Exhibit 10.1 (l) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996), and amendment thereto dated February 25, 1997 (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997). (i) Form of Stock Option Agreement, pursuant to 1995 Incentive Compensation Plan and dated as of May 22, 1995, entered into by Registrant and its officers (incorporated by reference to Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995). (ii) Form of Stock Option Agreement, pursuant to 1995 Incentive Compensation Plan and dated as of June 23, 1995, entered into by Registrant and certain key employees (incorporated by reference to Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995). (iii) Form of Stock Option Agreement, pursuant to 1995 Incentive Compensation Plan and dated as of February 24, 1997, entered into by Registrant and its officers (incorporated by reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). (iv) Form of Stock Option Agreement, pursuant to 1995 Incentive Compensation Plan and dated as of February 21, 2000, entered into by Registrant and its officers incorporated by reference to Exhibit 10.1 (t) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1999). (v) Form of Restricted Stock and Performance Share Agreement, dated as of March 16, 1998, relating to equity incentive awards granted in 1998 pursuant to Registrant's 1995 Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). (vi) Form of Restricted Stock and Performance Share Agreement, dated as of February 22, 1999, relating to equity incentive awards granted in 1999 pursuant to the Registrant's 1995 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1(x) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1999). (d) Amended and Restated Registrant's 2000 Incentive Compensation Plan, as amended through May 23, 2000 (incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). (i) Form of Stock Option Agreement, pursuant to the 2000 Incentive Compensation Plan and dated as of May 21, 2001, entered into by Registrant and its officers (incorporated by reference to Exhibit 10.2(e) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). (ii) Form of Stock Option Agreement, pursuant to the 2000 Incentive Compensation Plan and dated as of February 25, 2002, entered into by Registrant and its officers, included elsewhere herein. (e) CenturyTel's 2002 Directors Stock Option Plan (incorporated by reference to Exhibit 10.1 of Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2002). (i) Form of Stock Option Agreement, pursuant to the 2002 Directors Stock Option Plan, entered into by CenturyTel in connection with options granted to the outside directors as of May 10, 2002 (incorporated by reference to Exhibit 10.2 of Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2002). (f) CenturyTel's 2002 Management Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 of Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2002). (i) Form of Stock Option Agreement, pursuant to the 2002 Management Incentive Compensation Plan, entered into between CenturyTel and certain of its officers and key employees at various dates since May 9, 2002 (incorporated by reference to Exhibit 10.4 of Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2002). (ii) Form of Stock Option Agreement, pursuant to the 2002 Management Incentive Compensation Plan and dated as of February 24, 2003, entered into by Registrant and its officers, included elsewhere herein. 10.3 Other Non-Qualified Employee Benefit Plans (a) Registrant's Key Employee Incentive Compensation Plan, dated January 1, 1984, as amended and restated as of November 16, 1995 (incorporated by reference to Exhibit 10.1(f) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995) and amendment thereto dated November 21, 1996 (incorporated by reference to Exhibit 10.1 (f) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996), amendment thereto dated February 25, 1997 (incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997), amendment thereto dated April 25, 2001 (incorporated by reference to Exhibit 10.2 of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001) and amendment thereto dated April 17, 2000 (incorporated by reference to Exhibit 10.3(a) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). (b) Registrant's Restated Supplemental Executive Retirement Plan, dated April 3, 2000 (incorporated by reference to Exhibit 10.1(d) to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.) (c) Registrant's Restated Supplemental Defined Contribution Plan, restated as of July 17, 2001, (incorporated by reference to Exhibit 10.1 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.) (d) Registrant's Amended and Restated Supplemental Dollars & Sense Plan, effective as of January 1, 1999 (incorporated by reference to Exhibit 10.1 (q) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998). (e) Registrant's Supplemental Defined Benefit Plan, effective as of January 1, 1999 (incorporated by reference to Exhibit 10.1 (y) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998), and amendment thereto dated February 28, 2002 (incorporated by reference to Exhibit 10.3(e) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). (f) Registrant's Amended and Restated Salary Continuation (Disability) Plan for Officers, dated November 26, 1991 (incorporated by reference to Exhibit 10.16 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1991). (g) Registrant's Restated Outside Directors' Retirement Plan, dated as of November 16, 1995 (incorporated by reference to Exhibit 10.1(t) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995) and amendment thereto dated April 17, 2000 (incorporated by reference to Exhibit 10.3(g) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001) and amendment thereto dated December 31, 2002, included elsewhere herein. (h) Registrant's Restated Deferred Compensation Plan for Outside Directors, dated as of November 16, 1995 (incorporated by reference to Exhibit 10.1(u) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995) and amendment thereto dated April 17, 2000 (incorporated by reference to Exhibit 10.3(h) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). (i) Registrant's Chairman/Chief Executive Officer Short-Term Incentive Program (incorporated by reference to Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). (j) Registrant's 2001 Employee Stock Purchase Plan (incorporated by reference to Registrant's 2001 Proxy Statement). 10.4 Employment, Severance and Related Agreements (a) Employment Agreement, originally dated May 24, 1993, as amended and restated through February 22, 2000, by and between Registrant and its former Chairman Clarke M. Williams (incorporated by reference to Exhibit 10.1(a) to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000). (b) Change of Control Agreement, dated February 22, 2000 by and between Glen F. Post, III and Registrant (incorporated by reference to Exhibit 10.1(b) to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000). (c) Form of Change of Control Agreement, dated February 22, 2000, by and between Registrant and David D. Cole, R. Stewart Ewing, Michael E. Maslowski and Harvey P. Perry (incorporated by reference exhibit 10.1(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000). (d) Form of Change of Control Agreement dated July 24, 2000, by and between the Registrant and Karen A. Puckett (incorporated by reference to Exhibit 10.1(c) of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000). 10.5 Other Agreements (a) Asset Purchase Agreement, dated as of October 22, 2001, between GTE Midwest Incorporated (d/b/a Verizon Midwest) and CenturyTel of Missouri, LLC (incorporated by reference to Exhibit 2(a) of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001). (b) Asset Purchase Agreement, dated as of October 22, 2001, between Verizon South, Inc., Contel of the South, Inc. (d/b/a Verizon Mid-States) and CenturyTel of Alabama, LLC (incorporated by reference to Exhibit 2(b) of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001). (c) Stock Purchase Agreement, dated March 19, 2002, between Registrant and Alltel Communications, Inc. (incorporated by reference to Registrant's Current Report on Form 8-K filed March 22, 2002), as amended by Amendment No. 1 to Stock Purchase Agreement, dated July 31, 2002 (incorporated by reference to Registrant's Current Report on Form 8-K and Form 8-K/A filed August 13, 2002). 21 Subsidiaries of the Registrant, included elsewhere herein. 23 Independent Auditors' Consent, included elsewhere herein. 99 Registrant's Chief Executive Officer and Chief Financial Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, included elsewhere herein.

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CenturyTel, Inc., Date: March 27, 2003 By: /s/ Glen F. Post, III ------------------------- Glen F. Post, III Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Executive Vice President and /s/ R. Stewart Ewing, Jr. Chief Financial Officer -------------------------- R. Stewart Ewing, Jr. March 27, 2003 Executive Vice President, Corporate Secretary, General Counsel, /s/ Harvey P. Perry Chief Administrative Officer -------------------------- and Director Harvey P. Perry March 27, 2003 /s/ Neil A. Sweasy Vice President and Controller -------------------------- Neil A. Sweasy March 27, 2003 /s/ William R. Boles, Jr. Director -------------------------- William R. Boles, Jr. March 27, 2003 /s/ Virginia Boulet Director -------------------------- Virginia Boulet March 27, 2003 /s/ Calvin Czeschin Director -------------------------- Calvin Czeschin March 27, 2003 /s/ James B. Gardner Director -------------------------- James B. Gardner March 27, 2003 /s/ W. Bruce Hanks Director -------------------------- W. Bruce Hanks March 27, 2003 /s/ R. L. Hargrove, Jr. Director -------------------------- R. L. Hargrove, Jr. March 27, 2003 /s/ Johnny Hebert Director -------------------------- Johnny Hebert March 27, 2003 /s/ F. Earl Hogan Director -------------------------- F. Earl Hogan March 27, 2003 /s/ C. G. Melville, Jr. Director -------------------------- C. G. Melville, Jr. March 27, 2003 /s/ Jim D. Reppond Director -------------------------- Jim D. Reppond March 27, 2003 /s/ Joseph R. Zimmel Director -------------------------- Joseph R. Zimmel March 27, 2003

CERTIFICATIONS I, Glen F. Post, III, certify that: 1. I have reviewed this annual report on Form 10-K of CenturyTel, Inc; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 /s/ Glen F. Post, III ---------------------------------- Glen F. Post, III Chairman of the Board of Directors and Chief Executive Officer I, R. Stewart Ewing, Jr. certify that: 1. I have reviewed this annual report on Form 10-K of CenturyTel, Inc; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 /s/ R. Stewart Ewing, Jr. ------------------------------ R. Stewart Ewing, Jr. Executive Vice President and Chief Financial Officer

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS CENTURYTEL, INC. For the years ended December 31, 2002, 2001 and 2000 <TABLE> <CAPTION> Additions Balance at charged to Deductions Balance beginning costs and from Other at end Description of period expenses allowance (1) changes of period ------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) <S> <C> <C> <C> <C> <C> <C> Year ended December 31, 2002 Allowance for doubtful accounts $ 13,908 34,045 (17,134) 3,143 (2) 33,962 Valuation allowance for deferred tax assets $ 19,691 8,689 - - 28,380 Year ended December 31, 2001 Allowance for doubtful accounts $ 9,968 22,533 (18,593) - 13,908 Valuation allowance for deferred tax assets $ 6,211 13,480 - - 19,691 Year ended December 31, 2000 Allowance for doubtful accounts $ 2,594 15,977 (12,485) 3,882 (2) 9,968 Valuation allowance for deferred tax assets $ - 6,211 - - 6,211 </TABLE> (1) Customers' accounts written-off, net of recoveries. (2) Allowance for doubtful accounts at the date of acquisition of purchased subsidiaries, net of allowance for doubtful accounts at the date of disposition of subsidiaries sold.

                                                                     Exhibit 3.2


                                     BYLAWS


                                       OF


                                CENTURYTEL, INC.


                     (as amended through February 25, 2003)










                                     BYLAWS
                                CENTURYTEL, INC.

                                TABLE OF CONTENTS


ARTICLE I - Officers.........................................................1
         Section 1.  Required and Permitted Officers.........................1
         Section 2.  Election and Removal of Officers........................4

ARTICLE II - Board of Directors..............................................5
         Section 1.  Powers..................................................5
         Section 2.  Organizational and Regular Meetings.....................5
         Section 3.  Special Meetings........................................5
         Section 4.  Waiver of Notice........................................6
         Section 5.  Quorum..................................................6
         Section 6.  Notice of Adjournment...................................6
         Section 7.  Written Consents........................................6
         Section 8.  Voting..................................................6
         Section 9.  Use of Communications Equipment.........................7
         Section 10. Indemnification.........................................7
         Section 11. Certain Qualifications.................................11

ARTICLE III - Committees....................................................12
         Section 1.  Committees.............................................12
         Section 2.  Appointment and Removal of Committee Members...........13
         Section 3.  Procedures for Committees..............................13
         Section 4.  Meetings...............................................13
         Section 5.  Authority of Chairman to Appoint Committees............14

ARTICLE IV - Shareholders' Meetings.........................................14
         Section 1.  Place of Meetings......................................14
         Section 2.  Annual Meeting.........................................14
         Section 3.  Special Meetings.......................................14
         Section 4.  Notice of Meetings.....................................15
         Section 5.  Notice of Shareholder Nominations and
                     Shareholder Business...................................15
         Section 6.  Quorum.................................................17
         Section 7.  Voting Power Present or Represented....................18
         Section 8.  Voting Requirements....................................18
         Section 9.  Proxies................................................18
         Section 10. Adjournments...........................................18
         Section 11. Written Consents.......................................19
         Section 12. List of Shareholders...................................19
         Section 13. Procedure at Shareholders Meetings.....................19

ARTICLE V - Certificates of Stock...........................................19

ARTICLE VI - Registered Shareholders........................................20

ARTICLE VII - Loss of Certificate...........................................20

ARTICLE VIII - Checks.......................................................20

ARTICLE IX - Dividends......................................................20

ARTICLE X - Inapplicability of Louisiana Control Share Statute..............21

ARTICLE XI - Certain Definitions............................................21

ARTICLE XII - Amendments....................................................21



BYLAWS (Amended entirely May 23, 1995) (Amended Article I, Section I, Subsection 1.1(L), added new Subsection 1.1(O), and amended Subsection 1.2 - October 7, 1996) (Amended Article III, Section 1.1(B), Section 1 by adding new Subsection 1.3, Sections 3 and 4 amended in their entirety - November 21, 1996) (Amended Article I, Section I by adding, deleting, revising or renumbering various paragraphs of Subsection 1.1 and by revising Subsection 1.2 - October 7, 1998) (Amended Article I, Section I by adding or renumbering various paragraphs of Subsection 1.1, by revising Subsection 1.2, Article IV, Section 5, Subsections 5.2 and 5.7 amended in their entirety - November 19, 1998) (Amended Article I, Section I by adding Subsection 1.1(G), amending Subsection 1.2 and renumbering subsections - August 24, 1999) (Amended Article III, Section 1.1(D) - November 18, 1999) (Amended Article III in its entirety - February 25, 2003) ARTICLE I OFFICERS Section 1. Required and Permitted Officers 1.1 Officers. The officers of the Corporation shall be a Chairman of the Board; a Chief Executive Officer; a President; a Secretary; and a Treasurer. The Board may elect such other officers as the Board may determine. An officer need not be a Director and any two or more of the offices may be held by one person, provided, however, that a person holding more than one office may not sign in more than one capacity any certificate or any instrument required to be signed by two officers. The required and permitted officers and duties thereof are as follows: A. Chairman of the Board (Chairman). The Chairman shall preside at all meetings of the shareholders and Directors, ensure that all orders, policies and resolutions of the Board are carried out and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. B. Vice Chairman. The Board may from time to time elect one or more Vice Chairmen. The Vice Chairman shall serve in the absence or inability of the Chairman to serve. In the event of the death, resignation or permanent inability of the Chairman to serve, the Vice Chairman shall automatically succeed to the office of Chairman until such time as the Board of Directors duly elects a new Chairman. In the event that there is more than one Vice Chairmen, then the one who has served in that capacity for the longest period of time shall serve in the absence of the Chairman or assume the office of Chairman, as the case may be. C. Chief Executive Officer (CEO). The CEO, subject to the powers of the Chairman and the supervision of the Board of Directors, shall have general supervision, direction and control of the business and affairs of the Corporation. He may sign, execute and deliver in the name of the Corporation powers of attorney, contracts, bonds and other obligations and shall perform such other duties as may be prescribed from time to time by the Board of Directors or these Bylaws. The CEO shall have general supervision and direction of the officers of the Corporation and all such powers as may be reasonably incident to such responsibilities except where the supervision and direction of an officer is delegated expressly to another by the Board of Directors or these Bylaws. Without limiting the generality of the foregoing the CEO shall establish the annual salaries of each non-executive officer of the Corporation, unless otherwise directed by the Board, and the annual salaries of each officer of the Corporation's subsidiaries, unless otherwise directed by the respective boards of directors of such subsidiaries. D. President. The President may sign, execute and deliver in the name of the Corporation powers of attorney, contracts, bonds, and other obligations and shall perform such other duties as may be prescribed from time to time by the Board of Directors, the Chairman, the CEO, or these Bylaws. E. Chief Operating Officer (COO). The COO, subject to the powers of the CEO and the supervision of the Board of Directors, shall manage the day-to-day operations of the Corporation, shall perform such other duties as may be prescribed by the Board of Directors or the CEO, and shall have the general powers and duties usually vested in the chief operating officer of a corporation. Without limiting the generality of the foregoing, the COO shall supervise any other officer designated by the CEO and shall have all such powers as may be reasonably incident to such responsibilities. Unless otherwise provided by law or the Board of Directors, he may sign, execute and deliver in the name of the Corporation powers of attorney, contracts, and bonds. F. Chief Financial Officer. The Chief Financial Officer shall be the principal financial officer of the Corporation. He shall manage the financial affairs of the Corporation and direct the activities of the Treasurer, Controller and other officers responsible for the Corporation's finances. He shall be responsible for all internal and external financial reporting. Unless otherwise provided by law or the Board of Directors, he may sign, execute and deliver in the name of the Corporation powers of attorney, contracts, bonds, and other obligations, and shall perform such other duties as may be prescribed from time to time by the Board of Directors or by these Bylaws. G. Chief Administrative Officer (CAO). The CAO, subject to the supervision of the Board of Directors, shall be in general and active charge of the administrative functions of the Corporation, shall perform such other duties as may be prescribed by the Board of Directors and shall have the general powers and duties usually vested in the chief administrative officer of a corporation. Without limiting the generality of the foregoing, the CAO shall have the authority to hire and discharge employees and agents of the Corporation under his supervision, other than officers, and shall oversee the development and implementation of the Corporation's administrative policies. H. Chief Information Officer (CIO). The CIO, subject to the powers of the CEO, shall be responsible for identifying and addressing the Corporation's information systems needs. The CIO shall be responsible for identifying changes and trends in computer and systems technology that affect the Corporation and its operations, determining long-term corporate-wide information needs and developing overall strategy for information needs and systems development. The CIO shall be responsible for assuring the integrity of corporate data, proprietary information and related intellectual property stored in the Corporation's information systems. I. General Counsel. The General Counsel shall be directly responsible for advising the Board of Directors, the Corporation, and its officers and employees in matters affecting the legal affairs of the Corporation. He shall determine the need for and, if necessary, select outside counsel to represent the Corporation and approve all fees in connection with their representation. He shall also have such other powers, duties and authority as may be prescribed to him from time to time by the CEO, the Board of Directors, or these Bylaws. J. Treasurer. As directed by the Chief Financial Officer, the Treasurer shall have general custody of all the funds and securities of the Corporation. He may sign, with the CEO, President, Chief Financial Officer or such other person or persons as may be specifically designated by the Board of Directors, all bills of exchange or promissory notes of the Corporation. He shall perform such other duties as may be prescribed from time to time by the Chief Financial Officer or these Bylaws. K. Controller. As directed by the Chief Financial Officer, the Controller shall be responsible for the development and maintenance of the accounting systems used by the Corporation and its subsidiaries. The Controller shall be authorized to implement policies and procedures to ensure that the Corporation and its subsidiaries maintain internal accounting control systems designed to provide reasonable assurance that the accounting records accurately reflect business transactions and that such transactions are in accordance with management's authorization. Additionally, as directed by the Chief Financial Officer, the Controller shall be responsible for internal and external financial reporting for the Corporation and its subsidiaries. L. Assistant Treasurer. The Assistant Treasurer shall have such powers and perform such duties as may be assigned by the Treasurer. In the absence or disability of the Treasurer, the Assistant Treasurer shall perform the duties and exercise the powers of the Treasurer. M. Secretary. The Secretary shall keep the minutes of all meetings of the shareholders, the Board of Directors and its committees or subcommittees. He shall cause notice to be given of meetings of shareholders, of the Board of Directors and of any committee or subcommittee of the Board. He shall have custody of the corporate seal and general charge of the records, documents and papers of the Corporation not pertaining to the duties vested in other officers, which shall at all reasonable times be open to the examination of any Director. He may sign or execute contracts with any other officer thereunto authorized in the name of the Corporation and affix the seal of Corporation thereto. He shall perform such other duties as may be prescribed from time to time by the Board of Directors or these Bylaws. N. Assistant Secretary. The Assistant Secretary shall have powers and perform such duties as may be assigned by the Secretary. In the absence or disability of the Secretary, the Assistant Secretary shall perform the duties and exercise the powers of the Secretary. O. Executive Vice President(s). The Executive Vice President(s) shall, in addition to exercising such powers and performing such duties associated with any other office held thereby, assist the CEO in discharging the duties of that office in any manner requested, and shall perform any other duties as may be prescribed by the Board of Directors, by the CEO or by these Bylaws. P. Senior Vice President(s). The Senior Vice President(s) shall, in addition to exercising such powers and performing such duties associated with any other office held thereby, perform such duties as may be prescribed from time to time by the Board of Directors, by the CEO or by these Bylaws (or, with respect to any Senior Vice President(s) who reports to the COO, by the COO). Q. Vice President(s). The Vice President(s) shall have such powers and perform such duties as may be assigned to them by the Board of Directors, the CEO, the President, or any Executive Vice President, Senior Vice President or other officer to whom they report. A Vice President may sign and execute contracts and other obligations pertaining to the regular course of his duties. R. Assistant Vice President(s). The Assistant Vice President(s) shall have such powers and perform such duties as may be assigned to them by the Board of Directors, the CEO, the President or the officer to whom they report. An Assistant Vice President may sign and execute contracts and other obligations pertaining to the regular course of his duties. 1.2 Executive Officer Group. The Executive Officer Group shall be comprised of the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Chief Administrative Officer, the Chief Information Officer and each Executive or Senior Vice President. Section 2. Election and Removal of Officers 2.1 Election. The officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of the shareholders and, at any time, the Board may remove any officer (with or without cause, and regardless of any contractual obligation to such officer) and fill a vacancy in any office, but any election to, removal from or appointment to fill a vacancy in any office, and the determination of the terms of employment thereof, shall require the affirmative votes of (a) a majority of the Directors then in office and (b) a majority of the Continuing Directors, voting as a separate group. 2.2 Removal. In addition, the Chief Executive Officer is empowered in his sole discretion to remove or suspend any officer or other employee of the Corporation who (a) fails to respond satisfactorily to the Corporation respecting any inquiry by the Corporation for information to enable it to make any certification required by the Federal Communications Commission under the Anti-Drug Abuse Act of 1988, (b) is arrested or convicted of any offense concerning the distribution or possession of, or trafficking in, drugs or other controlled substances, or (c) the Chief Executive Officer believes to have been engaged in actions that could lead to such an arrest or conviction. ARTICLE II BOARD OF DIRECTORS Section 1. Powers In addition to the powers and authorities by these Bylaws expressly conferred upon it, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws required to be exercised or done by the shareholders. Section 2. Organizational and Regular Meetings The Board of Directors shall hold an annual organizational meeting, without notice, immediately following the adjournment of the annual meeting of the shareholders and shall hold a regular meeting on the first Tuesday after the twentieth day in the months of February, May, August and November of each year. The Secretary shall give not less than five days' written notice to each Director of all regular meetings, which notice shall state the time and place of the meeting. Section 3. Special Meetings 3.1 Call of Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or, if he is absent or unable or unwilling to act, by the President. Upon the written request of any two Directors delivered to the Chairman of the Board, the President or the Secretary of the Corporation, a special meeting shall be called. 3.2 Notice. Written notice of the time and place of special meetings shall be delivered personally to the Directors or sent to each Director by letter or by telegram, charges prepaid, addressed to him at his address shown in the Corporation's records. In case such notice is mailed or telegraphed, it shall be deposited in the United States mail at least 72 hours prior to the meeting or delivered to an overnight mail delivery service or to the telegraph company in the place in which the principal office of the corporation is located at least 48 hours prior to the meeting. In case such notice is personally delivered as above provided, it shall be so delivered at least 24 hours prior to the meeting. The foregoing notwithstanding, if the Chairman or the President shall determine, in his sole discretion, that the subject of the special meeting is urgent and must be considered by the Board without delay, notice may be given by personal delivery or by telephone not less than 12 hours prior to the time set for the meeting, provided a confirming telegram or overnight letter is sent to the Director contemporaneously. Such mailing, telegraphing, telephoning or personal delivery as above provided shall be due, legal and personal notice to such Director. Section 4. Waiver of Notice Any Director may waive notice of a meeting by written waiver executed either before or after the meeting. Directors present at any regular or special meeting shall be deemed to have received due, or to have waived, notice thereof, provided that a director who participates in a meeting by telephone shall not be deemed to have received or waived due notice if, at the beginning of the meeting, he objects to the transaction of any business because the meeting is not lawfully called. Section 5. Quorum A majority of the authorized number of Directors as fixed by or pursuant to the Articles of Incorporation shall be necessary to constitute a quorum for the transaction of business, provided, however, that a minority of the Directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. If a quorum is present when the meeting convened, the directors present may continue to do business, taking action by vote of a majority of a quorum, until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum or the refusal of any director present to vote. Section 6. Notice of Adjournment Notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place is fixed at the meeting adjourned. Section 7. Written Consents Anything to the contrary contained in these Bylaws notwithstanding, any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such Directors at a meeting. Section 8. Voting At all meetings of the Board, each Director present shall have one vote. At all meetings of the Board, all questions, the manner of deciding which is not otherwise specifically regulated by law, the Articles of Incorporation or these Bylaws, shall be determined by a majority of the Directors present at the meeting, provided, however, that any shares of other corporations owned by the Corporation shall be voted only pursuant to resolutions duly adopted upon the affirmative votes of (a) 80% of the Directors then in office and (b) a majority of the Continuing Directors, voting as a separate group. Section 9. Use of Communications Equipment Meetings of the Board of Directors may be held by means of telephone conference calls or similar communications equipment provided that all persons participating in the meeting can hear and communicate with each other. Section 10. Indemnification 10.1 Definitions. As used in this Section: (a) The term "Expenses" shall mean any expenses or costs (including, without limitation, attorney's fees, judgments, punitive or exemplary damages, fines and amounts paid in settlement). If any of the foregoing amounts paid on behalf of Indemnitee are not deductible by Indemnitee for federal or state income tax purposes, the Corporation will reimburse Indemnitee for tax liability with respect thereto by paying to Indemnitee an amount which, after taking into account taxes on such amount, equals Indemnitee's incremental tax liability. (b) The term "Claim" shall mean any threatened, pending or completed claim, action, suit, or proceeding, whether civil, criminal, administrative or investigative and whether made judicially or extra-judicially, or any separate issue or matter therein, as the context requires. (c) The term "Determining Body" shall mean (i) those members of the Board of Directors who are not named as parties to the Claim for which indemnification is being sought ("Impartial Directors"), if there are at least three Impartial Directors, or (ii) a committee of at least three directors appointed by the Board of Directors (regardless of whether the members of the Board of Directors voting on such appointment are Impartial Directors) and composed of Impartial Directors or (iii) if there are fewer than three Impartial Directors or if the Board of Directors or a committee appointed thereby so directs (regardless of whether the members thereof are Impartial Directors), independent legal counsel, which may be the regular outside counsel of the Corporation. (d) The term "Indemnitee" shall mean each director and officer and each former director and officer of the Corporation. 10.2 Indemnity. (a) To the extent any Expenses incurred by Indemnitee are in excess of the amounts reimbursed or indemnified pursuant to policies of liability insurance maintained by the Corporation, the Corporation shall indemnify and hold harmless Indemnitee against any such Expenses actually and reasonably incurred in connection with any Claim against Indemnitee (whether as a subject of or party to, or a proposed or threatened subject of or party to, the Claim) or in which Indemnitee is involved solely as a witness or person required to give evidence, by reason of his position (i) as a director or officer of the Corporation, (ii) as a director or officer of any subsidiary of the Corporation or as a fiduciary with respect to any employee benefit plan of the Corporation, or (iii) as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other for-profit or not-for-profit entity or enterprise, if such position is or was held at the request of the Corporation, whether relating to service in such position before or after the effective date of this Section 10, if (i) the Indemnitee is successful in his defense of the Claim on the merits or otherwise or (ii) the Indemnitee has been found by the Determining Body (acting in good faith) to have met the Standard of Conduct; provided that (a) the amount of Expenses for which the Corporation shall indemnify Indemnitee may be reduced by the Determining Body to such amount as it deems proper if it determines in good faith that the Claim involved the receipt of a personal benefit by Indemnitee and (b) no indemnification shall be made in respect of any Claim as to which Indemnitee shall have been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for willful or intentional misconduct in the performance of his duty to the Corporation or to have obtained an improper benefit, unless, and only to the extent that, a court shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as the court shall deem proper; and provided further that, if the Claim involves Indemnitee by reason of his position with an entity or enterprise described in clause (ii) or (iii) of this Section 10.2(a) and if Indemnitee may be entitled to indemnification with respect to such Claim from such entity or enterprise, Indemnitee shall be entitled to indemnification hereunder only (x) if he has applied to such entity or enterprise for indemnification with respect to the Claim and (y) to the extent that indemnification to which he would be entitled hereunder but for this proviso exceeds the indemnification paid by such other entity or enterprise. (b) For purposes of this Section, the Standard of Conduct is met when conduct by an Indemnitee with respect to which a Claim is asserted was conduct that he reasonably believed to be in, or not opposed to, the best interest of the Corporation, and, in the case of a Claim which is a criminal action or proceeding, conduct that the Indemnitee had no reasonable cause to believe was unlawful. The termination of any Claim by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet the Standard of Conduct. (c) Promptly upon becoming aware of the existence of any Claim, Indemnitee shall notify the Chief Executive Officer of the existence of the Claim, who shall promptly advise the members of the Board of Directors thereof and that establishing the Determining Body will be a matter presented at the next regularly scheduled meeting of the Board of Directors. After the Determining Body has been established the Chief Executive Officer shall inform Indemnitee thereof and Indemnitee shall immediately notify the Determining Body of all facts relevant to the Claim known to such Indemnitee. Within 60 days of the receipt of such notice and information, together with such additional information as the Determining Body may request of Indemnitee, the Determining Body shall report to Indemnitee of its determination whether Indemnitee has met the Standard of Conduct. The Determining Body may extend the period of time for determining whether the Standard of Conduct has been met, but in no event shall such period of time be extended beyond an additional 60 days. (d) If, after determining that the Standard of Conduct has been met, the Determining Body obtains facts of which it was not aware at the time it made such determination, the Determining Body on its own motion, after notifying the Indemnitee and providing him an opportunity to be heard, may, on the basis of such facts, revoke such determination, provided that, in the absence of actual fraud by Indemnitee, no such revocation may be made later than 30 days after final disposition of the Claim. (e) Indemnitee shall promptly inform the Determining Body upon his becoming aware of any relevant facts not theretofore provided by him to the Determining Body, unless the Determining Body has obtained such facts by other means. (f) In the case of any Claim not involving a proposed, threatened or pending criminal proceeding (i) if Indemnitee has, in the good faith judgment of the Determining Body, met the Standard of Conduct, the Corporation may, in its sole discretion, assume all responsibility for the defense of the Claim, and, in any event, the Corporation and Indemnitee each shall keep the other informed as to the progress of the defense of the Claim, including prompt disclosure of any proposals for settlement; provided that if the Corporation is a party to the Claim and Indemnitee reasonably determines that there is a conflict between the positions of the Corporation and Indemnitee with respect to the Claim, then Indemnitee shall be entitled to conduct his defense with counsel of his choice; and provided further that Indemnitee shall in any event be entitled at his expense to employ counsel chosen by him to participate in the defense of the Claim; and (ii) the Corporation shall fairly consider any proposals by Indemnitee for settlement of the Claim. If the Corporation proposes a settlement of the Claim and such settlement is acceptable to the person asserting the Claim or the Corporation believes a settlement proposed by the person asserting the Claim should be accepted, it shall inform Indemnitee of the terms of such proposed settlement and shall fix a reasonable date by which Indemnitee shall respond. If Indemnitee agrees to such terms, he shall execute such documents as shall be necessary to make final the settlement. If Indemnitee does not agree with such terms, Indemnitee may proceed with the defense of the Claim in any manner he chooses, provided that if Indemnitee is not successful on the merits or otherwise, the Corporation's obligation to indemnify such Indemnitee as to any Expenses incurred by following his disagreement shall be limited to the lesser of (A) the total Expenses incurred by Indemnitee following his decision not to agree to such proposed settlement or (B) the amount that the Corporation would have paid pursuant to the terms of the proposed settlement. If, however, the proposed settlement would impose upon Indemnitee any requirement to act or refrain from acting that would materially interfere with the conduct of Indemnitee's affairs, Indemnitee shall be permitted to refuse such settlement and proceed with the defense of the Claim, if he so desires, at the Corporation's expense in accordance with the terms and conditions of these Bylaws without regard to the limitations imposed by the immediately preceding sentence. In any event, the Corporation shall not be obligated to indemnify Indemnitee for an amount paid in settlement that the Corporation has not approved. (g) In the case of a Claim involving a proposed, threatened or pending criminal proceeding, Indemnitee shall be entitled to conduct the defense of the Claim and to make all decisions with respect thereto, with counsel of his choice; provided that the Corporation shall not be obligated to indemnify Indemnitee for an amount paid in settlement that the Corporation has not approved. (h) After notification to the Corporation of the existence of a Claim, Indemnitee may from time to time request of the Chief Executive Officer or, if the Chief Executive Officer is a party to the Claim as to which indemnification is being sought, any officer who is not a party to the Claim and who is designated by the Chief Executive Officer (the "Disbursing Officer"), which designation shall be made promptly after receipt of the initial request, that the Corporation advance to Indemnitee the Expenses (other than fines, penalties, judgments or amounts paid in settlement) that he incurs in pursuing a defense of the Claim prior to the time that the Determining Body determines whether the Standard of Conduct has been met. The Disbursing Officer shall pay to Indemnitee the amount requested (regardless of Indemnitee's apparent ability to repay the funds) upon receipt of an undertaking by or on behalf of Indemnitee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation under the circumstances, provided that if the Disbursing Officer does not believe such amount to be reasonable, he shall advance the amount deemed by him to be reasonable and Indemnitee may apply directly to the Determining Body for the remainder of the amount requested. (i) After a determination that the Standard of Conduct has been met, for so long as and to the extent that the Corporation is required to indemnify Indemnitee under these Bylaws, the provisions of Paragraph (h) shall continue to apply with respect to Expenses incurred after such time except that (i) no undertaking shall be required of Indemnitee and (ii) the Disbursing Officer shall pay to Indemnitee the amount of any fines, penalties or judgments against him which have become final for which the Corporation is obligated to indemnify him or any amount of indemnification ordered to be paid to him by a court. (j) Any determination by the Corporation with respect to settlement of a Claim shall be made by the Determining Body. (k) The Corporation and Indemnitee shall keep confidential to the extent permitted by law and their fiduciary obligations all facts and determinations provided pursuant to or arising out of the operation of these Bylaws and the Corporation and Indemnitee shall instruct its or his agents and employees to do likewise. 10.3 Enforcement. (a) The rights provided by this Section shall be enforceable by Indemnitee in any court of competent jurisdiction. (b) If Indemnitee seeks a judicial adjudication of his rights under this Section, Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all Expenses actually and reasonably incurred by him in connection with such proceeding, but only if he prevails therein. If it shall be determined that Indemnitee is entitled to receive part but not all of the relief sought, then Indemnitee shall be entitled to be reimbursed for all Expenses incurred by him in connection with such proceeding if the indemnification amount to which he is determined to be entitled exceeds 50% of the amount of his claim. Otherwise, the Expenses sought incurred by Indemnitee in connection with such judicial adjudication shall be appropriately prorated. (c) In any judicial proceeding described in this subsection, the Corporation shall bear the burden of proving that Indemnitee is not entitled to Expenses sought with respect to any Claim. 10.4 Saving Clause. If any provision of this Section is determined by a court having jurisdiction over the matter to require the Corporation to do or refrain from doing any act that is in violation of applicable law, the court shall be empowered to modify or reform such provision so that, as modified or reformed, such provision provides the maximum indemnification permitted by law and such provision, as so modified or reformed, and the balance of this Section, shall be applied in accordance with their terms. Without limiting the generality of the foregoing, if any portion of this Section shall be invalidated on any ground, the Corporation shall nevertheless indemnify and Indemnitee to the full extent permitted by any applicable portion of this Section that shall not have been invalidated and to the full extent permitted by law with respect to that portion that has been invalidated. 10.5 Non-Exclusivity. (a) The indemnification and payment of Expenses provided by or granted pursuant to this Section shall not be deemed exclusive of any other rights to which Indemnitee is or may become entitled under any statute, article of incorporation, bylaw, authorization of shareholders or directors, agreement or otherwise. (b) It is the intent of the Corporation by this Section to indemnify and hold harmless Indemnitee to the fullest extent permitted by law, so that if applicable law would permit the Corporation to provide broader indemnification rights than are currently permitted, the Corporation shall indemnify and hold harmless Indemnitee to the fullest extent permitted by applicable law notwithstanding that the other terms of this Section would provide for lesser indemnification. 10.6 Successors and Assigns. This Section shall be binding upon the Corporation, its successors and assigns, and shall inure to the benefit of Indemnitee's heirs, personal representatives, and assigns and to the benefit of the Corporation, its successors and assigns. 10.7 Indemnification of Other Persons. The Corporation may indemnify any person not a director or officer of the Corporation to the extent authorized by the Board of Directors or a committee of the Board expressly authorized by the Board of Directors. Section 11. Certain Qualifications No person shall be eligible for nomination, election or service as a director of the Corporation who shall (i) in the opinion of the Board of Directors fail to respond satisfactorily to the Corporation respecting any inquiry of the Corporation for information to enable the Corporation to make any certification required by the Federal Communications Commission under the Anti-Drug Abuse Act of 1988 or to determine the eligibility of such persons under this section; (ii) have been arrested or convicted of any offense concerning the distribution or possession of, or trafficking in, drugs or other controlled substances, provided that in the case of an arrest the Board of Directors may in its discretion determine that notwithstanding such arrest such persons shall remain eligible under this Section; or (iii) have engaged in actions that could lead to such an arrest or conviction and that the Board of Directors determines would make it unwise for such person to serve as a director of the Corporation. Any person serving as a director of the Corporation shall automatically cease to be a director on such date as he ceases to have the qualifications set forth in this Section, and his position shall be considered vacant within the meaning of the Articles of Incorporation of the Corporation. ARTICLE III COMMITTEES Section 1. Committees 1.1 Standing Committees. The Board of Directors shall have the standing committees specified below: A. The Executive Committee shall consist of three or more Directors (the exact number of which shall be set from time to time by the Board), one of whom shall be the Chairman of the Board, who shall also serve as chairman of the Executive Committee. To the full extent permitted by law and the Articles of Incorporation, the Executive Committee shall have and may exercise all of the powers of the Board in the management of the business and affairs of the Corporation when the Board is not in session. B. The Compensation Committee shall consist of three or more Directors (the exact number of which shall be set from time to time by the Board), who shall have such qualifications, powers and responsibilities as specified in any charter that may from time to time be adopted by the Compensation Committee and approved by the Board of Directors. C. The Nominating and Corporate Governance Committee shall consist of three or more Directors (the exact number of which shall be set from time to time by the Board), who shall have such qualifications, powers and responsibilities as specified in any charter that may from time to time be adopted by the Nominating and Corporate Governance Committee and approved by the Board of Directors. D. The Audit Committee shall consist of three or more Directors (the exact number of which shall be set from time to time by the Board), who shall have such qualifications, powers and responsibilities as specified in any charter that may from time to time be adopted by the Audit Committee and approved by the Board of Directors. E. The Risk Evaluation Committee shall consist of three or more Directors (the exact number of which shall be set from time to time by the Board), who shall have such qualifications, powers and responsibilities as specified in any charter that may from time to time be adopted by the Risk Evaluation Committee and approved by the Board of Directors. 1.2 Special Purpose Committees. The Board may authorize on an ad hoc basis special pricing committees in connection with the issuance of securities or such other special purpose committees as may be necessary or appropriate in connection with the Board's management of the business and affairs of the Corporation. 1.3 Subcommittees. As necessary or appropriate, each of the standing committees listed in Section 1.1 may organize a standing or ad hoc subcommittee for such purposes within the scope of its powers as it sees fit, and may delegate to such subcommittee any of its powers as may be necessary or appropriate to enable such subcommittee to discharge its duties and responsibilities. Any such subcommittee shall be composed solely of members of the standing committee, which shall appoint and replace such subcommittee members. Each subcommittee member shall hold office during the term designated by the standing committee, provided that such term shall automatically lapse if such member ceases to be a member of the standing committee or fails to meet any other qualifications that may be imposed by the standing committee. Section 2. Appointment and Removal of Committee Members Subject to Section 5 below, Directors shall be appointed to or removed from a committee only upon the affirmative votes of: 1. A majority of the Directors then in office; and 2. A majority of the Continuing Directors, voting as a separate group. Each member of a committee shall serve until his or her successor is duly appointed and qualified. Section 3. Procedures for Committees Each committee or subcommittee may adopt such charters, procedures or regulations as it shall deem necessary for the proper conduct of its functions and the performance of its responsibilities, provided that such charters, procedures or regulations are consistent with (i) the Company's articles of incorporation, bylaws and corporate governance guidelines, (ii) applicable laws, regulations and stock exchange listing standards, and (iii) any regulations or procedures specified for such committee by the Board of Directors or for such subcommittee by the standing committee that authorized its organization under Section 1.3 (collectively, the "Governing Standards"). Unless otherwise determined by a committee or subcommittee, each meeting thereof shall be convened pursuant to the notice requirements pertaining to meetings of the full Board. Each committee and subcommittee shall keep written minutes of its meetings. Section 4. Meetings A committee or subcommittee may invite to its meetings other directors, representatives of management, counsel or other persons whose pertinent advice or counsel is sought by the committee or subcommittees. A majority of the members of any committee or subcommittee shall constitute a quorum and action by a majority (or by any super-majority required by the Governing Standards) of a quorum at any meeting of a committee or subcommittee shall be deemed action by the committee or subcommittee. The committee or subcommittee may also take action without meeting if all members thereof consent in writing thereto. Meetings of a committee or subcommittee may be held by telephone conference calls or other communications equipment provided each person participating may hear and be heard by all other meeting participants. Each committee shall make regular reports to the Board. All recommendations or actions of any committee or subcommittee shall be subject to approval or ratification by the full Board of Directors unless the committee or subcommittee possesses plenary power to act independently with respect to such matter and the submission of such matter to the full Board for action would be prohibited by, or contrary to the intent and purpose of, any Governing Standards. Section 5. Authority of Chairman to Fill Vacancies Whenever the Board of Directors is not in session, the Chairman may fill vacancies in any committees with the concurrence of the Nominating and Corporate Governance Committee. Any such action by the Chairman shall be subject to ratification or disapproval by the Board at its next meeting. ARTICLE IV SHAREHOLDERS' MEETINGS Section 1. Place of Meetings Unless otherwise required by law or these Bylaws, all meetings of the shareholders shall be held at the principal office of the Corporation or at such other place, within or without the State of Louisiana, as may be designated by the Board of Directors. Section 2. Annual Meeting An annual meeting of the shareholders shall be held on the date and at the time as the Board of Directors shall designate for the purpose of electing directors and for the transaction of such other business as may be properly brought before the meeting. If no annual shareholders' meeting is held for a period of 18 months, any shareholder may call such meeting to be held at the registered office of the Corporation as shown on the records of the Secretary of State of the State of Louisiana. Section 3. Special Meetings Special meetings of the shareholders, for any purpose or purposes, may be called by the Chairman of the Board, the President or the Board of Directors. Subject to the terms of any outstanding class or series of Preferred Stock that entitles the holders thereof to call special meetings, the holders of a majority of the Total Voting Power shall be required to cause the Secretary of the Corporation to call a special meeting of shareholders pursuant to La. R.S. 12:73B (or any successor provision). Such requests of shareholders must state the specific purpose or purposes of the proposed special meeting, and the business to be brought before such meeting by the shareholders shall be limited to such purpose or purposes. Section 4. Notice of Meetings Except as otherwise provided by law, the authorized person or persons calling a shareholders' meeting shall cause written notice of the time and place of the meeting to be given to all shareholders of record entitled to vote at such meeting at least 10 days and not more than 60 days prior to the day fixed for the meeting. Notice of the annual meeting need not state the purpose or purposes thereof, unless action is to be taken at the meeting as to which notice is required by law, the Articles of Incorporation or the Bylaws. Notice of a special meeting shall state the purpose or purposes thereof. Any previously scheduled meeting of the shareholders may be postponed, and (unless provided otherwise by law or the Articles of Incorporation) any special meeting of the shareholders may be canceled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of shareholders. Section 5. Notice of Shareholder Nominations and Shareholder Business 5.1 Business Brought Before Meetings. At any meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. Nominations for the election of directors at a meeting at which directors are to be elected may be made by or at the direction of the Board of Directors, or a committee duly appointed thereby, or by any shareholder of record entitled to vote generally for the election of directors who complies with the procedures set forth below. Other matters to be properly brought before a meeting of the shareholders must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, including matters covered by Rule 14a-8 of the Securities and Exchange Commission, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by any shareholder of record entitled to vote at such meeting who complies with the procedures set forth below. 5.2 Required Notice. A notice of the intent of a shareholder to make a nomination or to bring any other matter before the meeting shall be made in writing and received by the Secretary of the Corporation not more than 180 days and not less than 90 days in advance of the first anniversary of the preceding year's annual meeting of shareholders or, in the event of a special meeting of shareholders or annual meeting scheduled to be held either 30 days earlier or later than such anniversary date, such notice shall be received by the Secretary of the Corporation within 15 days of the earlier of the date on which notice of such meeting is first mailed to shareholders or public disclosure of the meeting date is made. In no event shall the public announcement of an adjournment of a shareholders' meeting commence a new time period for the giving of a shareholder's notice as described above. 5.3 Contents of Notice. Every such notice by a shareholder shall set forth: (a) the name, age, business address and residential address of the shareholder of record who intends to make a nomination or bring up any other matter, and any beneficial owner or other person acting in concert with such shareholder; (b) a representation that the shareholder is a holder of record of shares of the Corporation's capital stock that accord such shareholder the voting rights specified in paragraph 5.1 above and that the shareholder intends to appear in person at the meeting to make the nomination or bring up the matter specified in the notice; (c) with respect to notice of an intent to make a nomination, a description of all agreements, arrangements or understandings among the shareholder, any person acting in concert with the shareholder, each proposed nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) with respect to notice of an intent to make a nomination, (i) the name, age, business address and residential address of each person proposed for nomination, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of capital stock of the Corporation of which such person is the beneficial owner, and (iv) any other information relating to such person that would be required to be disclosed in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had such nominee been nominated by the Board of Directors; and (e) with respect to notice of an intent to bring up any other matter, a complete and accurate description of the matter, the reasons for conducting such business at the meeting, and any material interest in the matter of the shareholder and the beneficial owner, if any, on whose behalf the proposal is made. 5.4 Other Required Information. Notice of an intent to make a nomination shall be accompanied by the written consent of each nominee to serve as a director of the Corporation if so elected and an affidavit of each such nominee certifying that he meets the qualifications specified in Section 11 of Article II of these Bylaws. The Corporation may require any proposed nominee to furnish such other information or certifications as may be reasonably required by the Corporation to determine the eligibility and qualifications of such person to serve as a director. 5.5 Disqualification of Certain Proposals. With respect to any proposal by a shareholder to bring before a meeting any matter other than the nomination of directors, the following shall govern: (a) If the Secretary of the Corporation has received sufficient notice of a proposal that may properly be brought before the meeting, a proposal sufficient notice of which is subsequently received by the Secretary and that is substantially duplicative of the first proposal shall not be properly brought before the meeting. If in the judgment of the Board of Directors a proposal deals with substantially the same subject matter as a prior proposal submitted to shareholders at a meeting held within the preceding five years, it shall not be properly brought before any meeting held within three years after the latest such previous submission if (i) the proposal was submitted at only one meeting during such preceding period and it received affirmative votes representing less than 3% of the total number of votes cast in regard thereto, (ii) the proposal was submitted at only two meetings during such preceding period and it received at the time of its second submission affirmative votes representing less than 6% of the total number of votes cast in regard thereto, or (iii) the proposal was submitted at three or more meetings during such preceding period and it received at the time of its latest submission affirmative votes representing less than 10% of the total number of votes cast in regard thereto. (b) Notwithstanding compliance with all of the procedures set forth above in this Section, no proposal shall be deemed to be properly brought before a meeting of shareholders if, in the judgment of the Board, it is not a proper subject for action by shareholders under Louisiana law. 5.6 Power to Disregard Proposals. At the meeting of shareholders, the chairman shall declare out of order and disregard any nomination or other matter not presented in accordance with the foregoing procedures or which is otherwise contrary to the foregoing terms and conditions. 5.7 Rights and Obligations of Shareholders Under Federal Proxy Rules. Nothing in this Section shall be deemed to modify (i) any obligations of a shareholder to comply with all applicable requirements of the Securities Exchange Act of 1934 and the regulations promulgated thereunder with respect to the matters set forth in this Section of the Bylaws or (ii) any rights or obligations of shareholders with respect to requesting inclusion of proposals in the Corporation's proxy statement or soliciting their own proxies pursuant to the proxy rules of the Securities and Exchange Commission. 5.8 Rights of Preferred Shareholders. Nothing in this Section shall be deemed to modify any rights of holders of any outstanding class or series of Preferred Stock to elect directors or bring other matters before a shareholders' meeting in the manner specified by the terms and conditions governing such stock. Section 6. Quorum 6.1 Establishment of Quorum. At all meetings of shareholders, the holders of a majority of the Total Voting Power shall constitute a quorum to organize the meeting, provided, however, that at any meeting the notice of which sets forth any matter that, by law or the Articles of Incorporation, must be approved by the affirmative vote of the holders of a specified percentage in excess of a majority of the Total Voting Power present or represented at the shareholders' meeting, the holders of that specified percentage shall constitute a quorum, and further provided that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the voting power of such class or series shall constitute a quorum of such class or series for the transaction of such business. Shares of Voting Stock as to which the holders have voted or abstained from voting with respect to any matter considered at a meeting, or which are subject to Non-Votes (as defined in Section 6.3 below), shall be counted as present for purposes of constituting a quorum to organize a meeting. 6.2 Withdrawal. If a quorum is present or represented at a duly organized meeting, such meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, or the refusal of any shareholders present to vote. 6.3 Non-Votes. As used in these Bylaws, "Non-Votes" shall mean the number of votes as to which the record holder or proxy holder of shares of Capital Stock has been precluded from voting thereon (whether by law, regulations of the Securities and Exchange Commission, rules or bylaws of any national securities exchange or other self-regulatory organization, or otherwise), including without limitation votes as to which brokers may not or do not exercise discretionary voting power under the rules of the New York Stock Exchange with respect to any matter for which the broker has not received voting instructions from the beneficial owner of the voting shares. Section 7. Voting Power Present or Represented For purposes of determining the amount of Total Voting Power present or represented at any annual or special meeting of shareholders with respect to voting on any particular matter, shares as to which the holders have abstained from voting, and shares which are subject to Non-Votes (as defined in Section 6.3), will be treated as not present and not cast. Section 8. Voting Requirements When a quorum is present at any meeting, the vote of the holders of a majority of the Total Voting Power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of law or the Articles of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Directors shall be elected by plurality vote. Section 9. Proxies At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person or by proxy appointed by an instrument in writing subscribed by such shareholder and bearing a date not more than 11 months prior to the meeting, unless the instrument provides for a longer period, but in no case will an outstanding proxy be valid for longer than three years from the date of its execution. The person appointed as proxy need not be a shareholder of the Corporation. Section 10. Adjournments 10.1 Adjournments of Meetings. Adjournments of any annual or special meeting of shareholders may be taken without new notice being given unless a new record date is fixed for the adjourned meeting, but any meeting at which directors are to be elected shall be adjourned only from day to day until such directors shall have been elected. 10.2 Lack of Quorum. If a meeting cannot be organized because a quorum has not attended, those present may adjourn the meeting to such time and place as they may determine, subject, however, to the provisions of Section 10.1 hereof. In the case of any meeting called for the election of directors, those who attend the second of such adjourned meetings, although less that a quorum as fixed in Section 6.1 hereof, shall nevertheless constitute a quorum for the purpose of electing directors. Section 11. Written Consents Any action required or permitted to be taken at any annual or special meeting of shareholders may be taken only upon the vote of the shareholders, present in person or represented by duly authorized proxy, at an annual or special meeting duly noticed and called, as provided in these Bylaws, and may not be taken by a written consent of the shareholders pursuant to the Business Corporation Law of the State of Louisiana. Section 12. List of Shareholders At every meeting of shareholders, a list of shareholders entitled to vote, arranged alphabetically and certified by the Secretary or by the agent of the Corporation having charge of transfers of shares, showing the number and class of shares held by each shareholder on the record date for the meeting, shall be produced on the request of any shareholder. Section 13. Procedure at Shareholders' Meetings The Chairman of the Board, or in his absence, the Vice Chairman, shall preside as chairman at all shareholders' meetings. The organization of each shareholders' meeting and all matters relating to the manner of conducting the meeting shall be determined by the chairman, including the order of business, the conduct of discussion and the manner of voting. Meetings shall be conducted in a manner designed to accomplish the business of the meeting in a prompt and orderly fashion and to be fair and equitable to all shareholders, but it shall not be necessary to follow Roberts' Rules of Order or any other manual of parliamentary procedure. ARTICLE V CERTIFICATES OF STOCK Certificates of stock issued by the Corporation shall be numbered and shall be entered into the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the President or any Vice President and by the Treasurer, Secretary or any Assistant Secretary, all in the manner required by law. ARTICLE VI REGISTERED SHAREHOLDERS The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any beneficial, equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the laws of Louisiana. ARTICLE VII LOSS OF CERTIFICATE Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact, and the Board of Directors, the General Counsel or the Secretary may, in his or its discretion, require the owner of the lost of destroyed certificate or his legal representative, to give the Corporation a bond, in such sum as the Board of Directors, the General Counsel or the Secretary may require, to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss or destruction of any such certificate; a new certificate of the same tenor and for the same number of shares as the one alleged to be lost or destroyed, may be issued without requiring any bond when, in the judgment of the Board of Directors, the General Counsel or the Secretary, it is proper to do so. ARTICLE VIII CHECKS All checks, drafts and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. ARTICLE IX DIVIDENDS Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meetings, pursuant to law. ARTICLE X INAPPLICABILITY OF LOUISIANA CONTROL SHARE STATUTE Effective May 23, 1995, the provisions of La. R.S.12:135 through 12:140.2 shall not apply to control share acquisitions of shares of the Corporation's Capital Stock. ARTICLE XI CERTAIN DEFINITIONS The terms Capital Stock, Continuing Directors, Total Voting Power and Voting Stock shall have the meanings ascribed to them in the Articles of Incorporation, provided, however, that for purposes of Sections 3 and 6 of Article IV of these Bylaws, Total Voting Power shall mean the total number of votes that holders of Capital Stock are entitled to cast generally in the election of directors. ARTICLE XII AMENDMENTS These Bylaws may only be altered, amended or repealed in the manner specified in the Articles of Incorporation.

                                                                  Exhibit 3.3(a)

                                CenturyTel, Inc.

                         CORPORATE GOVERNANCE GUIDELINES


1.     Director Qualifications

       The Board will have a majority of independent directors. The Nominating
and Corporate Governance Committee is responsible for reviewing with the Board,
on an annual basis, the requisite skills and characteristics of new Board
members as well as the composition of the Board as a whole. This assessment will
include members' independence qualifications, as well as consideration of
diversity, age, skills and experience in the context of the needs of the Board.
All directors must meet any additional qualifications established under the
Company's organizational documents.

       Nominees for directorship will be selected by the Nominating and
Corporate Governance Committee in accordance with the qualifications and
criteria described in these guidelines, as well as the policies and principles
in the Committee's charter and any selection guidelines or criteria adopted
thereunder. The invitation to join the Board should be extended on behalf of the
full Board by the Chairman of the Nominating and Corporate Governance Committee
and the Chairman of the Board.

       The Board presently has 13 members. It is the sense of the Board that
a size of 11 to 13 is about right. However, the Board would be willing to go
to a somewhat larger size in order to accommodate the availability of an
outstanding candidate. It is the general sense of the Board that no more
than two management directors should serve on the Board.

       The Board expects directors who change the job or responsibility they
held when they were elected to the Board to volunteer to resign from the Board.
It is not the sense of the Board that in every such instance the director should
necessarily leave the Board. There should, however, be an opportunity for the
Board, through the Nominating and Corporate Governance Committee, to review the
continued appropriateness of Board membership under the circumstances.

       No director may serve on more than two other unaffiliated public
company boards, unless this prohibition is waived by the Board. Directors should
advise the Chairman of the Board and the Chairman of the Nominating and
Corporate Governance Committee in advance of accepting an invitation to serve on
another public company board. No director may be appointed or nominated to a new
term if he or she would be age 72 or older at the time of the election or
appointment.

       The Board does not believe it should establish term limits. While term
limits could help insure that there are fresh ideas and viewpoints available to
the Board, they hold the disadvantage of losing the contribution of directors
who have been able to develop, over a period of time, increasing insight into
the Company and its operations and, therefore, provide an increasing
contribution to the Board as a whole. As an alternative to term limits, the
Nominating and Corporate Governance Committee will review each director's
continuation on the Board every three years. This will allow each director the
opportunity to conveniently confirm his or her desire to continue as a member of
the Board.

       The Board has adopted a standard that no director qualifies as
"independent" unless the Board affirmatively confirms that the director (and any
organization with which the director is affiliated) receives no payments from
CenturyTel, Inc. or its subsidiaries (the "Company") other than director's fees
or a pension or other form of deferred compensation for prior service (provided
such compensation is not contingent in any way on continued service). In
addition, (i) no director who is a former employee of the Company can be
"independent" until five years after the employment has ended; (ii) no director
who is, or in the past five years has been, affiliated with or employed by a
(present or former) auditor of the Company can be "independent" until five years
after the end of either the affiliation or the auditing relationship; (iii) no
director can be "independent" if he or she is, or in the past five years has
been, part of an interlocking directorate in which an executive officer of the
Company serves on the compensation committee of another company that
concurrently employs the director; and (iv) directors with immediate family
members (as defined in the New York Stock Exchange Listed Company Manual) in the
foregoing categories are likewise subject to the five-year "cooling-off"
provision for purposes of determining "independence." The Board may determine a
director to be independent if a family member is employed by the Company in a
non-executive officer position, and may make other reasonable determinations or
interpretations consistent with the foregoing standards.

       Once the Board has determined that a director is independent, the
director may not engage in any transaction with the Company, either directly or
indirectly through an immediate family member or related entity, without such
transaction being approved by the Board.

2.     Director Responsibilities

       The basic responsibility of the directors is to exercise their business
judgment to act in what they reasonably believe to be in the best interests of
the Company and its shareholders. In discharging that obligation, directors
should be entitled to rely on the honesty and integrity of the Company's senior
executives and its outside advisors and auditors. The directors shall also be
entitled to have the Company purchase reasonable directors' and officers'
liability insurance on their behalf, to the benefits of indemnification to the
fullest extent permitted by law and the Company's articles of incorporation,
by-laws and any indemnification agreements, and to exculpation as provided by
state law and the Company's articles of incorporation.

       Directors are expected to attend Board meetings and meetings
of committees on which they serve, and to spend the time needed and meet as
frequently as necessary to properly discharge their responsibilities.
Information and data that are important to the Board's understanding of the
business to be conducted at a Board or committee meeting should generally be
distributed in writing to the directors before the meeting, and directors should
review these materials in advance of the meeting.

       The Board has no policy with respect to the separation of the offices
of Chairman and the Chie Executive Officer. The Board believes that this issue
is part of the succession planning process and that it is in the best interests
of the Company for the Board to make a determination when it elects a new chief
executive officer.

       The Chairman will establish the agenda for each Board meeting. Each
Board member is free to suggest the inclusion of items on the agenda. Each Board
member is free to raise at any Board meeting subjects that are not on the agenda
for that meeting. The Board will review the Company's long-term strategic plans
and the principal issues that the Company will face in the future during at
least one Board meeting each year.

       The non-management directors will meet in executive session at least
quarterly. The director who presides at each of these meetings will be an
independent director chosen annually by the non-management directors, and will
be disclosed in the annual proxy statement.

       The Board believes that the management speaks for the Company.
Individual Board members may, from time to time, meet or otherwise communicate
with various constituencies that are involved with the Company. However, it is
expected that Board members would do this with the knowledge of the management
and, absent unusual circumstances or as contemplated by the committee charters,
only at the request of management.

3.     Board Committees

       The Board will have at all times an Audit Committee, a Compensation
Committee and a Nominating and Corporate Governance Committee. All of the
members of these committees will be independent directors under the criteria
established by the New York Stock Exchange. Committee members will be appointed
by the Board upon recommendation of the Nominating and Corporate Governance
Committee with consideration of the desires of individual directors. It is the
sense of the Board that consideration should be given to rotating committee
members periodically, but the Board does not believe that rotation should be
mandated as a policy.

       Each key committee will have its own charter. The charters will set
forth the purposes, goals and responsibilities of the committees as well as
qualifications for committee membership, procedures for committee member
appointment and removal, committee structure and operations and committee
reporting to the Board. The charters will also provide that each key committee
will annually evaluate its performance.

       The Chairman of each committee, in consultation with the committee
members, will determine the frequency and length of the committee meetings
consistent with any requirements set forth in the committee's charter. The
Chairman of each committee, in consultation with members of the committee and
others specified in the committee's charter, will develop the committee's
agenda.

       The Board and each committee have the power to hire independent legal,
financial or other advisors as they may deem necessary, without consulting or
obtaining the approval of any officer of the Company in advance.

       Each committee may meet in executive session as often as it deems
appropriate.

       The Board may, from time to time, establish or maintain additional
committees as necessary or appropriate.

4.     Director Access to Officers and Employees

       Directors have full and free access to officers and employees of the
Company. Any meetings or contacts that a director wishes to initiate may be
arranged through the CEO or the Secretary or directly by the director. The
directors will use their judgment to ensure that any such contact is not
disruptive to the business operations of the Company and will, to the extent not
inappropriate, copy the CEO on any written communications between a director and
an officer or employee of the Company.

       The Board welcomes regular attendance at each Board meeting of
senior officers of the Company. If the CEO wishes to have additional Company
personnel attendees on a regular basis, this suggestion should be brought to the
Board for approval.

5.     Director Compensation

       The form and amount of director compensation will be determined by the
Nominating and Corporate Governance Committee in accordance with the policies
and principles set forth in its charter, and such Committee will conduct an
annual review of director compensation. The Nominating and Corporate Governance
Committee will consider whether directors' independence may be jeopardized if
director compensation and perquisites exceed customary levels, or if the Company
makes substantial charitable contributions to organizations with which a
director is affiliated.

6.     Director Orientation and Continuing Education

       The Nominating and Corporate Governance Committee shall develop an
Orientation Program for new directors. Once it is developed, all new directors
must participate in the Company's Orientation Program, which should be conducted
as soon as practicable after new directors are elected or appointed. This
orientation will include presentations by senior management to familiarize new
directors with the Company's strategic plans, its significant financial,
accounting and risk management issues, its corporate compliance programs (which
includes its code of business conduct and ethics), its principal officers, and
its internal and independent auditors. All other directors are also invited to
attend the Orientation Program. The Company will also endeavor to periodically
update directors on industry, technological and regulatory developments, and to
provide adequate resources to support directors in understanding the Company's
business and matters to be acted upon at board and committee meetings.

7.     CEO Evaluation and Management Succession

       The Nominating and Corporate Governance Committee will conduct an
annual review of the CEO's performance. The Board of Directors will review the
Nominating and Corporate Governance Committee's report in order to ensure that
the CEO is providing the best leadership for the Company in the long- and
short-term.

       The Nominating and Corporate Governance Committee should report
periodically to the Board on succession planning. The entire Board will
consult periodically with the Nominating and Corporate Governance Committee
regarding potential successors to the CEO. The CEO should at all times make
available his or her recommendations and evaluations of potential successors,
along with a review of any development plans recommended for such individuals.

8.     Annual Performance Evaluation

       The Board of Directors will conduct an annual self-evaluation to
determine whether it and its committees are functioning effectively. The
Nominating and Corporate Governance Committee will receive comments from all
directors and report annually to the Board with an assessment of the Board's
performance, which will be discussed with the full Board. The assessment will
focus on the Board's contribution to the Company and specifically focus on areas
in which the Board or management believes that the Board could improve.

9.     Waivers of the Code of Business Conduct and Ethics

       Any waiver of the Company's policies, principles or guidelines relating
to business conduct or ethics for executive officers or directors may be made
only by the Audit Committee, and will be promptly disclosed as required by law
or stock exchange regulation.

                               * * * * * * * * * *

o      Originally adopted by the Nominating and Corporate Governance Committee
       and the Board of Directors on February 17, 2003 and February 25, 2003,
       respectively.


                                                                  Exhibit 3.3(b)
                                CENTURYTEL, INC.

                           CHARTER OF AUDIT COMMITTEE
                            OF THE BOARD OF DIRECTORS



I.     SCOPE OF RESPONSIBILITY

       A.   General

       Subject to the limitations noted in Section VI, the primary function of
the Audit Committee is to assist the Board of Directors (the "Board") in
fulfilling its oversight responsibilities by (1) overseeing the Company's system
of financial reporting, auditing, controls and legal compliance, (2) monitoring
the operation of such system and the integrity of the Company's financial
statements, (3) monitoring the qualifications and independence of the outside
auditors, and the performance of the outside and internal auditors, and (4)
reporting to the Board periodically concerning activities of the Audit
Committee.

       B.   Relationship to Other Groups

       The management of the Company is responsible primarily for developing
the Company's accounting practices, preparing the Company's financial
statements, maintaining internal controls, maintaining disclosure controls and
procedures, and preparing the Company's disclosure documents in compliance with
applicable law. The internal auditors are responsible primarily for objectively
assessing the Company's internal controls. The outside auditors are responsible
primarily for auditing and attesting to the Company's financial statements and
evaluating the Company's internal controls. Subject to the limitations noted in
Section VI, the Audit Committee, as the delegate of the Board, is responsible
for overseeing this process and discharging such other functions as are assigned
by law, the Company's organizational documents, or the Board. The functions of
the Audit Committee are not intended to duplicate, certify or guaranty the
activities of management or the internal or outside auditors.

       The Audit Committee will strive to maintain an open and free avenue of
communication among management, the outside auditors, the internal auditors, and
the Board. The outside and internal auditors will report directly to the Audit
Committee.

II.    COMPOSITION

       The Audit Committee will be comprised of three or more directors
selected by the Board in accordance with the Company's bylaws, each of whom will
meet the standards of independence or other qualifications required from time to
time by the New York Stock Exchange, Section 10A(m)(3) of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the
Securities and Exchange Commission (the "SEC"). The Audit Committee's
chairperson shall be designated by the Board. The Audit Committee may form and
delegate authority to subcommittees consisting of one or more members when
appropriate, including the authority to grant preapprovals of audit and
permitted non-audit services by the outside auditors, subject to any limitations
or reporting requirements established by law or the Company's procedures.

III.   MEETINGS

       The Audit Committee will meet at least four times annually, or more
frequently if the Committee determines it to be necessary. To foster open
communications, the Audit Committee may invite to its meetings other directors
or representatives of management, the outside auditors, the internal auditors,
counsel or other persons whose pertinent advice or counsel is sought by the
Committee. The agenda for meetings will be prepared in consultation among the
Committee chair (with input from Committee members), management, the outside
auditors, the internal auditors and counsel. The Audit Committee will maintain
written minutes of all its meetings and provide a copy of all such minutes to
every member of the Board.

IV.    POWERS

       The Audit Committee shall have the sole authority to appoint or replace
the outside auditors. The Audit Committee shall be directly responsible for the
compensation and oversight of the work of the outside auditors (including
resolution of disagreements between management and the outside auditors
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work. The Audit Committee shall also have the sole authority
to (a) appoint or replace the chief internal auditing executive, (b) appoint or
replace any firm engaged to provide internal auditing services and (c) grant
waivers to directors or executive officers from the code of ethics and business
conduct contained in the Company's corporate compliance procedures.

       The Audit Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain independent legal, accounting or other
advisors. The Company shall provide appropriate funding, as determined by the
Audit Committee, for payment of compensation to the outside auditor for the
purpose of rendering or issuing an audit report and to any advisors employed by
the Audit Committee.

       The Audit Committee shall have the power to (a) obtain and review any
information that the Audit Committee deems necessary to perform its oversight
functions and (b) conduct or authorize investigations into any matters within
the Audit Committee's scope of responsibilities.

       The Audit Committee shall have the power to issue any reports or
perform any other duties required by (a) the Company's articles of incorporation
or bylaws, (b) applicable law or (c) rules or regulations of the SEC, the New
York Stock Exchange, or any other self-regulatory organization having
jurisdiction over the affairs of the Audit Committee.

       The Audit Committee shall have the power to consider and act upon any
other matters concerning the financial affairs of the Company as the Audit
Committee, in its discretion, may determine to be advisable in connection with
its oversight functions.

V.     PERIODIC OVERSIGHT TASKS

       The Audit Committee, to the extent it deems necessary or appropriate or
to the extent required by applicable laws or regulations, will perform the
oversight tasks delineated in the Audit Committee Checklist. The checklist will
be updated annually to reflect changes in regulatory requirements, authoritative
guidance, and evolving oversight practices. The most recently updated checklist
will be considered to be an addendum to this charter.

VI.    LIMITATIONS

       The Committee's failure to investigate any matter, to resolve any
dispute or to take any other actions or exercise any of its powers in
connection with the good faith exercise of its oversight functions shall in
no way be construed as a breach of its duties or responsibilities to the
Company, its directors or its shareholders.

       The Audit Committee is not responsible for preparing the Company's
financial statements, planning or conducting the audit of such financial
statements, determining that such financial statements are complete and accurate
or prepared in accordance with generally accepted accounting standards, or
assuring compliance with applicable laws or the Company's policies, procedures
and controls, all of which are the responsibility of management or the outside
auditors. The Audit Committee's oversight functions involve substantially lesser
responsibilities than those associated with the audit performed by the outside
auditors. In connection with the Audit Committee's oversight functions, the
Committee may rely on (i) management's representations that the financial
statements have been prepared with integrity and objectivity and in conformity
with accounting principles generally accepted in the United States and (ii) the
representations of the outside auditors.

       In carrying out its oversight functions, the Audit Committee believes
its policies and procedures should remain flexible in order to best react to a
changing environment.

                               * * * * * * * * * *


o      Originally adopted and approved by the Audit Committee and Board on
       November 18, 1999.

o      Amended by the Board on February 28, 2001, February 26, 2002 and
       February 25, 2003, in each case following prior approval thereof by the
       Audit Committee.


<TABLE>
<CAPTION>

                                                                      ADDENDUM

                            AUDIT COMMITTEE CHECKLIST

                                                                     First     Second      Third     Fourth       As
                                                                    Quarter    Quarter    Quarter    Quarter    Needed
Annual Audit Planning
---------------------
<S>                                                                    <C>       <C>        <C>        <C>         <C>
       1.   appoint or replace the outside auditors                    X
and approve the compensation and other terms of the
outside auditors' annual engagement

       2.   pre-approve all auditing services                          X                                           X

       3.   review significant relationships                           X                                           X
between the outside auditors and the Company,
including those described in written statements
of the outside auditors furnished to the Audit
Committee under ISB Standard No. 1

       4.   discuss the scope and comprehensiveness                              X                                 X
of the audit plan, including changes from prior
years and the coordination of the efforts of the
outside and internal auditors

Review Earnings Releases and other Non-SEC Reports
--------------------------------------------------

       5.   discuss the Company's earnings release                     X         X           X         X
with management and the outside auditors prior to
its release

       6.   discuss with management the Company's
financial information and earnings  guidance provided                  X         X           X         X
to analysts and rating agencies

Review of Financial Information in SEC Reports
----------------------------------------------

       7.   review with management and the outside                     X         X           X         X
auditors the Company's financial information, and any
report, opinion or review rendered on the financial
statements by management or the outside auditors
(including under SAS No.71)

       8.   review and discuss reports from the outside                X                                           X
auditors on:

            (a)  the Company's critical accounting policies

            (b)  all alternative treatments of financial
information within GAAP that have been discussed with management,
ramifications of the use of such alternative treatments, and the
treatment preferred by the outside auditors

            (c)  other material written communications between
the outside auditors and management, such as any management
letter or schedule of unadjusted differences

       9.   review and discuss reports from the outside
auditors on:                                                           X         X           X         X           X

            (a)  conditions or matters, if any, that must
be reported under generally accepted auditing standards
(including SAS No.61), including:

                 (i)   difficulties or disputes with
management or the internal auditors encountered during
the audit
                 (ii)  the outside auditors' views regarding
the Company's financial disclosures, the quality of the
Company's accounting principles as applied, the underlying
estimates and other significant judgments made by
management in preparing the financial statements, and the
compatibility of the Company's principles and judgments
with prevailing practices and standards

            (b)  matters, if any, that must be reported
under the federal securities laws (including Section 10A
of the Exchange Act)

            (c)  communications, if any, with the
national office of the outside auditors pertaining to the
Company's financial affairs

       10.  discuss with management and the outside auditors           X         X           X         X
significant  financial  reporting  issues  and  judgments  made in
connection  with  the  preparation  of  the  Company's   financial
statements,   including  any  (a)   significant   changes  in  the
Company's  use  or   application   of  accounting   principles  or
policies,  (b) major  issues as to the  adequacy of the  Company's
internal controls, its disclosure controls and procedures,  or its
financial  reporting  processes,  and (c) special steps adopted in
light of material control deficiencies

       11.  discuss with management and the outside auditors           X         X           X         X
the effect of regulatory and accounting initiatives as well
as off-balance sheet structures on the Company's financial
statements

       12.  discuss the Company's major financial risk                 X         X           X         X           X
exposures and the steps management has taken to monitor and
control such exposures

       13.  review the accounting implications of significant          X         X           X         X           X
new transactions, if any

Conduct of Meetings
-------------------

       14.  in connection with each periodic report of the Company,
review:

            (a)  management's required disclosure, if any,                                                         X
to the Audit Committee under ss.302 of the Sarbanes-Oxley
Act regarding significant deficiencies in internal controls
or reportable fraud

            (b)  the contents of the certifications of the             X         X           X         X
Company's CEO and CFO included in such report

       15.  receive reports, if any, regarding non-audit services      X         X           X         X
that the Chairman (or any subcommittee) pre-cleared the outside
auditor to perform since the last meeting

       16.  review the extent to which the Company has implemented                                                 X
changes in practices or controls that were previously  recommended
to or approved by the Audit Committee

       17.  receive reports regarding  significant changes                                                         X
to GAAP or regulations impacting the Audit Committee

       18.  meet in executive session with the outside auditors,       X         X           X         X           X
internal auditors and management, as necessary

Annual Reports
--------------

       19.  recommend to the Board whether the audited financial       X
statements should be included in the Company's 10-K report

       20.  approve the annual proxy statement report of the audit     X
committee required by the rules of the SEC

       21.  review and approve the disclosures in each 10-K report     X
regarding management's internal control report, upon effectiveness
of the applicable rules implementingss.404 of the Sarbanes-Oxley Act

Oversight of the Company's Outside Auditors
-------------------------------------------

       22.  pre-clear the engagement of the outside auditors                                                       X
to conduct any  non-audit services not pre-cleared by the Chairman
(or a subcommittee)

       23.  obtain and review a report from the outside auditors                                       X
regarding (a) the outside auditor's internal quality-control
procedures, (b) any material issues raised by the most recent
internal quality-control review, or peer review, of the firm,
or by any inquiry or investigation by governmental or professional
authorities within the preceding five years respecting any audit
engagement, (c) any steps taken to deal with any such issues,
(d) all relationships between the outside auditors and the
Company and (e) assurances that the outside auditing firm is
registered in good standing with the Public Company Accounting
Oversight Board (once the applicable rules become effective);
evaluate the qualifications, performance and independence of the
outside auditors

       24.  review and evaluate the lead audit partner and ensure      X
his rotation as required by law

       25.  review and approve hiring policies for employees or                                                    X
former employees of the outside auditors

Oversight of the Company's Internal Auditors
--------------------------------------------

       26.  review the performance of the chief internal                                     X
auditing executive, and replace if necessary

       27.  meet, if possible, with the entire internal                                      X
auditing staff

       28.  review the significant  reports to management prepared     X         X           X         X           X
by the internal auditing department and management's responses

       29.  discuss with the outside auditors and management the                                       X
internal audit department's plans, responsibilities, preliminary
budget, independence and staffing (including the use of third
party firms) and any recommended changes thereto

Compliance Oversight Responsibilities
-------------------------------------

       30.  establish and monitor procedures for the receipt,                                                      X
retention and treatment of confidential, anonymous complaints
received by the Company regarding accounting, controls or
auditing matters

       31.  discuss any correspondence with regulators or                                                          X
governmental agencies and any published reports which raise
material issues regarding the Company's financial statements
or accounting policies

       32.  review the adequacy of the Company's disclosure                                                        X
controls and procedures

       33.  review reports on "related party" transactions             X

       34.  solicit, as necessary, germane reports or information                                                  X
from other committees with related oversights functions

       35.  review periodically the procedures established by the                                                  X
Company to monitor its compliance with debt covenants

       36.  consult periodically with counsel concerning the Audit                                                 X
Committee's responsibilities or legal matters that may have a
material impact on the Company's financial statements, controls,
or corporate compliance procedures

Self Assessment
---------------

       37.  review annually the Audit Committee's own performance                                      X

       38.  verify that all Committee members remain eligible to                                       X
serve

Charter
-------

       39.  review this checklist and the related Audit Committee                                      X
charter annually, and consider, adopt and submit to the Board any
proposed changes

       40.  include a copy of the Audit Committee charter as an                                                    X
appendix to the proxy statement at least once every three years

       41.  periodically review the charter of the internal audit                                                  X
department, and consider and adopt necessary changes
</TABLE>

                              * * * * * * * * * *

Last Revised:   February 11, 2003.



                                                                  Exhibit 3.3(c)

                                CENTURYTEL, INC.
                               -----------------

                      CHARTER OF THE COMPENSATION COMMITTEE
                            OF THE BOARD OF DIRECTORS
                               -----------------


I.     PURPOSE

       The Compensation Committee is appointed by the Board principally to
discharge the Board's responsibilities relating to compensation of the Company's
executive officers, to oversee the administration of the Company's executive
compensation plans and programs, and to produce an annual report on executive
compensation for inclusion in the Company's proxy statement.

II.    COMPOSITION

       The Committee will consist of at least three directors, each of whom
will be appointed and replaced by the Board. Each member of the Committee will
meet the independence requirements of the New York Stock Exchange, Rule 16b-3
promulgated under the Securities Exchange Act of 1934, and Section 162(m) of the
Internal Revenue Code. The Committee's chairman will be designated by the Board.
The Committee may form and delegate authority to subcommittees when appropriate.

III.   MEETINGS

       The chairman of the Committee will preside at each meeting and, in
consultation with the other members of the Committee and management, will set
the frequency of, and the agenda for, each meeting.

IV.    AUTHORITY AND RESPONSIBILITIES

       In furtherance of the purpose of the Committee described above, the
Committee will have the following authority and responsibilities:

       1.   The Committee will periodically review and approve goals and
objectives relating to compensation of the executive officers, evaluate the
performance of the executive officers in light of these goals and objectives,
and recommend to the Board the compensation levels of the executive officers
based on this evaluation.

       2.   The Committee will periodically review the Company's incentive
compensation plans and equity-based plans, and will oversee the administration
of the Company's other executive compensation plans and programs.

       3.   The Committee will review, adopt and submit to the Board for its
approval (i) any proposed plan or arrangement offering or providing any
incentive, retirement or other compensation, benefits or perquisites to one
or more of the Company's executive officers (other than any plan or arrangement
offering benefits that do not discriminate in scope, terms or operation in
favor of executive officers and that are generally available to all salaried
employees) and (ii) any significant amendment or change to any such plan or
arrangement.

       4.   The Committee will review, adopt and submit to the Board for its
approval (i) any proposed employment, severance or change-in-control contract
between the Company and an executive officer or proposed executive officer and
(ii) any proposed extension or significant amendment thereto.

       5.   The Committee will exercise all powers allocated to it under the
Company's benefit plans, including the powers to (i) grant stock options and
other equity-based awards thereunder and (ii) establish performance goals
thereunder and determine whether such goals have been attained. The Committee
will also have the authority to delegate responsibility in accordance with the
terms and conditions of each such applicable plan.

       6.   The Committee, in consultation with management, will oversee
compliance with regulations governing executive compensation, including Rule
16b-3 and Section 162(m).

       7.   The Committee will issue executive compensation reports to the
Company's shareholders in the manner required under the rules and regulations
of the U.S. Securities and Exchange Commission.

       8.   The Committee will make regular reports to the Board.

       9.   The Committee will have the sole authority to retain and terminate
any compensation consultant retained to assist the Committee in discharging its
functions, and may, to the extent it deems necessary or appropriate, retain
independent legal, financial or other advisors. The Committee will approve
related fees and other retention terms.

       10.  The Committee will oversee, monitor, review or approve such other
employment or compensation-related matters, and will perform such other
services, as may be delegated to it from time to time by the Board.

       11.  The Committee will review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval. The
Committee will annually review its own performance.

                               * * * * * * * * * *
----------
o      Originally adopted and approved by the Committee and the Board on
       February 11, 2003, and February 25, 2003, respectively.



                                                                  Exhibit 3.3(d)
                                CENTURYTEL, INC.
                              --------------------

               CHARTER OF THE NOMINATING AND CORPORATE GOVERNANCE
                       COMMITTEE OF THE BOARD OF DIRECTORS
                              --------------------


I.     PURPOSE

       The Nominating and Corporate Governance Committee is appointed by the
Board principally to (1) assist the Board by identifying individuals qualified
to serve as directors and officers of the Company, and to recommend to the Board
nominees for such positions, (2) monitor the composition of the Board and its
committees, (3) recommend to the Board a set of corporate governance guidelines
applicable to the Company and (4) lead the Board in its annual review of the
Board's performance.

II.    COMPOSITION

       The Committee shall consist of at least three directors, each of whom
shall be appointed and replaced by the Board. Each member of the Committee shall
meet the independence requirements of the New York Stock Exchange. The
Committee's chairperson shall be designated by the Board. The Committee may form
and delegate authority to subcommittees when appropriate.

III.   MEETINGS

       The chairperson of the Committee will preside at each meeting and, in
consultation with the other members of the Committee, will set the frequency of,
and the agenda for, each meeting.

IV.    AUTHORITY AND RESPONSIBILITIES

       In furtherance of the purpose of the Committee described above, the
Committee shall have the following authority and responsibilities:

       1.   The Committee shall lead the search for individuals qualified to
serve as directors, and to recommend to the Board a slate of directors to be
elected annually by the shareholders. In connection therewith, the Committee (i)
shall consider candidates submitted by shareholders and others in accordance
with the Company's bylaws, (ii) shall monitor the performance and contributions
of incumbent directors and (iii) may, to the extent it deems necessary or
appropriate, develop and recommend to the Board specific criteria for selecting
director nominees. The Committee shall also recommend to the Board a slate of
officers to be elected annually by the Board and individuals to fill vacancies
as the need arises.

       2.   The Committee shall monitor the operation of the Board's
committees. In connection therewith, the Committee (i) shall recommend to the
Board a slate of directors to be elected annually to serve as committee members
and directors to fill committee vacancies as needed and (ii) may recommend to
the Board changes in committee structure, including the creation and elimination
of committees.

       3.   The Committee shall, no less than annually, review and reassess
the adequacy of the corporate governance guidelines applicable to the Company
and recommend any proposed changes to the Board for approval.

       4.   The Committee shall receive comments from all directors and report
annually to the Board with an assessment of the Board's performance, to be
discussed with the full Board.

       5.   The Committee may make recommendations to the Board concerning
the size and composition of the Board, the term of membership of directors, and
the frequency, content and structure of Board meetings.

       6.   The Committee shall review and oversee any director orientation
or continuing director education programs established by the Company.

       7.   The Committee shall conduct an annual review of the CEO's
performance, and report its findings to the Board. The Committee shall also
periodically report to the Board on succession planning for the senior executive
officers.

       8.   The Committee shall review annually director compensation
and benefits.

       9.   The Committee shall make regular reports to the Board.

       10.  The Committee shall have the sole authority to retain and terminate
any search firm to be used to identify director or officer candidates and may,
to the extent it deems necessary or appropriate, retain independent legal,
financial or other advisors. The Committee shall approve related fees and other
retention terms.

       11.  The Committee shall also discharge any additional functions that
may be delegated or assigned to it by the Board from time to time, including (i)
considering questions of conflict of interest of directors or executive officers
and (ii) considering significant corporate governance issues or shareholder
relations issues that may arise from time to time.

       12.  The Committee shall review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval. The
Committee shall annually review its own performance.


                               * * * * * * * * * *
----------

o      Originally adopted and approved by the Committee and the Board on
       January 30, 2003 and February 25, 2003, respectively.



                                                                  Exhibit 3.3(e)


                                CENTURYTEL, INC.
                              --------------------

                      CHARTER FOR RISK EVALUATION COMMITTEE
                            OF THE BOARD OF DIRECTORS
                              --------------------


I.     PURPOSE

       The Risk Evaluation Committee is appointed by the Board to identify,
monitor and manage risks to the Company's business, properties and employees.

II.    COMPOSITION

       The Committee will consist of at least three directors, each of whom
will be appointed and replaced by the Board. The Committee's chairman will be
designated by the Board. The Committee may form and delegate authority to
subcommittees when appropriate.

III.   MEETINGS

       The chairman of the Committee will preside at each meeting and, in
consultation with the other members of the Committee and management, will set
the frequency of, and the agenda for, each meeting; provided, however, that any
member of the Committee may call a meeting in his or her discretion. To assist
it in discharging its functions, the Committee may invite to its meetings other
directors or representatives of management, counsel and other persons whose
pertinent advice or counsel is sought by the Committee.

IV.    AUTHORITY AND RESPONSIBILITIES

       In furtherance of the purpose of the Committee described above, the
Committee will have the following authority and responsibilities:

       1.   The Committee will review periodically the Company's major risk
exposures in the areas listed below:

            (a)  risks to the Company's properties (including its information
       systems) posed by casualty events, terrorism or sabotage

            (b)  risks to the Company's business caused by potential or actual
       regulatory developments or the Company's failure to comply with
       applicable telecommunications regulations

            (c)  risks to the Company's business caused by the failure to
       comply with environmental, safety, health or other similar laws

            (d)  risks of injury to the Company's employees

            (e)  risks of potential, threatened or pending rate cases
       or lawsuits.

       2.   The Committee will review periodically the steps that the Company
has taken or could take to mitigate major risks identified above or any others
subsequently identified. In connection therewith, the Committee will
periodically review and adjust the scope and coverage of the Company's insurance
programs, subject to receiving the approval or ratification of the Board for
material changes to such programs.

       3.   The Committee will oversee the operation of the Company's corporate
compliance program and procedures. In connection therewith, the Committee (i)
will review periodically the effectiveness and adequacy of the Company's
corporate compliance program and procedures and recommend to the Board any
necessary proposed changes thereto and (ii) may, to the extent it deems
necessary or appropriate, investigate or cause to be investigated any material
instance of noncompliance.

       4.   The Committee will oversee the Company's risk management, loss
prevention and safety programs and activities.

       5.   The Committee will monitor the functions of the Board to ensure that
management (or the chairpersons of other Board committees) are periodically
making presentations to the Board regarding:

            (a)  financial risks (including interest rate hedging, leverage and
       financing strategies)

            (b)  operational or business risk (including entering new lines of
       business, developing new information technology systems, adopting new
       technological or competitive strategies, or entering into new strategic
       or business relations)

            (c)  any other major risks not monitored by the Committee,
       including legal risks.

       6.   The Committee will make regular reports to the Board summarizing the
Company's insurance programs and the Committee's activities.

       7.   The Committee will also discharge any additional functions that
may be delegated or assigned to it by the Board from time to time.

       8.   The Committee will review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval.

       The Committee will annually review its own performance.


                               * * * * * * * * * *
----------

o      Originally adopted and approved by the Committee and the Board on
       February 18, 2003 and February 25, 2003, respectively.



                                                                 Exhibit 10.1(a)

                                CENTURYTEL, INC.
                          EMPLOYEE STOCK OWNERSHIP PLAN

                   (As Amended and Restated February 28, 2002)



                                TABLE OF CONTENTS
SECTION 1.....................................................................3
         DEFINITIONS AND EFFECTIVE DATES......................................3
                  1.1      Account............................................3
                  1.2      Active Participant.................................3
                  1.3      Adjustment Date....................................3
                  1.4      Approved Absence...................................3
                  1.5      Break in Service...................................3
                  1.6      Company Stock......................................4
                  1.7      Compensation.......................................4
                  1.8      Date of Employment.................................6
                  1.9      Date of Reemployment...............................6
                  1.10     Disability.........................................6
                  1.11     Eligibility Computation Periods....................6
                  1.12     Employee...........................................7
                  1.13     Employer...........................................7
                  1.14     Entry Date.........................................7
                  1.15     ESOP Account.......................................8
                  1.16     ESOP Trust.........................................8
                  1.17     Highly Compensated Employee........................8
                  1.18     Hour of Service....................................9
                  1.19     Leased Employee...................................11
                  1.20     Limitation Year...................................12
                  1.21     Merger Account....................................12
                  1.22     Normal Retirement Age.............................12
                  1.23     Participant.......................................12
                  1.24     PAYSOP Account....................................12
                  1.25     Plan Administrator................................12
                  1.26     Plan Year.........................................12
                  1.27     Rollover Account..................................13
                  1.28     Stock Bonus Account...............................13
                  1.29     Stock Bonus and PAYSOP Trust......................13
                  1.30     Suspense Account..................................13
                  1.31     Top Heavy Valuation Date..........................13
                  1.32     Trust or Trusts...................................13
                  1.33     Trustee...........................................13
                  1.34     Valuation Date....................................14
                  1.35     Vesting Computation Period........................14
                  1.36     Year of Service...................................14
                  1.37     Effective Dates...................................16
SECTION 2....................................................................18
         ELIGIBILITY.........................................................18
                  2.1      Participation.....................................18
                  2.2      Determination of Eligibility......................19
                  2.3      Omission of Eligible Employee.....................19
                  2.4      Inclusion of Ineligible Employee..................19
                  2.5      Election Not to Participate.......................19
SECTION 3....................................................................21
         CONTRIBUTIONS.......................................................21
                  3.1      Contributions by Employer.........................21
                  3.2      Determination of Contribution.....................21
                  3.3      Time of Payment of Contribution...................22
                  3.4      Benefits Provided Through Trust or Trusts.........22
                  3.5      Exclusive Benefit.................................22
                  3.6      Return of Contributions...........................22
SECTION 4....................................................................24
         ACCOUNTS OF PARTICIPANTS............................................24
                  4.1      Individual Accounts for Each Participant..........24
                  4.2      Allocation of Employer Contributions..............24
                  4.3      Allocation of Forfeitures.........................24
                  4.4      Year-End Valuation of Accounts....................25
                  4.5      Interim Valuation of Accounts.....................25
                  4.6      Debiting of Distributions.........................26
                  4.7      Effective Date of Entries.........................26
         LIMIT ON ANNUAL ADDITIONS...........................................26
                  4.8      Coverage Under This Plan Only.....................26
                  4.9      Coverage Under A Prototype Plan...................28
                  4.10     Coverage Under A Non-Prototype Plan...............30
                  4.11     Combined Limits...................................30
                  4.12     Definitions.......................................30
SECTION 5....................................................................37
         BENEFITS PAYABLE AFTER NORMAL RETIREMENT............................37
                  5.1      Optional Methods of Payment Available
                           at Retirement.....................................37
                  5.2      Manner of Payment Following Commencement
                           of Payments.......................................38
                  5.3      Required Beginning Date...........................38
                  5.4      Determination of Amount to be Distributed
                           Each Year.........................................38
                  5.5      Age 65 Distributions..............................40
                  5.6      Definitions.......................................40
                  5.7      Small Accounts....................................40
SECTION 6....................................................................41
         BENEFITS PAYABLE IN THE EVENT OF DEATH OR DISABILITY................41
                  6.1      Death Distribution Provisions.....................41
                  6.2      Definitions.......................................42
                  6.3      Designation of Beneficiary........................44
                  6.4      Failure to Designate a Beneficiary or
                           Select a Method of Payment........................45
                  6.5      Disability of a Participant.......................45
                  6.6      Transitional Rule.................................45
SECTION 7....................................................................48
         BENEFITS PAYABLE UPON BREAK IN SERVICE..............................48
         OR EMPLOYMENT TERMINATION...........................................48
                  7.1      Vesting Schedule..................................48
                  7.2      Distributions.....................................50
                  7.3      Restrictions on Immediate Distributions...........52
                  7.4      Payment of Account Balance........................54
                  7.5      Treatment of Accounts in Pay Status...............55
                  7.6      Direct Rollovers..................................55
                  7.7      Amendment of Vesting Schedule.....................56
SECTION 8....................................................................58
         FORM OF DISTRIBUTION................................................58
                  8.1      Payment in Shares or Cash.........................58
                  8.2      Dividends.........................................58
SECTION 9....................................................................59
         MERGER OR CONSOLIDATION.............................................59
                  9.1      Merger or Consolidation...........................59
                  9.2      Merger Accounts...................................59
                  9.3      Merger Agreement or Agreement Relating to
                           Transfer of Assets................................59
SECTION 10...................................................................61
         CLAIMS PROCEDURE....................................................61
                  10.1     Filing of a Claim for Benefits....................61
                  10.2     Notification to Claimant of Decision..............61
                  10.3     Review Procedure..................................62
                  10.4     Decision on Review................................62
                  10.5     Agent for Service of Process......................62
SECTION 11...................................................................63
         ADOPTION BY OTHER COMPANIES.........................................63
                  11.1     Rights of Other Companies to Participate..........63
                  11.2     Control of Plan by the Employer...................63
                  11.3     Allocations of Contributions and Forfeitures......63
                  11.4     Withdrawal of Employer or Adopting Companies......64
                  11.5     Amendment of Plan.................................64
                  11.6     Termination of One or More Parties................65
                  11.7     Reference to Employer in Plan.....................65
SECTION 12...................................................................66
         PROVISIONS RELATING TO PARTICIPANTS.................................66
                  12.1     Information Required of Participants..............66
SECTION 13...................................................................67
         PLAN ADMINISTRATOR..................................................67
                  13.1     Administration by Plan Administrator..............67
                  13.2     Appointment of Committee..........................67
                  13.3     Majority Action...................................67
                  13.4     Powers of the Plan Administrator..................68
                  13.5     Duties of the Plan Administrator..................70
                  13.6     Expenses..........................................70
SECTION 14...................................................................71
         ROLLOVERS...........................................................71
                  14.1     Rollover Contributions............................71
                  14.2     Definition of Rollover Contribution...............71
                  14.3     Definition of Rollover Amount.....................71
                  14.4     Conduit Rollovers.................................72
SECTION 15...................................................................74
         TRADES OR BUSINESSES UNDER COMMON CONTROL...........................74
                  15.1     Definitions.......................................74
                  15.2     Allocation........................................74
                  15.3     Participation and Vesting.........................75
                  15.4     Vesting and Distributions.........................75
SECTION 16...................................................................76
         TOP HEAVY PLAN RULES................................................76
                  16.1     Key Employee......................................76
                  16.2     Non-Key Employee..................................76
                  16.3     Super Top Heavy Plan..............................76
                  16.4     Top Heavy Plan....................................77
                  16.5     Top Heavy Ratio...................................77
                  16.6     Top Heavy Plan Year...............................79
                  16.7     Top Heavy Compensation............................80
                  16.8     Determination Date................................80
                  16.9     Valuation Date....................................80
                  16.10    Aggregation Group.................................80
                  16.11   Present Value of Accrued Benefits..................81
         TOP HEAVY REQUIREMENTS..............................................81
                  16.12     Top Heavy Plan Requirements......................81
                  16.13     Top Heavy Reduction..............................81
                  16.14     Minimum Allocations..............................82
                  16.15     Top Heavy Vesting................................83
                  16.16     Minimum Required Distribution....................83
                  16.17     Alternative Effective Date.......................84
SECTION 17...................................................................85
         ESOP PROVISIONS.....................................................85
                  17.1     Exempt Loans......................................85
                  17.2     ESOP Voting Rights................................87
                  17.3     Rights on Tender or Exchange Offer................89
                  17.4     Special Limitation Rules..........................91
                  17.5     Limitation on Electing Shareholder................91
                  17.6     Investment Diversification........................91
                  17.7     Company Stock Distributions.......................92
SECTION 18...................................................................94
         STOCK BONUS PLAN PROVISIONS.........................................94
                  18.1     Stock Bonus Voting Rights.........................94
                  18.2     Rights on Tender or Exchange Offer................96
                  18.3     Investment Diversification........................97
SECTION 19...................................................................98
         PAYSOP PROVISIONS...................................................98
                  19.1     Nature of the Plan................................98
                  19.2     Definitions.......................................98
                  19.3     Eligibility and Participation.....................99
                  19.4     Employer Contributions............................99
                  19.5     Participant's Accounts............................100
                  19.6     Expenses..........................................103
                  19.7     Distributions.....................................104
                  19.8     Future of the Plan................................104
SECTION 20...................................................................105
         QUALIFIED DOMESTIC RELATIONS ORDERS.................................105
                  20.1     Domestic Relations Order..........................105
                  20.2     Alternate Payee...................................105
                  20.3     Qualified Domestic Relations Order................105
         PROCEDURES..........................................................106
                  20.4      Notice...........................................106
                  20.5      Determination of Qualification...................106
                  20.6      Deferral of Payment..............................106
                  20.7      Payment after Deferral...........................106
                  20.8      Payments after Eighteen Months...................107
                  20.9      Payments Under Qualified Domestic
                            Relations Order..................................107
                  20.10    Non-qualification.................................108
                  20.11    Effective Dates...................................108
SECTION 21...................................................................109
         AMENDMENT AND TERMINATION OF PLAN;..................................109
         ASSIGNMENT OF BENEFITS..............................................109
                  21.1     Amendment.........................................109
                  21.2     Termination; Discontinuance of Contributions......110
                  21.3     Assignment of Benefits............................111

STATE OF LOUISIANA PARISH OF OUACHITA BE IT KNOWN that on this 28th day of February, 2002, before me, Notary Public, duly commissioned and qualified in and for the Parish of Ouachita, State of Louisiana, therein residing and in the presence of the undersigned witnesses: PERSONALLY CAME AND APPEARED: CENTURYTEL, INC. represented herein by its Executive Vice President and Chief Financial Officer, R. Stewart Ewing, Jr., as Plan Sponsor. The Plan Sponsor appoints Regions Morgan Keegan Trust as Trustee of the CenturyTel, Inc. Employee Stock Ownership Trust and the CenturyTel, Inc. Stock Bonus and PAYSOP Trust. WHEREAS, the Plan Sponsor has previously established the CenturyTel, Inc. Employee Stock Ownership Plan; and WHEREAS, by Merger Agreement dated September 18, 2001, the CenturyTel, Inc. Stock Bonus Plan and PAYSOP was merged into this Plan; and WHEREAS, the Plan Sponsor desires to incorporate into this Plan certain provisions of the Stock Bonus Plan and PAYSOP, including but not limited to specific provisions relating to PAYSOP Accounts of Participants; and WHEREAS, the Plan Sponsor desires to amend its Employee Stock Ownership Plan and Trust (including the Stock Bonus Plan and PAYSOP, as merged into the Employee Stock Ownership Plan) to comply with the General Agreement on Tariffs and Trade portion of the Uruguay Round Agreements Act ("GATT"), the Retirement Protection Act of 1994 ("RPA '94"), the Uniformed Services Employment and Reemployment Rights Act of 1994 ("USERRA"), the Small Business Job Protection Act of 1996 ("SBJPA"), the Taxpayer Relief Act of 1997 ("TRA '97"), the Internal Revenue Service Restructuring and Reform Act of 1998 ("RRA '98"), and the Community Renewal Tax Relief Act of 2000 ("CRA"), and other technical corrections and statutory revisions; and WHEREAS, the Plan Sponsor desires that the Employee Stock Ownership Plan, as amended and restated, shall constitute a qualified employee benefit plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") for the exclusive benefit of employees who participate herein, and shall constitute an employee stock ownership plan under Section 4975(e)(7) of the Code; and WHEREAS, the Plan Sponsor desires that the separate trusts provided for herein shall constitute exempt trusts under Section 501(a) of the Code; NOW, THEREFORE, effective September 18, 2001, except as may be indicated in specific Sections hereof and in Section 1.37, the Settlor hereby amends and restates its Employee Stock Ownership Plan, upon the terms and conditions as provided herein. The primary purpose of the Employee Stock Ownership Plan is to invest in employer securities. SECTION 1 DEFINITIONS AND EFFECTIVE DATES 1.1 Account. The ESOP Account, the Stock Bonus Account, the PAYSOP Account, the Merger Account, the Rollover Account, and the Suspense Account of a Participant, whether or not such accounts have been combined into one account. 1.2 Active Participant. A Participant who has completed a Year of Service within the Plan Year ending on the Adjustment Date, whether or not the Participant is employed on such date. 1.3 Adjustment Date. The last day of each Plan Year. 1.4 Approved Absence. An absence from work not exceeding one year, including absence due to temporary disability, granted to and/or approved for the Employee by an Employer in a uniform and nondiscriminatory manner; or an absence from work for service in the Armed Forces or other government services, provided that, and only so long as, reemployment rights are protected by law. 1.5 Break in Service. A twelve (12) consecutive month period (computation period) during which a Participant does not complete more than five hundred (500) Hours of Service with the Employer. Any Break in Service shall be deemed to have commenced on the first day of the Plan Year in which it occurs. No Break in Service shall be deemed to occur during an Employee's initial Eligibility Computation Period solely because of the failure of the Employee to complete more than five hundred (500) Hours of Service during any one Plan Year occurring in part during such twelve-month period if the Employee completes a Year of Service during such initial Eligibility Computation Period. A Break in Service shall not be deemed to have occurred during any period of Approved Absence if the Employee returns to the service of the Employer on or before the last day of the Approved Absence. A leave of absence mandated by the Family and Medical Leave Act of 1993 is not included in determining whether an Employee has incurred a Break in Service. 1.6 Company Stock. Shares of voting common stock, $1.00 par value, issued by the Employer. 1.7 Compensation. Compensation will mean compensation as that term is defined in Section 4.12(b) of the Plan, and will include any amount which is contributed by the Employer pursuant to a salary reduction agreement and which is not includible in the gross income of the Employee under Sections 125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code. Notwithstanding the foregoing, Compensation for purposes of this Section shall not include: (i) reimbursements or other expense allowances, fringe benefits (cash or noncash), moving expenses, deferred compensation, and welfare benefits; (ii) overtime; (iii) completion bonuses, Christmas bonuses, retirement bonuses, and other broad-based bonuses not included under the Employer's normal compensation programs; (iv) restricted stock awards under the Restricted Stock Plan or the Key Employee Incentive Compensation Plan; (v) stock options, performance shares and similar forms of compensation; and (vi) severance pay in any form. For Plan Years beginning on or after January 1, 1989, and before January 1, 1994, the annual compensation of each Participant taken into account for determining all benefits provided under the Plan for any Plan Year shall not exceed $200,000. This limitation shall be adjusted by the Secretary at the same time and in the same manner as under Section 415(d) of the Code, except that the dollar increase in effect on January 1 of any calendar year is effective for Plan Years beginning in such calendar year and the first adjustment to the $200,000 limitation is effective on January 1, 1990. For Plan Years beginning on or after January 1, 1994, the annual compensation of each Participant taken into account for determining all benefits provided under the Plan for any Plan Year shall not exceed $150,000, as adjusted for increases in the cost-of-living in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any determination period beginning in such calendar year. If a determination period consists of fewer than 12 months, the annual compensation limit is an amount equal to the otherwise applicable annual compensation limit multiplied by a fraction, the numerator of which is the number of months in the short determination period, and the denominator of which is 12. If compensation for any prior determination period is taken into account in determining a Participant's allocations for the current Plan Year, the compensation for such prior determination period is subject to the applicable annual compensation limit in effect for that prior period. For this purpose, in determining allocations in Plan Years beginning on or after January 1, 1989, the annual compensation limit in effect for determination periods beginning before that date is $200,000. In addition, in determining allocations in Plan Years beginning on or after January 1, 1994, the annual compensation limit in effect for determination periods beginning before that date is $150,000. Compensation shall include only that compensation which is actually paid to the Participant during the determination period. Except as provided elsewhere in this plan, the determination period shall be the Plan Year. For employees of San Marcos Telephone Company, Inc., SM Telecorp, Inc., and subsidiaries thereof, who become participants in the Plan on or after June 20, 1993, compensation for the Plan Year ending December 31, 1993 shall be recognized commencing as of the effective date of participation of each such employee pursuant to Section 2.1. 1.8 Date of Employment. The date on which an Employee first performs an Hour of Service for the Employer. 1.9 Date of Reemployment. The first date occurring after an Employee's Break in Service on which he performs an Hour of Service. 1.10 Disability. A Participant shall be considered disabled if the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of at least twelve (12) months. A Participant shall only be considered disabled after proof of such disability satisfactory to the Employer is furnished (which proof shall include a determination of approval for Social Security disability benefits or, if such is not available, a written statement of a licensed physician appointed or approved by the Employer). 1.11 Eligibility Computation Periods. In determining Years of Service and Breaks in Service for purposes of eligibility, the initial Eligibility Computation Period is the twelve (12) consecutive month period beginning on an Employee's Date of Employment or Date of Reemployment. Subsequent Eligibility Computation Periods shall be twelve (12) consecutive month periods beginning on the first anniversary of an Employee's Date of Employment or Date of Reemployment and succeeding anniversaries thereof. Years of Service, and Breaks in Service, for eligibility purposes will be measured on the same Eligibility Computation Period. 1.12 Employee. Those persons regularly employed by the Employer, including employees of any other employer required to be aggregated with the Employer under Sections 414(b), (c), (m) or (o) of the Code. The term Employee shall also include any leased employee deemed to be an employee of the Employer as provided in Sections 414(n) or (o) of the Code. The term Employee shall not include any owner-employee, as defined in Code Section 401(c)(3), or self-employed individual, as defined in Code Section 401(c)(i). The term Employee shall not include an individual who is retained by the Employer pursuant to a contract or agreement that specifies that the individual is not eligible to participate in the Plan, an individual whose basic compensation for services rendered is not paid by or on behalf of the Employer, or an individual who is not classified as a common-law employee by the Employer, regardless of any subsequent reclassification of such individual as a "common-law employee" of the Employer by the Employer, any governmental agency, or any court. 1.13 Employer. CenturyTel, Inc. 1.14 Entry Date. (a) The January 1 or July 1 on which or immediately following the date on which an Employee satisfies the requirements of Section 2.1; or (b) In the case of an Employee whose Years of Service are disregarded pursuant to Section 1.36(c), such Employee will be treated as a new Employee for eligibility purposes. If an Employee's Years of Service may not be disregarded pursuant to Section 1.36(c), such Employee shall continue to participate in the Plan, or, if terminated, shall participate immediately upon his Date of Reemployment. 1.15 ESOP Account. The individual account of a Participant to which has been credited his share of Employer contributions and forfeitures, and earnings and losses thereon, under the CenturyTel, Inc. Employee Stock Ownership Plan. This Account includes the account balance of the Participant under the CenturyTel, Inc. Employee Stock Ownership Plan as of the effective date of the merger of the CenturyTel, Inc. Stock Bonus Plan and PAYSOP into the CenturyTel, Inc. Employee Stock Ownership Plan. This Account, for the 2001 Plan Year and thereafter, shall be credited with the Participant's share of Employer contributions designated by the Employer as ESOP contributions, and shall be credited with forfeitures arising from Participants' ESOP Accounts, and earnings and losses. 1.16 ESOP Trust. The CenturyTel, Inc. Employee Stock Ownership Trust. 1.17 Highly Compensated Employee. A highly compensated employee means any Employee who (1) was a five percent (5%) owner at any time during the year or the preceding year, or (2) for the preceding year had compensation from the Employer in excess of $80,000 and, if the Employer so elects, was in the top-paid group for the preceding year. The $80,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period is the calendar quarter ending September 30, 1996. For this purpose the applicable year of the Plan for which a determination is being made is called a determination year and the preceding twelve (12) month period is called a look-back year. A highly compensated former employee is based on the rules applicable to determining highly compensated employee status as in effect for that determination year in accordance with Section 1.414(g)-1T, A04 of the temporary Income Tax Regulations and Notice 97-45. In determining whether an Employee is a highly compensated employee for years beginning in 1997, the amendments to Code Section 414(g) stated above are treated as having been in effect for years beginning in 1996. 1.18 Hour of Service. Each hour for an Employee under (a) through (c), determined from the employment records of the Employer. Any ambiguity which may arise shall be resolved in favor of crediting Employees with an Hour of Service. (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These hours will be credited to the Employee for the computation period in which the duties are performed; (b) Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, leave of absence or paid time off (PTO). No more than five hundred one (501) Hours of Service will be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours under this paragraph will be calculated and credited pursuant to Section 2530.200(b) of the Department of Labor Regulations, which is incorporated herein by this reference; and (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service will not be credited both under paragraph (a) and/or (b), as the case may be, and under this paragraph (c). These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. Notwithstanding the above, (i) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws; and (ii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically-related expenses incurred by the Employee. Hours of Service will be credited for employment with other members of an affiliated service group (under Section 414(m)), a controlled group of corporations (under Section 414(b)), or a group of trades or businesses under common control (under Section 414(c)) of which the Employer is a member, and any other entity required to be aggregated with the Employer pursuant to Section 414(o) and the regulations thereunder. Hours of Service will also be credited for any individual considered an Employee for purposes of this Plan under Section 414(n) or Section 414(o) and the Regulations thereunder. Solely for purposes of determining whether a Break in Service, as defined in Section 1.5, for participation and vesting purposes has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, eight Hours of Service per day of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of the birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by the individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this paragraph shall be credited (1) in the computation period in which the absence begins if the crediting is necessary to prevent a Break in Service in that period, or (2) in all other cases, in the following computation period. Hours of Service shall be determined under the terms of the Family and Medical Leave Act of 1993 and the Uniformed Services Employment and Reemployment Rights Act of 1994. 1.19 Leased Employee. (a) Any person (other than an employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction and control by the recipient. Contributions or benefits provided a leased employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. (b) A leased employee shall not be considered an employee of the recipient if: (i) such employee is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least ten percent (10%) of compensation, as defined in Code Section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the leased employee's gross income under Section 125, Section 402(e)(3), Section 402(h)(1)(B) or Section 403(b) of the Code, (2) immediate participation, and (3) full and immediate vesting; and (ii) leased employees do not constitute more than twenty percent (20%) of the recipient's nonhighly compensated workforce. 1.20 Limitation Year. The Plan Year unless any other twelve (12) consecutive month period is designated pursuant to a written resolution adopted by the Employer. 1.21 Merger Account. The account maintained for a Participant with respect to a plan which has merged with this Plan or transferred its assets to this Plan, in accordance with Section 9.2. 1.22 Normal Retirement Age. The fifty-fifth (55th) birthday of a Participant, at which time the Participant shall become fully vested. 1.23 Participant. An Employee who has satisfied the participation requirements of, and has begun participating in, the Plan, pursuant to Section 2.1. 1.24 PAYSOP Account. The individual account of a Participant to which has been credited his share of Employer contributions and forfeitures, and earnings and losses thereon, under the PAYSOP portion of the CenturyTel, Inc. Stock Bonus Plan and PAYSOP prior to its merger into this Plan. The PAYSOP Accounts of Participants shall be administered in accordance with Section 20 of this Plan. 1.25 Plan Administrator. The Committee referred to in Section 13 of this Plan. 1.26 Plan Year. The calendar year. 1.27 Rollover Account. The account maintained in accordance with Section 14.1 for each Participant who has made a rollover contribution. 1.28 Stock Bonus Account. The individual account of a Participant to which has been credited his share of Employer contributions and forfeitures, and earnings and losses thereon, under the CenturyTel, Inc. Stock Bonus Plan and PAYSOP. This Account includes the account balance of the Participant under the CenturyTel, Inc. Stock Bonus Plan and PAYSOP as of the effective date of the merger of the CenturyTel, Inc. Stock Bonus Plan and PAYSOP into the CenturyTel, Inc. Employee Stock Ownership Plan. This Account, shall be credited with the Participant's share of Employer contributions designated as Stock Bonus contributions, and shall be credited with forfeitures arising from Participants' Stock Bonus Accounts, and earnings and losses. 1.29 Stock Bonus and PAYSOP Trust. The CenturyTel, Inc. Stock Bonus and PAYSOP Trust. 1.30 Suspense Account. The account maintained in accordance with Section 4.8. 1.31 Top Heavy Valuation Date. The date specified in Section 16.9 of this Plan. 1.32 Trust or Trusts. The ESOP Trust and/or the Stock Bonus and PAYSOP Trust, the assets of both of which are available to pay benefits under this Plan. 1.33 Trustee. Regions Morgan Keegan Trust. 1.34 Valuation Date. The date on which the Trustee shall make a revaluation of each Trust pursuant to Section 4.4. 1.35 Vesting Computation Period. For purposes of determining Years of Service and Breaks in Service for computing an Employee's nonforfeitable (vested) right to the Account balance derived from Employer contributions, the computation period shall be the Plan Year. 1.36 Year of Service. A twelve (12) consecutive month period (computation period) during which an Employee completes at least five hundred (500) Hours of Service. Effective January 1, 1994, a Year of Service is a twelve-consecutive month period (computation period) during which an Employee completes at least one thousand (1,000) Hours of Service. All of an Employee's Years of Service shall be counted, subject to the following qualifications and exceptions: (a) A Year of Service will not be credited for any period of Approved Absence after the Employee incurs a Break in Service during such absence from the service of the Employer; (b) Service performed prior to a Break in Service shall not be taken into account until the Employee has completed a Year of Service after such Break in Service. Such Year of Service will be measured by the twelve (12) consecutive month period beginning on the Employee's Date of Reemployment and, if necessary, subsequent twelve (12) consecutive month periods beginning on anniversaries of the Employee's Date of Reemployment; (c) In the case of an Employee who does not have any nonforfeitable right to his Regular Account, Years of Service, whether or not consecutive, before a period of consecutive one (1) year Breaks in Service shall not be taken into account if the number of consecutive one-year Breaks in Service in such period equals or exceeds the greater of five (5) or the aggregate number of Years of Service. Such aggregate number of Years of Service will not include any Years of Service disregarded under the preceding sentence by reason of prior Breaks in Service; (d) In the case of a Participant who has five (5) or more consecutive one-year Breaks in Service, all service after such Breaks in Service will be disregarded for purposes of vesting the Employer-derived Account balance that accrued before such Breaks in Service. Such Participant's pre-break service will count in vesting the post-break Employer-derived Account balance only if either: (i) such Participant has any nonforfeitable interest in the Account balance attributable to Employer contributions at the time of separation from service; or (ii) upon returning to service the number of consecutive one-year Breaks in Service is less than the number of Years of Service. Separate accounts will be maintained for the Participant's pre-break and post-break Employer-derived Account balance. Both Accounts will share in the earnings and losses of the Trusts; (e) A Participant who does not meet the definition of Disability contained in Section 1.10 but who has been approved for benefits under the CenturyTel, Inc. Long Term Disability Plan shall be credited for all purposes under this Plan with service during the time the Participant is on disability leave and eligible for benefits under such plan; (f) Any Employee who was employed by Central Telephone of Ohio ("Central") on March 31, 1992 who became employed by the Employer on or about April 1, 1992 pursuant to an offer of employment by the Employer, shall, upon eligibility to participate in this Plan, be credited for all purposes under this Plan with service performed prior to April 1, 1992 for Centel Corporation, Central, or any member of a controlled group in which Centel Corporation and Central were members; (g) Service with San Marcos Telephone Company, Inc., SM Telecorp, Inc., and subsidiaries thereof, and any successors thereto by merger or otherwise, shall be counted for all purposes under this Plan; and (h) Service performed for Spectra Communications Group, LLC by an Employee shall, upon such Employee's eligibility to participate in this Plan, be credited for all purposes under the Plan. 1.37 Effective Dates. The general effective date of this Restatement shall be January 1, 2001; provided, however, that amendments to certain Sections of the Plan shall be effective as stated in each such Section, and the amendments to the Sections listed below shall have effective dates as listed below: SECTION # EFFECTIVE DATE --------- -------------- 1.7 Plan Years beginning after December 31, 1996. 1.17 Plan Years beginning after December 31, 1996. 1.19 Plan Years beginning after December 31, 1996. 4.12 (d) Limitation Years beginning after December 31, 1994. 6.2 (f) Calendar Years commencing after December 31, 1998. 5.7; 7.2(a); 7.3 Plan Years beginning after August 5, 1997. 20.3 Judgments, orders and decrees issued, and settlement agreements entered into, on or after August 5, 1997. SECTION 2 ELIGIBILITY 2.1 Participation. Every Participant in the Plan prior to this Amendment and Restatement shall continue to participate in the Plan as of the effective date hereof. Additionally, every Employee who has completed one (1) Year of Service during an Eligibility Computation Period, shall become a Participant in the Plan as of the Entry Date. However, Employees whose terms of employment are subject to a collective bargaining agreement, which does not provide for their coverage under this Plan, as well as Employees for whom union representation negotiations have begun, which negotiations do not provide for their coverage under this Plan, are not eligible to participate. Self-employed individuals (as defined in Code Section 401(c)(1)) and owner-employees (as defined in Code Section 401(c)(3)) are not eligible to participate in the Plan. Employees employed by Century Business Communications, LLC (formerly Century Business Communications, Inc., and formerly Century Printing & Publishing, Inc.), CenturyTel Interactive Company (formerly Century Interactive Communications, Inc., and formerly Interactive Communications, Inc.), CenturyTel Security Systems, Inc., CenturyTel of Northwest Arkansas, LLC, CenturyTel of Central Arkansas, LLC, CenturyTel of Central Wisconsin, LLC, Telephone USA of Wisconsin, LLC, Spectra Communications Group, LLC, CenturyTel Holdings, Inc., and CenturyTel Investments of Texas, Inc., and any wholly-owned subsidiaries or affiliates of any of the foregoing, are not eligible to participate in the Plan. Employees of CenturyTel of Pecoco, Inc.(formerly Pecoco, Inc.) and its subsidiaries are eligible to participate in the Plan as of April 27, 1997. Non-represented Employees of CenturyTel of the Northwest, Inc. (formerly Pacific Telecom, Inc.) and Pacific Telecom Cellular, Inc., their subsidiaries, and their Affiliates prior to the acquisition of Pacific Telecom, Inc. by Century Telephone Enterprises, Inc. or an Affiliate thereof are eligible to participate in the Plan as of January 1, 1999. 2.2 Determination of Eligibility. The Plan Administrator shall determine the eligibility of each Employee for participation in the Plan. Such determination shall be conclusive and binding upon all persons. 2.3 Omission of Eligible Employee. If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by the Employer for the year has been made, the Employer shall make a subsequent contribution, if necessary, so that, after the application of Section 4.2, the omitted Employee receives a total amount which the Employee would have received had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code. 2.4 Inclusion of Ineligible Employee. If, in any year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a forfeiture for the Plan Year in which the discovery is made. 2.5 Election Not to Participate. An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan. The election not to participate must be communicated to the Employer, in writing, at least thirty (30) days before the beginning of a Plan Year. The foregoing election not to participate shall not be available with respect to partners in a partnership. SECTION 3 CONTRIBUTIONS 3.1 Contributions by Employer. For the current Plan Year and for each Plan Year thereafter, the Employer may make a contribution to the Trust in cash or shares of Company Stock. The Employer's contribution for any Plan Year shall not exceed the maximum amount allowable as a deduction to the Employer under Section 404 of the Code. Notwithstanding the foregoing, the Employer shall make a contribution to the extent necessary to provide the top heavy minimum allocations under Section 16.14, even if such contribution exceeds current or accumulated net profits or the maximum amount deductible from the Employer's income for the year. 3.2 Determination of Contribution. The Employer shall determine the amount of any contributions to be made by it to the Trust under the terms of this Agreement. The Employer's determination of such contributions shall be binding on all Participants and the Trustee. The Employer shall designate whether a contribution to the Plan is an ESOP contribution or a Stock Bonus contribution. Any contribution not designated by the Employer shall be an ESOP contribution. The Trustee shall have no right or duty to inquire into the amount of the Employer's annual contribution, the method used in determining the amount of the Employer's contribution, or the designation of the contribution as an ESOP contribution or a Stock Bonus contribution by the Employer, but shall be accountable only for funds actually received by it. 3.3 Time of Payment of Contribution. The Employer shall pay to the Trustee its contribution for each Plan Year within the time prescribed by law, including extensions of time, for the filing of its Federal income tax return for such year. 3.4 Benefits Provided Through Trust or Trusts. Benefits under this Plan shall be funded through the CenturyTel, Inc. Employee Stock Ownership Trust and the CenturyTel, Inc. Stock Bonus and PAYSOP Trust, each established by agreement between CenturyTel, Inc. and Regions Morgan Keegan Trust. The Trustee of each Trust shall receive Employer contributions, hold and invest each Trust in accordance with the applicable Trust agreement, and distribute benefits to Participants in accordance with this Plan and directions of the Committee. 3.5 Exclusive Benefit. Any and all contributions made by the Employer to the Trust shall be irrevocable, and neither such contributions nor any income therefrom shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their beneficiaries under the Plan. 3.6 Return of Contributions. Any contribution made by the Employer because of a mistake of fact must be returned to the Employer within one year of the contribution. In the event that the Commissioner of Internal Revenue determines that the Plan is not initially qualified under the Internal Revenue Code, any contribution made incident to that initial qualification by the Employer must be returned to the Employer within one year after the date the initial qualification is denied, but only if the application for qualification is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe. In the event the deduction of a contribution made by the Employer is disallowed under Section 404 of the Code, such contribution (to the extent disallowed) must be returned to the Employer within one year of the disallowance of the deduction. SECTION 4 ACCOUNTS OF PARTICIPANTS 4.1 Individual Accounts for Each Participant. The Plan Administrator or, if the Plan Administrator so determines, the Trustee, shall maintain an ESOP Account, a Stock Bonus Account and, if applicable, a PAYSOP Account for each Participant. With respect to a Participant who incurs five (5) consecutive one-year Breaks in Service before receiving a distribution, the vested portion of such Participant's ESOP Account and Stock Bonus Account shall remain in such Accounts, and the nonvested portion of the Participant's ESOP Account and Stock Bonus Account shall be forfeited as provided in Section 7.2. The PAYSOP Accounts of Participants are fully vested at all times in accordance with Section 7.1(b) and Section 19.5. 4.2 Allocation of Employer Contributions. Contributions made by the Employer for a Plan Year shall, as of the Adjustment Date occurring within such Plan Year, be allocated among and posted to the ESOP Account and/or Stock Bonus Account (as determined by the Employer pursuant to Section 3.2) of each Active Participant in the proportion which the Compensation paid to such Active Participant for such year bears to the total Compensation of all Active Participants for such year. 4.3 Allocation of Forfeitures. The amount of forfeitures determined under Section 7.2 shall be reallocated as of the Adjustment Date on which forfeitures occurred to the applicable ESOP and/or Stock Bonus Accounts of Active Participants by adding the total amount of forfeitures in ESOP Accounts to the Employer's contribution for the year designated as an ESOP contribution, and adding the total amount of forfeitures in Stock Bonus Accounts to the Employer's contribution for the year designated as a Stock Bonus contribution, and allocating the sums so computed to Participants' ESOP and Stock Bonus Accounts in accordance with Section 4.2. If there were no Employer contributions for the year, forteitures in ESOP Accounts shall be allocated to Participants' ESOP Accounts, and forfeitures in Stock Bonus Accounts shall be allocated to Participants' Stock Bonus Accounts, in accordance with Section 4.2. 4.4 Year-End Valuation of Accounts. The Trustee or Trustees, as of each Adjustment Date, shall determine the net worth of the assets of each Trust fund. In determining such net worth, the Trustee or Trustees shall value the assets of each Trust fund at their fair market value as of such Adjustment Date, and shall deduct all liabilities of the Plan and all expenses payable from each such Trust fund for which the Trustee has not yet obtained reimbursement. Such valuation shall not include any contribution for the year made by the Employer as of the Valuation Date. As of each Adjustment Date, before allocation of forfeitures and Employer contributions for the year, the Trustee or Trustees shall credit the Account of each Participant with dividends paid on shares of Company Stock allocated to such Participant's Account, and thereafter shall adjust the net credit balance in the Accounts of all Participants (whether or not active) upward or downward, pro-rata, so that the total of such net credit balances will equal the net worth of all Trust funds as of the Adjustment Date. As used herein the term "net credit balance" means the balance to the credit of each Participant as of the immediately preceding Adjustment Date or Interim Valuation Date, if later, as reduced for payments from the Accounts and forfeitures on or subsequent to such date. 4.5 Interim Valuation of Accounts. As of the end of any month, the Plan Administrator may request the Trustee or Trustees to determine, in accordance with the rules of Section 4.4, the then net worth of the assets constituting each Trust fund. The last day of each month as of which the Plan Administrator has requested the Trustee or Trustees to determine the aforementioned net worth is referred to herein as an "Interim Valuation Date." All distributions which are to be made as of or after any such Interim Valuation Date, but prior to the next succeeding Adjustment Date, or, if earlier, the next succeeding Interim Valuation Date, shall be made as if the credit balances to all Participants' Accounts had actually been credited or debited so that the total credit balances of all Accounts would equal the net worth of the assets constituting all Trust funds as of such Interim Valuation Date. 4.6 Debiting of Distributions. The amounts, if any, paid to or on behalf of a Participant at any time shall, concurrent with such payment, be debited against his Account. 4.7 Effective Date of Entries. Each Account entry which, in accordance with the provisions hereof, needs to be made shall be considered as having been made on the date herein specified regardless of the date of actual entry. LIMIT ON ANNUAL ADDITIONS 4.8 Coverage Under This Plan Only. (a) If the Participant does not participate in, and has never participated in another qualified plan maintained by the Employer, or a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the Employer, or an individual medical account, as defined in Section 415(l)(2) of the Code, maintained by the Employer, or a simplified employee pension, as defined in Section 408(k) of the Code, maintained by the Employer, which provides an annual addition as defined in Section 4.12, the amount of annual additions which may be credited to the Participant's Account for any Limitation Year will not exceed the lesser of the maximum permissible amount or any other limitation contained in this Plan. If the Employer contribution that would otherwise be contributed or allocated to the Participant's Account would cause the annual additions for the Limitation Year to exceed the maximum permissible amount, the amount contributed or allocated will be reduced so that the annual additions for the Limitation Year will equal the maximum permissible amount. (b) Prior to determining the Participant's actual compensation for the Limitation Year, the Employer may determine the maximum permissible amount for a Participant on the basis of a reasonable estimate of the Participant's compensation for the Limitation Year, uniformly determined for all Participants similarly situated. (c) As soon as is administratively feasible after the end of the Limitation Year, the maximum permissible amount for the Limitation Year will be determined on the basis of the Participant's actual compensation for the Limitation Year. (d) If, pursuant to Section 4.8(c) or as a result of the allocation of forfeitures, there is an excess amount, the excess will be disposed of as follows: (i) Any nondeductible voluntary employee contributions (plus attributable earnings), to the extent they would reduce the excess amount, will be returned to the Participant; (ii) If after the application of paragraph (i) an excess amount still exists, any elective deferrals (plus attributable earnings), to the extent they would reduce the excess amount, will be distributed to the Participant; (iii) If after the application of paragraph (ii) an excess amount still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the excess amount in the Participant's Account will be used to reduce Employer contributions (including any allocation of forfeitures) for such Participant in the next Limitation Year, and each succeeding Limitation Year if necessary; (iv) If after the application of paragraph (ii) an excess amount still exists, and the Participant is not covered by the Plan at the end of a Limitation Year, the excess amount will be held unallocated in a Suspense Account. The Suspense Account will be applied to reduce future Employer contributions for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary; (v) If a Suspense Account is in existence at any time during a Limitation Year pursuant to this Section, it will not participate in the allocation of the Trust's investment gains and losses. If a Suspense Account is in existence at any time during a particular Limitation Year, all amounts in the Suspense Account must be allocated and reallocated to Participants' Accounts before any Employer or any Employee contributions may be made to the Plan for that Limitation Year. Excess amounts may not be distributed to Participants or former Participants. 4.9 Coverage Under A Prototype Plan. (a) This Section applies if, in addition to this Plan, the Participant is covered under a qualified master or prototype defined contribution plan maintained by the Employer, a welfare benefit fund maintained by the Employer, an individual medical account maintained by the Employer, or a simplified employee pension maintained by the Employer that provides an annual addition as defined in Section 4.12 during any Limitation Year. The annual additions which may be credited to a Participant's Account under this Plan for any such Limitation Year will not exceed the maximum permissible amount reduced by the annual additions credited to a Participant's account under the other qualified master or prototype defined contribution plans, and welfare benefit funds for the same Limitation Year. If the annual additions with respect to the Participant under other qualified master or prototype defined contribution plans, welfare benefit funds, individual medical accounts, and simplified employee pensions maintained by the Employer are less than the maximum permissible amount and the Employer contribution that would otherwise be contributed or allocated to the Participant's Account under this Plan would cause the annual additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the annual additions under all such plans and funds for the Limitation Year will equal the maximum permissible amount. If the annual additions with respect to the Participant under such other qualified master or prototype defined contribution plans, welfare benefit funds, individual medical accounts, and simplified employee pensions in the aggregate are equal to or greater than the maximum permissible amount, no amount will be contributed or allocated to the Participant's Account under this Plan for the Limitation Year. (b) Prior to determining the Participant's actual compensation for the Limitation Year, the Employer may determine the maximum permissible amount for a Participant in the manner described in Section 4.8(b). (c) As soon as is administratively feasible after the end of the Limitation Year, the maximum permissible amount for the Limitation Year will be determined on the basis of the Participant's actual compensation for the Limitation Year. (d) If, pursuant to Section 4.9(c) or as a result of the allocation of forfeitures, a Participant's annual additions under this Plan and such other plans would result in an excess amount for a Limitation Year, the excess amount will be deemed to consist of the annual additions last allocated, except that annual additions attributable to a simplified employee pension will be deemed to have been allocated first, followed by annual additions to a welfare benefit fund or individual medical account, regardless of the actual allocation date. (e) If an excess amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the excess amount attributed to this Plan will be the product of: (i) the total excess amount allocated as of such date, times (ii) the ratio of (A) the annual additions allocated to the Participant for the Limitation Year as of such date under this Plan to (B) the total annual additions allocated to the Participant for the Limitation Year as of such date under this and all the other qualified master or prototype defined contribution plans. (f) Any excess amount attributed to this Plan will be disposed in the manner described in Section 4.8(d). 4.10 Coverage Under A Non-Prototype Plan. If the Participant is covered under another qualified defined contribution plan maintained by the Employer which is not a master or prototype plan, annual additions which may be credited to the Participant's Account under this Plan for any Limitation Year will be limited in accordance with Section 4.9 as though the other plan were a master or prototype plan. 4.11 Combined Limits. If the Employer maintains, or at any time maintained, a qualified defined benefit plan covering any Participant in this Plan, the sum of the Participant's defined benefit plan fraction and defined contribution plan fraction will not exceed 1.0 in any Limitation Year. If the sum of the defined benefit plan fraction and the defined contribution plan fraction shall exceed 1.0 in any Limitation Year for any Participant in this Plan, the Plan Administrator shall adjust the numerator of the defined benefit plan fraction so that the sum of both fractions shall not exceed 1.0 in any Limitation Year for such Participant. This Section 4.11 does not apply for Limitation Years beginning on or after January 1, 2000. 4.12 Definitions. (a) Annual additions: The sum of the following amounts credited to a Participant's Account for the Limitation Year: (i) Employer contributions; (ii) Employee contributions; (iii) Forfeitures; (iv) Amounts allocated, after March 31, 1984, to an individual medical account, as defined in Section 415(l)(2) of the Code, which is part of a pension or annuity plan maintained by the Employer are treated as annual additions to a defined contribution plan. Also amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits, allocated to the separate account of a key employee, as defined in Section 419A(d)(3) of the Code, under a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the Employer are treated as annual additions to a defined contribution plan; and (v) Allocations under a simplified employee pension. For this purpose, any excess amount applied under Sections 4.8(d) or 4.9(f) in the Limitation Year to reduce Employer contributions will be considered annual additions for such Limitation Year. (b) Compensation: For purposes of this Section, compensation shall mean Section 415 safe-harbor compensation. Compensation is defined as all of a Participant's wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includable in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements, or other expense allowances under a nonaccountable plan [as described in Section 1.61-2(c)]), and excluding the following: (i) Employer contributions to a plan of deferred compensation which are not includible in the Employee's gross income for the taxable year in which contributed, or Employer contributions under a simplified employee pension plan, or any distributions from a plan of deferred compensation; (ii) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (iii) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (iv) Other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity described in Section 403(b) of the Code (whether or not the amounts are actually excludable from the gross income of the Employee). For any self-employed individual, compensation will mean earned income. For purposes of applying the limitations of this Section, compensation for a Limitation Year is the compensation actually paid or includable in gross income during such Limitation Year. Notwithstanding the preceding sentence, compensation for a Participant in a defined contribution plan who is permanently and totally disabled (as defined in Section 22(e)(3) of the Code) is the compensation such Participant would have received for the Limitation Year if the Participant had been paid at the rate of compensation paid immediately before becoming permanently and totally disabled; for Limitation Years beginning before January 1, 1997, such imputed compensation for the disabled Participant may be taken into account only if the Participant is not a highly compensated employee (as defined in Section 414(q) of the Code) and contributions made on behalf of such Participant are nonforfeitable when made. For Limitation Years beginning after December 31, 1997, for purposes of applying the limitations of this Section, compensation paid or made available during such Limitation Year shall include any elective deferral (as defined in Code Section 402(g)(3)), and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income of the Employee by reason of Code Section 125 or 457. (c) Defined benefit fraction: A fraction, the numerator of which is the sum of the Participant's projected annual benefits under all defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of one hundred twenty-five percent (125%) of the dollar limitation determined for the Limitation Year under Sections 415(b) and (d) of the Code or one hundred forty percent (140%) of the highest average compensation, including any adjustments under Section 415(b) of the Code. Notwithstanding the above, if the Participant was a participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than one hundred twenty-five percent (125%) of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the Plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Section 415 of the Code for all Limitation Years beginning before January 1, 1987. (d) Defined contribution dollar limitation: $30,000, as adjusted under Code Section 415(d). (e) Defined contribution fraction: A fraction, the numerator of which is the sum of the annual additions to the Participant's account under all defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior limitation years (including the annual additions attributable to the Participant's nondeductible employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the annual additions attributable to all welfare benefit funds, individual medical accounts, and simplified employee pensions maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior limitation years of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any limitation year is the lesser of one hundred twenty-five percent (125%) of the dollar limitation determined under Sections 415(b) and (d) of the Code in effect under Section 415(c)(1)(A) of the Code or thirty-five percent (35%) of the Participant's compensation for such year. If the Employee was a participant as of the end of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0, times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. The annual addition for any Limitation Year beginning before January 1, 1987, shall not be recomputed to treat all Employee contributions as annual additions. (f) Employer: For purposes of this Section, Employer shall mean the Employer and all members of a controlled group of corporations (as defined in Section 414(b) of the Code as modified by Section 415(h)), all commonly controlled trades or businesses (as defined in Section 414(c) of the Code as modified by Section 415(h)) or affiliated service groups (as defined in Section 414(m) of the Code) of which the Employer is a part, and any other entity required to be aggregated with the Employer pursuant to regulations under Section 414(o) of the Code. (g) Excess amount: The excess of the Participant's annual additions for the Limitation Year over the maximum permissible amount. (h) Highest average compensation: The average compensation for the three consecutive Years of Service with the Employer that produces the highest average. A Year of Service with the Employer is the twelve (12) consecutive month period defined in Section 1.36 of this Plan. (i) Limitation year: The calendar year. All qualified plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different twelve (12) consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. (j) Master or prototype plan: A plan the form of which is the subject of a favorable opinion letter from the Internal Revenue Service. (k) Maximum permissible amount: The maximum annual addition that may be contributed or allocated to a Participant's Account under the Plan for any Limitation Year shall not exceed the lesser of: (i) the defined contribution dollar limitation, or (ii) 25 percent of the Participant's compensation for the Limitation Year. The compensation limitation referred to in (ii) shall not apply to any contribution for medical benefits (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an annual addition under Section 415(l)(1) or 419A(d)(2) of the Code. If a short Limitation Year is created because of an amendment changing the Limitation Year to a different twelve (12) consecutive month period, the maximum permissible amount will not exceed the defined contribution dollar limitation multiplied by the following fraction: Number of months in the short Limitation Year 12 (l) Projected annual benefit: The annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or qualified joint and survivor annuity) to which the Participant would be entitled under the terms of the Plan assuming: (i) the Participant will continue employment until Normal Retirement Age under the Plan (or current age, if later), and (ii) the Participant's compensation for the current Limitation Year and all other relevant factors used to determine benefits under the Plan will remain constant for all future Limitation Years. SECTION 5 BENEFITS PAYABLE AFTER NORMAL RETIREMENT 5.1 Optional Methods of Payment Available at Retirement. All sums credited to a Participant's Account shall become fully vested upon attainment of Normal Retirement Age. Upon actual retirement at or after Normal Retirement Age, a Participant shall be entitled to receive the full amount credited to his Account as of the Valuation Date or Interim Valuation Date immediately preceding the month in which payment is to be made, which amount shall be paid to the Participant in one lump sum within the later of: (i) sixty (60) days after the close of the Plan Year in which the Participant retires, or (ii) sixty (60) days after the distributable amount has been determined, unless prior to the date of his retirement he elects, in the manner prescribed by the Plan Administrator, any one of the following method or methods: (a) Payment of the entire amount of the Participant's Account in one lump sum at some future date, not later than one year after Normal Retirement Date; (b) Payment in substantially equal annual, quarterly or monthly installments (including net investment income, gain or loss) until the value of such Participant's Account is exhausted. Unless the Participant elects otherwise, the payment period for a Participant's ESOP Account shall not exceed five (5) years. This five (5) year payment period for ESOP Accounts shall be extended by one (1) year, up to five (5) additional years, for each $100,000 (or fraction thereof) by which such Participant's Account balance exceeds $500,000 (the dollar amounts herein are subject to cost of living adjustments prescribed by the Secretary of the Treasury; for the 2001 Plan Year, these amounts are $155,000 and $780,000, respectively); or (c) Any combination of the foregoing. Notwithstanding anything contained in this Section 5.1, lump sum, installment or any other benefits may not be paid directly from the Plan in any form of a life annuity or through the distribution of property in any form of a life annuity. In addition, if the Participant's spouse is not the designated beneficiary, the method of distribution selected must assure that at least fifty percent (50%) of the present value of the amount available for distribution is paid within the life expectancy of the Participant. All distributions required under this Section shall be determined and made in accordance with the proposed regulations under Section 401(a)(9) of the Code, including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the proposed regulations. Any distribution under this Section 5.1 shall comply with the consent requirements contained in Section 7.3. 5.2 Manner of Payment Following Commencement of Payments. Following the commencement of payments under Section 5.1, a Participant and the Plan Administrator may, notwithstanding the fact that periodic benefits are being paid, agree that as of any subsequent date the balance credited to such Participant's Account shall be paid to or applied for the benefit of the Participant in accordance with any other payout method of Section 5.1. 5.3 Required Beginning Date. The entire interest of a Participant must be distributed or begin to be distributed no later than the Participant's required beginning date, as defined in Section 6.2(f). 5.4 Determination of Amount to be Distributed Each Year. If a Participant's interest is to be distributed in other than a single-sum, the following minimum distribution rules shall apply on or after the required beginning date: (a) If a Participant's benefit is to be distributed over (1) a period not extending beyond the life expectancy of the Participant or the joint life and last survivor expectancy of the Participant and the Participant's designated beneficiary or (2) a period not extending beyond the life expectancy of the designated beneficiary, the amount required to be distributed for each calendar year, beginning with distributions for the first distribution calendar year, must at least equal the quotient obtained by dividing the Participant's benefit by the applicable life expectancy. (b) For calendar years beginning before January 1, 1989, if the Participant's spouse is not the designated beneficiary, the method of distribution selected must assure that at least fifty percent (50%) of the present value of the amount available for distribution is paid within the life expectancy of the Participant. (c) For calendar years beginning after December 31, 1988, the amount to be distributed each year, beginning with distributions for the first distribution calendar year shall not be less than the quotient obtained by dividing the Participant's benefit by the lesser of (1) the applicable life expectancy or (2) if the Participant's spouse is not the designated beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of Section 1.401(a)(9)-2 of the proposed regulations. Distributions after the death of the Participant shall be distributed using the applicable life expectancy in Section 5.4(a) above as the relevant divisor without regard to proposed regulations Section 1.401(a)(9)-2. (d) The minimum distribution required for the Participant's first distribution calendar year must be made on or before the Participant's required beginning date. The minimum distribution for other calendar years, including the minimum distribution for the distribution calendar year in which the Participant's required beginning date occurs, must be made on or before December 31 of that distribution calendar year. 5.5 Age 65 Distributions. Upon the attainment of the age of 65 years, a Participant shall be entitled to elect a distribution of all or a portion of his Account in the Plan. A Participant who elects to receive a distribution pursuant to this Section 5.5 shall continue to be eligible to participate in the Plan on the same basis as any other Participant. 5.6 Definitions. For purposes of this Section, the definitions contained in Section 6.2 shall apply. 5.7 Small Accounts. Any provision of the Plan to the contrary notwithstanding, the Administrator shall have the authority to direct the settlement of a Participant's Account having a balance of less than $5,000.00 by the payment of one lump sum. SECTION 6 BENEFITS PAYABLE IN THE EVENT OF DEATH OR DISABILITY 6.1 Death Distribution Provisions. Upon the death of a Participant, his or her beneficiary shall be entitled to receive the full amount credited to his Account. Upon the death of a Participant, the following distribution provisions shall take effect: (a) If the Participant dies after distribution of his or her interest has begun, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death. (b) If the Participant dies before distribution of his or her interest begins, distribution of the Participant's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death except to the extent that an election is made to receive distributions in accordance with (i) or (ii) below: (i) if any portion of the Participant's interest is payable to a designated beneficiary, distributions may be made over the life expectancy or over a period certain not greater than the life expectancy of the designated beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died; (ii) if the designated beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (i) above shall not be earlier than the later of (1) December 31 of the calendar year in which the Participant died and (2) December 31 of the calendar year in which the Participant would have attained age 70 2. If the Participant has not made an election pursuant to this Section 6.1(b) by the time of his or her death, the Participant's designated beneficiary must elect the method of distribution no later than the earlier of (1) December 31 of the calendar year in which distributions would be required to begin under this Section, or (2) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no designated beneficiary, or if the designated beneficiary does not elect a method of distribution, distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (c) For purposes of Section 6.1(b) above, if the surviving spouse dies after the Participant, but before payments to such spouse begin, the provisions of Section 6.1(b), with the exception of paragraph (ii) therein, shall be applied as if the surviving spouse were the Participant. (d) For purposes of this Section 6.1, any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse if the amount becomes payable to the surviving spouse when the child reaches the age of majority. (e) For the purposes of this Section 6, distribution of a Participant's interest is considered to begin on the Participant's required beginning date (or, if Section 6.1(c) above is applicable, the date distribution is required to begin to the surviving spouse pursuant to Section 6.1(b) above). If distribution in the form of an annuity irrevocably commences to the Participant before the required beginning date, the date distribution is considered to begin is the date distribution actually commences. 6.2 Definitions. For purposes of this Section and Section 5, the following definitions shall apply: (a) Applicable life expectancy. The life expectancy (or joint and last survivor expectancy) calculated using the attained age of the Participant (or designated beneficiary) as of the Participant's (or designated beneficiary's) birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date life expectancy was first calculated. If life expectancy is being recalculated, the applicable life expectancy shall be the life expectancy as so recalculated. The applicable calendar year shall be the first distribution calendar year, and if life expectancy is being recalculated such succeeding calendar year. (b) Designated beneficiary. The individual who is designated as the beneficiary under the Plan in accordance with Section 401(a)(9) and the proposed regulations thereunder. (c) Distribution calendar year. A calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to this Section 6.1 above. (d) Life expectancy. Life expectancy and joint and last survivor expectancy are computed by use of the expected return multiples in Tables V and VI of Section 1.72-9 of the income tax regulations. Unless otherwise elected by the Participant (or spouse, in the case of distributions described in Section 6.1(b)(ii) above) by the time distributions are required to begin, life expectancies shall be recalculated annually. Such election shall be irrevocable as to the Participant (or spouse) and shall apply to all subsequent years. The life expectancy of a nonspouse beneficiary may not be recalculated. (e) Participant's benefit. (i) The Account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions or forfeitures allocated to the Account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. (ii) Exception for second distribution calendar year. For purposes of paragraph (i) above, if any portion of the minimum distribution for the first distribution calendar year is made in the second distribution calendar year on or before the required beginning date, the amount of the minimum distribution made in the second distribution calendar year shall be treated as if it had been made in the immediately preceding distribution calendar year. (f) Required beginning date. The required beginning date of a Participant is the later of the April 1 of the calendar year following the calendar year in which the Participant attains age 70 2 or retires, except that benefit distributions to a five percent (5%) owner must commence by the April 1 of the calendar year following the calendar year in which the Participant attains age 702. (g) 5-Percent owner. (i) A Participant is treated as a 5-percent owner for purposes of this Section if such Participant is a 5-percent owner as defined in Section 416 of the Code at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 2. (ii) Once distributions have begun to a 5-percent owner under this Section, they must continue to be distributed, even if the Participant ceases to be a 5-percent owner in a subsequent year. 6.3 Designation of Beneficiary. A Participant at the time he joins the Plan shall designate a beneficiary or beneficiaries to receive the sums credited to his Account in the event of his death, which designation may be changed by the Participant from time to time. To be effective, the original designation of beneficiaries and any subsequent change must be in writing on the form provided for that purpose by the Plan Administrator. The beneficiary of a Participant who is married at the time of his death shall be his surviving spouse unless his surviving spouse consents in writing on the form provided for that purpose by the Plan Administrator to the designation of another beneficiary. A consent by a Participant's spouse shall not be effective unless such consent is witnessed by the Plan Administrator or a Notary Public. 6.4 Failure to Designate a Beneficiary or Select a Method of Payment. In the event that no beneficiary is properly designated or in the event that a beneficiary designated by the Participant predeceased the Participant and no new designation of beneficiary is made, the Plan Administrator, in its discretion, may direct the Trustee to make payment of all sums to which the deceased Participant is entitled to either: (a) any one or more of the next of kin (including the surviving spouse) of the Participant and in such proportions as the Plan Administrator may determine; or (b) the legal representative or representatives of the estate of the last to die of the Participant or his beneficiary. If a Participant who is married at the time of his death has not properly designated a beneficiary other than his spouse in accordance with the last paragraph of Section 6.3, the Participant's beneficiary shall be his surviving spouse. 6.5 Disability of a Participant. In the event of the Disability of a Participant prior to attaining Normal Retirement Age, such Participant shall be entitled to receive the entire amount credited to his Account. Payment shall begin as soon as administratively feasible after the close of the Plan Year in which the Administrator receives proof of the Participant's Disability, and shall be made in accordance with any of the methods provided in Section 5, as selected by the Participant. Any distribution hereunder shall comply with the consent requirements contained in Section 7.3. 6.6 Transitional Rule. Notwithstanding the other requirements of this Section, distribution on behalf of any Employee, including a 5-percent owner, may be made in accordance with all of the following requirements (regardless of when such distribution commences): (a) The distribution by the Plan is one which would not have disqualified such Plan under Section 401(a)(9) of the Code as in effect prior to amendment by the Deficit Reduction Act of 1984. (b) The distribution is in accordance with a method of distribution designated by the Employee whose interest in the Plan is being distributed or, if the Employee is deceased, by a beneficiary of such Employee. (c) Such designation was in writing, was signed by the Employee or the beneficiary, and was made before January 1, 1984. (d) The Employee had accrued a benefit under the plan as of December 31, 1983. (e) The method of distribution designated by the Employee or the beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Employee's death, the beneficiaries of the Employee listed in order of priority. A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Employee. For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Employee, or the beneficiary to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfies the requirements in (a) and (e) above. If a designation is revoked any subsequent distribution must satisfy the requirements of Section 401(a)(9) of the Code and the proposed regulations thereunder. If a designation is revoked subsequent to the date distributions are required to begin, the Plan must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy Section 401(a)(9) of the Code and the proposed regulations thereunder, but for the Section 242(b)(2) election. For calendar years beginning after December 31, 1988, such distributions must meet the minimum distribution incidental benefit requirements in Section 1.401(a)(9)-2 of the proposed regulations. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case in which an amount is transferred or rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 shall apply. SECTION 7 BENEFITS PAYABLE UPON BREAK IN SERVICE OR EMPLOYMENT TERMINATION 7.1 Vesting Schedule. Any Participant who incurs a Break in Service during a vesting computation period for reasons other than his retirement, death or disability shall be entitled to receive at the time and in the manner described hereinafter that percentage of the amount credited to his Account as of the Valuation Date or Interim Valuation Date coincident with or immediately preceding the Break in Service, determined as follows: (a) An ESOP Account, a Stock Bonus Account, and a Merger Account shall be vested in accordance with the following schedule: YEARS OF SERVICE VESTED PERCENTAGE less than 5 0 5 or more 100 (b) A Rollover Account and a PAYSOP Account shall be fully vested at all times. Notwithstanding the above provisions of this Section 7.1, a Participant's vested interest shall not be less than it was before this amendment and restatement. Also, notwithstanding the above vesting schedule, an Employee's right to his or her Account balance is nonforfeitable upon the attainment of Normal Retirement Age. Finally, notwithstanding the above vesting schedule, an Employee's right to his or her Account balance shall fully vest and become nonforfeitable automatically upon the occurrence of any of the following events, each of which shall constitute a "Change of Control": (i) the acquisition by any person of beneficial ownership of 30% or more of the outstanding shares of the Company Stock, or 30% or more of the combined voting power of the Employer's then outstanding securities entitled to vote generally in the election of directors; provided, however, that for purposes of this sub-item (i), the following acquisitions shall not constitute a Change of Control: (a) any acquisition (other than a Business Combination (as defined below) which constitutes a Change of Control under sub-item (iii) hereof) of Company Stock directly from the Employer, (b) any acquisition of Company Stock by the Employer or its subsidiaries, (c) any acquisition of Company Stock by any employee benefit plan (or related trust) sponsored or maintained by the Employer or any corporation controlled by the Employer, or (d) any acquisition of Company Stock by any corporation pursuant to a Business Combination that does not constitute a Change of Control under sub-item (iii) hereof; or (ii) individuals who, as of January 1, 2000, constitute the Board of Directors of the Employer (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by the Employer's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent Board, unless such individual's initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Incumbent Board; or (iii) consummation of a reorganization, share exchange, merger or consolidation (including any such transaction involving any direct or indirect subsidiary of the Employer), or sale or other disposition of all or substantially all of the assets of the Employer (a "Business Combination"); provided, however, that in no such case shall any such transaction constitute a Change of Control if immediately following such Business Combination: (a) the individuals and entities who were the beneficial owners of the Employer's outstanding Company Stock and the Employer's voting securities entitled to vote generally in the election of directors immediately prior to such Business Combination have direct or indirect beneficial ownership, respectively, of more than 50% of the then outstanding shares of common stock, and more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the surviving or successor corporation, or, if applicable, the ultimate parent company thereof (the "Post-Transaction Corporation"), and (b) except to the extent that such ownership existed prior to the Business Combination, no person (excluding the Post-Transaction Corporation and any employee benefit plan or related trust of either the Employer, the Post-Transaction Corporation or any subsidiary of either corporation) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the corporation resulting from such Business Combination or 20% or more of the combined voting power of the then outstanding voting securities of such corporation, and (c) at least a majority of the members of the board of directors of the Post-Transaction Corporation were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) approval by the shareholders of the Employer of a complete liquidation or dissolution of the Employer. For purposes of the immediately preceding sentence, the term "person" shall mean a natural person or entity, and shall also mean the group or syndicate created when two or more persons act as a syndicate or other group (including, without limitation, a partnership or limited partnership) for the purpose of acquiring, holding, or disposing of a security, except that "person" shall not include an underwriter temporarily holding a security pursuant to an offering of the security. 7.2 Distributions. (a) If an Employee terminates service, and the value of the Employee's vested Account balance derived from Employer and Employee contributions is not greater than $5,000, the Employee will receive a distribution of the value of the entire vested portion of such Account balance and the nonvested portion will be treated as a forfeiture. If an Employee would have received a distribution under the preceding sentence but for the fact that the Employee's vested Account balance exceeded $5,000 when the Employee terminated service and if at a later time such Account balance is reduced such that is not greater than $5,000, the Employee will receive a distribution of such Account balance and the nonvested portion will be treated as a forfeiture. For purposes of this Section, if the value of an Employee's vested Account balance is zero, the Employee shall be deemed to have received a distribution of such vested Account balance. A Participant's vested Account balance shall not include accumulated deductible employee contributions within the meaning of Section 72(o)(5)(B) of the Code for Plan Years beginning prior to January 1, 1989. (b) If an Employee terminates service, and elects, in accordance with the requirements of this Section 7, to receive the value of the Employee's vested Account balance, the nonvested portion will be treated as a forfeiture. If the Employee elects to have distributed less than the entire vested portion of the Account balance derived from Employer contributions, the part of the nonvested portion that will be treated as a forfeiture is the total nonvested portion multiplied by a fraction, the numerator of which is the amount of the distribution attributable to Employer contributions and the denominator of which is the total value of the vested Employer-derived Account balance. (c) If an Employee receives or is deemed to receive a distribution pursuant to this Section and the Employee resumes employment covered under this Plan, the Employee's Employer-derived Account balance will be restored to the amount on the date of distribution if the Employee repays to the Plan the full amount of the distribution attributable to Employer contributions before the earlier of five (5) years after the first date on which the Participant is subsequently re-employed by the Employer, or the date the Participant incurs five (5) consecutive one-year Breaks in Service following the date of the distribution. If an Employee is deemed to receive a distribution pursuant to this Section, and the Employee resumes employment covered under this Plan before the date the Participant incurs five (5) consecutive one-year Breaks in Service, upon the reemployment of such Employee, the Employer-derived Account balance of the Employee will be restored to the amount on the date of such deemed distribution. In the event restoration is required under this Section 7.2(c), the sources of restoration, in the order listed, shall be: (i) Forfeitures. To the extent used for restoration, they shall not be reallocated, or used to reduce the Employer contribution, as normally provided in Section 4.3. (ii) Employer contribution. Notwithstanding Section 3.1, the Employer shall make any contribution required for restoration. Such restoration shall be made for the year in which repayment occurs within the time prescribed by law, including extensions of time, for the filing of the Employer's Federal income tax return for such year. For purposes of applying the limitations of Code Sections 415(c) and (e), and Section 4.8 and 4.9 of this Plan, the repayment by the Participant and the restoration provided for above shall not be treated as annual additions. 7.3 Restrictions on Immediate Distributions. (a) If the value of a Participant's vested Account balance derived from Employer and Employee contributions exceeds (or at the time of any prior distribution exceeded) $5,000, and the Account balance is immediately distributable, the Participant must consent to any distribution of such Account balance. The Plan Administrator shall notify the Participant of the right to defer any distribution until the Participant's Account balance is no longer immediately distributable. Such notification shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Section 417(a)(3), and shall be provided no less than thirty (30) days and no more than ninety (90) days prior to the annuity starting date. However, distribution may commence less than thirty (30) days after the notice described in the preceding sentence is given, provided the distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and the Participant, after receiving the notice, affirmatively elects a distribution. (b) The consent of the Participant shall not be required to the extent that a distribution is required to satisfy Section 401(a)(9) or Section 415 of the Code. In addition, upon termination of this Plan if the Plan does not offer an annuity option (purchased from a commercial provider) and if the Employer or any entity within the same controlled group as the Employer does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code), the Participant's Account balance will, without the Participant's consent, be distributed to the Participant. However, if any entity within the same controlled group as the Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975 (e)(7) of the Code) then the Participant's account balance will be transferred, without the Participant's consent, to the other plan if the Participant does not consent to an immediate distribution. (c) An Account balance is immediately distributable if any part of the Account balance could be distributed to the Participant (or surviving spouse) before the Participant attains (or would have attained if not deceased) the later of Normal Retirement Age or age 62. (d) For purposes of determining the applicability of the foregoing consent requirements to distributions made before the first day of the first Plan Year beginning after December 31, 1988, the Participant's vested Account balance shall not include amounts attributable to accumulated deductible employee contributions within the meaning of Section 72(o)(5)(B) of the Code. (e) If the value of a Participant's vested Account balance derived from Employer and Employee contributions: (i) for Plan Years beginning after August 6, 1997, exceeds $3,500 (or exceeded $3,500 at the time of any prior distribution), (ii) for Plan Years beginning after August 5, 1997, and for a distribution made prior to March 22, 1999, exceeds $5,000 (or exceeded $5,000 at the time of any prior distribution), (iii) and for Plan Years beginning after August 5, 1997, and for a distribution made after March 21, 1999, that either exceeds $5,000 or is a remaining payment under a selected optional form of payment that exceeded $5,000 at the time the selected payment began, and the Account balance is immediately distributable, the Participant must consent to any distribution of such Account balance. 7.4 Payment of Account Balance. Unless the Participant elects otherwise, distribution of benefits will begin no later than the 60th day after the latest of the close of the Plan Year in which: (a) the Participant attains age 65 (or Normal Retirement Age, if earlier); (b) occurs the 10th anniversary of the year in which the Participant commenced participation in the Plan; or (c) the Participant terminates service with the Employer. Notwithstanding the foregoing, the failure of a Participant to consent to a distribution while a benefit is immediately distributable, within the meaning of Section 7.3 of the Plan, shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy this Section. 7.5 Treatment of Accounts in Pay Status. If payments are to be made under Section 5.1(b) or (c), at the election of the Plan Administrator: (a) The Participant's Account shall continue to share in the annual and interim valuations of the trust fund and in the adjustment of the accounts for investment income, gains or losses as provided in Sections 4.4 and 4.5; or (b) The Plan Administrator may instruct the trustee to segregate the Participant's Account which shall then be separately valued and adjusted each year to reflect the actual income derived thereon and any distributions made therefrom under this Plan. 7.6 Direct Rollovers. (a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution that is equal to at least $500 paid directly to an eligible retirement plan specified by the distributee in a direct rollover. The distributee may select only one (1) eligible retirement plan to which a direct rollover may be made. (b) Definitions (i) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; any hardship distribution described in Code Section 401(k)(2)(B)(i)(IV) received after December 31, 1998; the portion of any other distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and any other distribution(s) that is reasonably expected to total less than $200 during a year. (ii) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified plan described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (iii) Distributee: A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (iv) Direct rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. 7.7 Amendment of Vesting Schedule. If the Plan's vesting schedule is amended, or the Plan is amended in any way that directly or indirectly affects the computation of the Participant's nonforfeitable percentage or if the Plan is deemed amended by an automatic change to or from a top-heavy vesting schedule, each Participant with at least three (3) Years of Service with the Employer may elect, within a reasonable period after the adoption of the amendment or change, to have the nonforfeitable percentage computed under the Plan without regard to such amendment or change. For Participants who do not have at least one (1) Hour of Service in any Plan Year beginning after December 31, 1988, the preceding sentence shall be applied by substituting "five (5) Years of Service" for "three (3) Years of Service" where such language appears. The period during which the election may be made shall commence with the date the amendment is adopted or deemed to be made and shall end on the latest of: (a) 60 days after the amendment is adopted; (b) 60 days after the amendment becomes effective; or (c) 60 days after the Participant is issued written notice of the amendment by the Employer or Plan Administrator. SECTION 8 FORM OF DISTRIBUTION 8.1 Payment in Shares or Cash. Any distributions under Sections 5, 6, and 7 shall be made by the Trustee by distributing whole shares of Company Stock, as determined by the Trustee, at the market value of such shares on a national securities exchange or a national quotation system, with the value of any fractional shares paid in cash. The Trustee may, with the consent of the Participant or if the Participant is deceased, his beneficiary, make distributions under Sections 5, 6 and 7 in cash. With respect to a cash-out distribution under Section 5.7, 7.2(a) or 7.3, the consent of the Participant to a cash distribution shall be deemed unless the Participant instructs the Trustee in writing that the Participant desires a distribution in shares of Company Stock. The amount of cash to be distributed to a Participant for shares actually allocated to his Account shall be determined based on the market value of the shares of Company Stock as of the trading date immediately preceding the distribution. 8.2 Dividends. Cash dividends on shares of Company Stock allocated to Accounts of Participants who are entitled to receive distributions from the Plan may be paid to Participants currently, or at such time as payment is otherwise due under Sections 5, 6, and 7, as determined in the sole discretion of the Plan Administrator, exercised in a uniform and nondiscriminatory manner. SECTION 9 MERGER OR CONSOLIDATION 9.1 Merger or Consolidation. In the event of a merger or consolidation of this Plan with any other plan, or in the event of a transfer of assets or liabilities of this Plan to any other plan, each Participant in the Plan will receive a benefit immediately after the merger, consolidation, or transfer (as if the Plan then terminated) which is at least equal to the benefit the Participant would have been entitled to immediately before such merger, consolidation, or transfer (as if the Plan had then terminated). 9.2 Merger Accounts. In the event any other plan transfers its assets to this Plan or merges with this Plan, this Plan being the surviving plan, the Plan Administrator, or if the Plan Administrator so determines, the Trustee, shall create a "Merger Account" for each Participant whose accounts are transferred to this Plan. A Participant's Merger Account shall be paid to the Participant or his beneficiaries in accordance with Sections 5, 6, 7 and 8. Merger Accounts shall participate in the earnings and losses of the Trusts in the same manner as Regular Accounts. 9.3 Merger Agreement or Agreement Relating to Transfer of Assets. Upon instructions of the Plan Administrator, the Trustee shall enter into a merger agreement with any other plan or shall enter into an agreement respecting the transfer of assets of this Plan to another plan or from any other plan to this Plan; however, if this Plan is a profit-sharing plan which does not provide for a life annuity form of payment to Participants, the Plan Administrator shall not enter into any agreement for the transfer of assets from another plan to this Plan if the proposed transferor plan is a defined benefit plan, money purchase pension plan (including a target benefit plan), stock bonus, or profit sharing plan which would otherwise provide for a life annuity form of payment to the participants in such plan. SECTION 10 CLAIMS PROCEDURE 10.1 Filing of a Claim for Benefits. (a) Every Participant and beneficiary (the claimant) who thinks he is entitled to a benefit under the Plan or who is not satisfied that the correct benefit is being paid shall have the right to file a claim for such benefit at any time. (b) Such claim must be filed in writing with the Plan Administrator. The claim shall set forth the grounds on which it is based, but no particular form of written claim is required. 10.2 Notification to Claimant of Decision. (a) The Plan Administrator shall furnish notice of its decision (to grant the claim or to deny it in whole or in part) to the claimant within sixty (60) days after the claim is filed. If the Plan Administrator fails to give notice within sixty (60) days after the claim is filed, it shall be considered wholly denied. (b) If the claim is denied in whole or in part, the notice of denial by the Plan Administrator to the claimant shall set forth in writing in a manner calculated to be understood by the claimant: (i) The specific reason or reasons for the denial; (ii) Specific reference to pertinent plan provisions on which the denial is based; (iii) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) An explanation of the Plan's claim review procedure as set forth in Section 10.3. 10.3 Review Procedure. (a) A claimant may appeal the denial of a claim, including a claim considered denied, to the Plan Administrator for a full and fair review of the claim. (b) A request for review of a denied claim must be made in writing to the Plan Administrator within sixty (60) days after the date of the notice denying the claim or within sixty (60) days after the date on which the claim is considered denied. (c) The claimant or his authorized representative shall have the right, during the review procedure, to review all pertinent documents and to submit issues and comments in writing to the Plan Administrator. 10.4 Decision on Review. (a) A decision on review shall be made promptly by the Plan Administrator and not later than sixty (60) days after it receives the request for review. (b) The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant and specific references to pertinent Plan provisions on which the decision is based. 10.5 Agent for Service of Process. In any action against the Plan or Trust, the Plan Administrator, whose address is 100 CenturyTel Drive, Monroe, Louisiana 71203, shall be the agent for service of process of the Plan and Trust. SECTION 11 ADOPTION BY OTHER COMPANIES 11.1 Rights of Other Companies to Participate. Any other corporation, association, joint venture, proprietorship or partnership (hereinafter called adopting companies) may adopt the terms of this Plan by a resolution of the Board of Directors of such entity in the form specified by the Plan Administrator, provided that the Board of Directors of the Employer and the Plan Administrator both approve such participation. Unless otherwise provided in the Plan or in a separate written agreement, all subsidiaries of the Employer shall be deemed to be adopting companies participating in the Plan. A newly formed subsidiary, or a subsidiary acquired by the Employer, shall be deemed to be an adopting company as of the date of formation or acquisition, as the case may be, unless otherwise provided in the Plan or in a separate written agreement. 11.2 Control of Plan by the Employer. The administrative powers and control of the Employer as provided in the Plan, shall not be deemed diminished under the Plan by reason of participation of adopting companies in the Plan, and such administrative powers and control specifically granted herein to the Employer with respect to the appointment of the Plan Administrator and Trustee and other matters shall apply only with respect to the Employer. The Plan Administrator, under the control of the Employer, shall also be the Plan Administrator for the adopting companies. 11.3 Allocations of Contributions and Forfeitures. The amounts forfeited by Employees of the Employer and adopting companies shall be allocated across company lines in accordance with the provisions of Section 4.3 hereof to all Participants who were Employees of the Employer and applicable adopting companies during the Plan Year in which such forfeitures occurred and the contributions made by the Employer and each adopting company shall be allocated across company lines in accordance with the provisions of Section 4.2 hereof to Participants who were Employees of the Employer and applicable adopting companies during the Plan Year for which each contribution is made. One member of an affiliated group may make contributions on behalf of another member of such group in accordance with Regulations Section 1.404(a)-10, as amended. 11.4 Withdrawal of Employer or Adopting Companies. The Employer or adopting company may withdraw at any time without affecting the others in the Plan. Such withdrawal may be accompanied by such amendments to the Plan as the withdrawing Employer or adopting company shall deem proper to continue a plan for its Employees separate and distinct from this Plan, but, if such withdrawing party does not provide for the continuance of a separate plan for its Employees, such withdrawal shall constitute a termination of this Plan with respect to that withdrawing party. The Employer may in its absolute discretion terminate any adopting company's participation at any time. Withdrawal from the Plan by any party shall not affect the continued operation of the Plan with respect to the other participating parties. 11.5 Amendment of Plan. The participation in the Plan of adopting companies shall not limit the power of the Employer under Trust Section 4.1; provided, however, that the Employer shall deliver notice of each amendment to the Plan to each adopting company within thirty (30) days of such amendment. Amendments by the Employer shall be binding upon all adopting companies to the extent accepted by such adopting companies. Acceptance by each such company shall be presumed unless the Employer and Trustee are given written notice of refusal to accept within sixty (60) days after the date of the amendment. The Employer and each adopting company may modify the provisions of the Plan as it pertains only to its own Employees by the adoption of an amendment to the Plan specifying such modifications which shall pertain only to its Employees except to the extent that Employer amendments are presumed accepted by the adopting companies, and shall not affect the continued operation of the Plan with respect to any other party. 11.6 Termination of One or More Parties. The Plan may be terminated by all parties at any time in the manner described in Trust Section 4.2, on the part of each party. The Plan may be terminated in the manner described above with respect to one, but less than all the parties hereto and the Plan continued for the remaining parties. 11.7 Reference to Employer in Plan. Except as provided in this Section 11 and unless the context indicates otherwise, references to "Employer" in this Plan shall mean the Employer and all adopting companies. SECTION 12 PROVISIONS RELATING TO PARTICIPANTS 12.1 Information Required of Participants. Each Participant shall furnish to the Plan Administrator such information as the Plan Administrator shall deem necessary and desirable for purposes of administering the Plan. Any notice or information which, according to the provisions of the Plan, must be filed with the Plan Administrator shall be deemed so filed if addressed to 100 CenturyTel Drive, Monroe, Louisiana 71203, and either delivered in person or mailed to such address, postage fully paid. SECTION 13 PLAN ADMINISTRATOR 13.1 Administration by Plan Administrator. This Plan shall be administered by a Committee, which shall be the "Plan Administrator" and "named fiduciary." 13.2 Appointment of Committee. The Board of Directors of the Employer shall fix the number of persons to be members of the Committee (which number of voting members shall always be an odd number) and shall appoint persons from among the officers and Employees of the Employer to serve as members of the Committee. The Committee shall have complete control of the administration of the Plan. Members of the Committee shall serve without remuneration for so long as it is mutually agreeable to them and to the Employer but they shall be reimbursed for all expenses incurred by them in the performance of their duties. Any member may resign by delivering his written resignation to the Employer and to the other members of the committee. The Board of Directors of the Employer may remove or replace any member of the Committee, or fill any vacancy, no matter how created, by notifying the member concerned and the other members of the Committee in writing. 13.3 Majority Action. Action taken by a majority of the members of the Committee shall, to the extent lawful, be binding upon the Employees, Participants, and all persons claiming any right under the Plan through any Employee or Participant. The Committee may act by vote, at a meeting, or in writing, without a meeting. Any act of the Committee shall be sufficiently evidenced if certified to by any two members thereof or by any person not a member of the Committee but who is designated, in writing, as the Secretary of the Committee by a majority thereof. A member of the Committee who is a Participant shall not vote on any question relating specifically to himself, and in the event the remaining members of the Committee are unable to agree to a determination of such question, another person shall be selected by the Board of Directors of the Employer for the purpose of making such determination. 13.4 Powers of the Plan Administrator. The Committee as Plan Administrator shall have the following powers: (a) To make rules and regulations for the administration of the Plan which are not inconsistent with the terms and provisions hereof; (b) To construe all terms, provisions, conditions and limitations of this Plan; (c) To correct any defect or supply any omission or reconcile any inconsistency that may appear in the Plan, in such manner and to such extent as it shall deem expedient to carry this Plan into effect for the greatest benefit of all interested parties; (d) To select, employ and compensate from time to time such consultants, actuaries, accountants, attorneys, and other agents and employees as the Plan Administrator may deem necessary or advisable in the proper and efficient administration of this Plan and Trust to carry out nonfiduciary and fiduciary responsibilities (other than trustee responsibilities as defined in Section 405(c)(3) of ERISA); (e) To determine all questions relating to the eligibility of Employees to become Participants, and to determine the amount of compensation upon which the allocation of each Participant shall be calculated; (f) To make all determinations and computations concerning the benefits, credits and debits to which any Participant or beneficiary is entitled under the Plan; (g) To determine all questions relating to the administration of this Plan and Trust (1) when differences of opinion arise between the Employer, the Trustee, a Participant, or any of them, and (2) whenever it is deemed advisable to determine such questions in order to promote the uniform administration of the Plan for the greatest benefit of all parties concerned; (h) To appoint any Employee of the Employer to act as Secretary for the Plan Administrator, and to authorize the Secretary so appointed to act for the Plan Administrator in all routine matters connected with the administration of the Plan; (i) To determine whether a Participant is disabled for the purposes of Section 6.5 hereof; (j) To appoint an investment manager or managers (as defined in Section 3(38) of ERISA) to manage (including the power to acquire and dispose of) all or any part of the assets of the Plan; and (k) To provide for the allocation of fiduciary responsibilities (other than trustee responsibilities as defined in Section 405(c)(3) of ERISA). Actions dealing with fiduciary responsibilities shall be taken in writing and the performance of agents, counsel, and fiduciaries to whom fiduciary responsibilities have been delegated shall be reviewed periodically. The foregoing list of express powers is not intended to be either complete or conclusive, but the Plan Administrator shall, in addition, have such powers as it may reasonably determine to be necessary to the performance of its duties under the Plan and Trust. The decision or judgment of the Plan Administrator on any question arising in connection with the exercise of any of its powers or any matter of Plan administration or the determination of benefits shall be final, binding and conclusive upon all parties concerned. 13.5 Duties of the Plan Administrator. The Committee as Plan Administrator shall, as a part of its general duty to supervise and administer the Plan: (a) Establish and maintain the Accounts described herein and direct the maintenance of such other records and the preparation of such forms as are required for the efficient administration of the Plan; (b) Give the Trustee specific directions in writing in respect to: (i) The making of distribution payments, giving the names of the payees, the amounts to be paid and the time or times when payments shall be made; and (ii) The making of any other payments which the Trustee is not by the terms of the trust agreement authorized to make without a direction in writing by the Plan Administrator; and (c) Prepare an annual report, as of the end of the Plan Year. 13.6 Expenses. The Employer shall reimburse each Trust fund for all expenses (other than normal brokerage charges which are included in the cost of securities purchased or charged to proceeds in the case of sales) incurred in the administration of the Plan under Section 1.5 of each Trust, including the expenses and fees of the Trustee, except that any such expenses not so reimbursed by the Employer shall be paid from the appropriate Trust fund. SECTION 14 ROLLOVERS 14.1 Rollover Contributions. If the Plan Administrator instructs the Trustee in writing to accept Rollover Contributions, any Employee who is a Participant or who will become a Participant if he completes a Year of Service in an Eligibility Computation Period may make a Rollover Contribution at any time. The Trustee shall credit the fair market value of any Rollover Contribution to a Rollover Account of the contributing Participant as of the date the Rollover Contribution is made. A Rollover Account shall be fully vested and shall be paid to the Participant or his beneficiaries in accordance with Section 5, 6, 7 and 8. Rollover Accounts shall participate in the earnings and losses of the Trust Fund, but not in forfeitures or Employer contributions. 14.2 Definition of Rollover Contribution. The term Rollover Contribution is defined as the contribution of a Rollover Amount as defined in Section 14.3 to the Trustee on or before the sixtieth (60th) day immediately following the day the contributing Participant receives the Rollover Amount. 14.3 Definition of Rollover Amount. The term Rollover Amount is defined as a distribution which meets the following requirements: (a) the amount distributed to the Participant is deposited to the Plan no later than the sixtieth day after such distribution was received by the Participant; (b) the amount distributed is not one of a series of substantially equal periodic payments made for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and the Participant's designated beneficiary, or for a specified period of ten years or more; (c) the amount distributed is not required under Code Section 401(a)(9); (d) if the amount distributed included property such property is rolled over, or if sold the proceeds of such property may be rolled over; (e) the amount distributed is includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). In addition, if the Plan Administrator so instructs the Trustee in writing, the Plan will accept any eligible rollover distribution (as defined in Section 7.6) directly to the Plan. Rollover Amounts which relate to distributions prior to January 1, 1993, must be made in accordance with paragraphs (a) through (e) and additionally meet the requirements of paragraph (f): (f) The distribution from the qualified plan constituted the Participant's entire interest in such Plan and was distributed within one taxable year to the Participant: (i) on account of separation from service, a Plan termination, or in the case of a profit-sharing or stock bonus plan, a complete discontinuance of contributions under such plan within the meaning of Code Section 402(a)(6)(A), or (ii) in one or more distributions which constitute a qualified lump sum distribution within the meaning of Code Section 402(e)(4)(A), determined without reference to subparagraphs (B) and (H). 14.4 Conduit Rollovers. A Rollover Contribution may also be made through an individual retirement account (IRA) qualified under Code Section 408 where the IRA was used as a conduit from a qualified plan, the Rollover Contribution is made in accordance with the rules provided under paragraphs (a) through (f), above, and the Rollover Contribution does not include any regular IRA contributions, or earnings thereon, which the Participant may have made to the IRA. Rollover Contributions, which relate to distributions prior to January 1, 1993, may be made through an IRA in accordance with paragraphs (a) through (f), above, and additional requirements as provided in the previous sentence. The Trustee shall not be held responsible for determining the tax free status of any Rollover Contribution made under this Plan. SECTION 15 TRADES OR BUSINESSES UNDER COMMON CONTROL 15.1 Definitions. All employees of all corporations which are members of a controlled group of corporations (as defined in Section 414(b) of the Code) and all employees of all trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c) of the Code) will be treated as employed by a single employer. Such other trades or businesses in a group with the Employer are hereinafter called "Associated Employer." The term "transferred participant" means an Employee of the Employer who was a Participant in this Plan and who is employed by an Associated Employer after his services with the Employer are terminated. In addition to the foregoing, Hours of Service will also be credited for any individual required under Section 414(m) or 414(n) of the Code to be considered an employee of any employer aggregated under Section 414(b), (c), or (m) or the Code. Any Leased Employee as defined in Section 1.19(a), excluding any Leased Employee described in Section 1.19(b), shall be treated as an employee of the recipient employer. 15.2 Allocation. No Employee shall be credited with any compensation for a year under Section 4.2 of this Plan except with respect to compensation actually paid to him by the Employer or accrued by the Employer with respect to him. 15.3 Participation and Vesting. All of an Employee's service with an Associated Employer shall be counted as service with the Employer for all purposes of this Plan, except as otherwise provided in the Plan or in a separate written agreement. 15.4 Vesting and Distributions. In determining whether a transferred participant incurs a Break in Service under this Plan, his service with the Employer shall be combined with his service with an Associated Employer. In determining whether a transferred participant subsequently incurs a Break in Service with the Employer for vesting and distribution purposes, his Hours of Service with Associated Employers shall be counted. SECTION 16 TOP HEAVY PLAN RULES 16.1 Key Employee. Any Employee or former Employee (and the beneficiaries of such Employee) who at any time during the determination period was an officer of the Employer if such individual's annual compensation exceeds fifty percent (50%) of the dollar limitation under Section 415(b)(1)(A) of the Code, an owner (or considered an owner under Section 318 of the Code) of one of the ten largest interests in the Employer if such individual's compensation exceeds one hundred percent (100%) of the dollar limitation under Section 415(c)(1)(A) of the Code, a five percent (5%) owner of the Employer, or a one percent (1%) owner of the Employer who has an annual compensation of more than $150,000. Annual compensation means compensation as defined in Section 415(c)(3) of the Code, but including amounts contributed by the Employer pursuant to a salary reduction agreement which are excludable from the Employee's gross income under Section 125, Section 402(e)(3), Section 402(h)(1)(B) or Section 403(b) of the Code. The determination period is the Plan Year containing the determination date and the four (4) preceding Plan Years. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the regulations thereunder. 16.2 Non-Key Employee. Any Employee who is not a Key Employee. 16.3 Super Top Heavy Plan. For any Plan Year beginning after December 31, 1983, this Plan is a Super Top Heavy Plan if any of the following conditions exists: (a) If the top heavy ratio for this Plan exceeds ninety percent (90%) and this Plan is not part of any required aggregation group or permissive aggregation group of plans. (b) If this Plan is a part of a required aggregation group of plans but not part of a permissive aggregation group and the top heavy ratio for the group of plans exceeds ninety percent (90%). (c) If this Plan is a part of a required aggregation group and part of a permissive aggregation group of plans and the top heavy ratio for the permissive aggregation group exceeds ninety percent (90%). 16.4 Top Heavy Plan. For any Plan Year beginning after December 31, 1983, this Plan is a Top Heavy Plan if any of the following conditions exists: (a) If the top heavy ratio for this Plan exceeds sixty percent (60%) and this Plan is not part of any required aggregation group or permissive aggregation group of plans. (b) If this Plan is a part of a required aggregation group of plans but not part of a permissive aggregation group and the top heavy ratio for the group of plans exceeds sixty percent (60%). (c) If this Plan is a part of a required aggregation group and part of a permissive aggregation group of plans and the top heavy ratio for the permissive aggregation group exceeds sixty percent (60%). 16.5 Top Heavy Ratio. (a) If the Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Employer has not maintained any defined benefit plan which during the five (5) year period ending on the determination date(s) has or had accrued benefits, the top heavy ratio for this Plan alone or for the required or permissive aggregation group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the determination date(s) (including any part of any account balance distributed in the five (5) year period ending on the determination date(s)), and the denominator of which is the sum of all Account balances (including any part of any Account balance distributed in the five (5) year period ending on the determination date(s)), both computed in accordance with Section 416 of the Code and the regulations thereunder. Both the numerator and denominator of the top heavy ratio are adjusted to reflect any contribution not actually made as of the determination date, but which is required to be taken into account on that date under Section 416 of the Code and the regulations thereunder. (b) If the Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Employer maintains or has maintained one or more defined benefit plans which during the five (5) year period ending on the determination date(s) has or has had any accrued benefits, the top heavy ratio for any required or permissive aggregation group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with (a) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the determination date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all Participants determined in accordance with (a) above, and the present value of accrued benefits under the defined benefit plan or plans for all Participants as of the determination date(s), all determined in accordance with Section 416 of the Code and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the top heavy ratio are increased for any distribution of an accrued benefit made in the five (5) year period ending on the determination date. (c) For purposes of (a) and (b) above, the value of account balances and the present value of accrued benefits will be determined as of the most recent valuation date that falls within or ends with the twelve (12) month period ending on the determination date, except as provided in Section 416 of the Code and the regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a Participant (1) who is not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been credited with at least one Hour of Service with any employer maintaining the Plan at any time during the five (5) year period ending on the determination date will be disregarded. The calculation of the top heavy ratio, and to the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Section 416 of the Code and the regulations thereunder. Deductible employee contributions will not be taken into account for purposes of computing the top heavy ratio. When aggregating plans the value of account balances and accrued benefits will be calculated with reference to the determination dates that fall within the same calendar year. The accrued benefit of a Participant other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Section 411(b)(1)(C) of the Code. 16.6 Top Heavy Plan Year. For a particular Plan Year commencing after December 31, 1983, the Plan is a Top Heavy Plan. 16.7 Top Heavy Compensation. For any Top Heavy Plan Year, compensation as defined in Code Section 415(c)(3) and Regs. Section 1.415-2(d), not in excess of $200,000 (or such other amounts as the Secretary of Treasury or his delegate may designate), which shall be considered as compensation for all purposes of Section 16 of this Plan. 16.8 Determination Date. The last day of the preceding Plan Year, or, in the case of the first Plan Year, the last day of such Plan Year. 16.9 Valuation Date. The last day of the Plan Year, on which Account balances or accrued benefits are valued for purposes of calculating the Top Heavy Ratio. 16.10 Aggregation Group. Either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (a) Required Aggregation Group: (i) Each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the Plan has terminated), and (ii) any other qualified plan of the Employer which enables a plan described in (i) to meet the requirements of Sections 401(a)(4) or 410 of the Code. In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group. (b) Permissive Aggregation Group: The required aggregation group of plans plus any other plan or plans of the Employer which, when considered as a group with the required aggregation group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group. 16.11. Present Value of Accrued Benefits. The present value of an accrued benefit under a defined benefit plan shall be based on the interest and mortality rates specified in such defined benefit plan. TOP HEAVY REQUIREMENTS 16.12. Top Heavy Plan Requirements. If the Plan is or becomes top heavy in any Plan Year beginning after December 31, 1983, the provisions of this Section 16 will supersede any conflicting provisions in the Plan. 16.13. Top Heavy Reduction. (a) In Section 4.9(a), 1.0 shall be substituted for 1.25 unless the extra minimum allocation is being made pursuant to Section 16.14. However, for any Plan Year in which this Plan is a Super Top Heavy Plan, 1.0 shall be substituted for 1.25 in any event. (b) $41,500 shall be substituted for $51,875 in determining the "transition fraction" of Section 4.9(b). 16.14. Minimum Allocations. (a) Except as otherwise provided in (c) and (d) below, the Employer contributions and forfeitures allocated on behalf of any Participant who is not a Key Employee shall not be less than the lesser of three percent of such Participant's compensation or in the case where the Employer has no defined benefit plan which designates this Plan to satisfy Section 401 of the Code, the largest percentage of Employer contributions and forfeitures, as a percentage of the Key Employee's compensation, as limited by Section 401(a)(17) of the Code, allocated on behalf of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year because of (i) the Participant's failure to complete 1,000 Hours of Service (or any equivalent provided in the Plan), or (ii) the Participant's failure to make mandatory employee contributions to the Plan, or (iii) compensation less than a stated amount. (b) For purposes of computing the minimum allocation, compensation will mean compensation as defined in Section 1.7 of the Plan. (c) The provision in (a) above shall not apply to any Participant who was not employed by the Employer on the last day of the Plan Year. (d) The provision in (a) above shall not apply to any Participant to the extent the Participant is covered under any other plan or plans of the Employer and the Employer has elected that the minimum allocation or benefit requirement applicable to top heavy plans will be met in the other plan or plans. (e) The minimum allocation required (to the extent required to be nonforfeitable under Section 416(b) of the Code) may not be forfeited under Section 411(a)(3)(B) or 411(a)(3)(D) of the Code. 16.15. Top Heavy Vesting. For any Plan Year in which this Plan is top-heavy, the following vesting schedule will automatically apply to the Plan, but only if the application of such schedule results in a higher vested percentage for the Participant: YEARS OF SERVICE VESTED PERCENTAGE ---------------- ----------------- 2 20% 3 40% 4 60% 5 80% 6 100% The minimum vesting schedule applies to all benefits within the meaning of Section 411(a)(7) of the Code except those attributable to employee contributions, including benefits accrued before the effective date of Section 416 of the Code and benefits accrued before the Plan became top-heavy. Further, no decrease in a Participant's nonforfeitable percentage may occur in the event the Plan's status as top-heavy changes for any Plan Year. However, this Section does not apply to the Account balance of any Employee who does not have an Hour of Service after the Plan has initially become top-heavy and such Employee's Account balance attributable to Employer contributions and forfeitures will be determined without regard to this Section. 16.16. Minimum Required Distribution. A Key Employee's benefits shall be distributed to him or begin to be distributed to him under Section 5 no later than the taxable year in which he attains age 70 1/2 regardless of when he retires. 16.17. Alternative Effective Date. Notwithstanding any other provision of this Plan and Trust, the effective date otherwise provided for the application of this Section 16 shall be extended in accordance with any legislative act of Congress. SECTION 17 ESOP PROVISIONS 17.1 Exempt Loans. (a) Subject to the provisions of this Section 17.1, the Trustee may incur installment obligations from time to time to finance the acquisition of Company Stock for the Trust or to repay a prior loan. Any such loan which is made or guaranteed, directly or indirectly, by a disqualified person or party in interest is referred to herein as an "exempt loan". (b) An exempt loan must be primarily for the benefit of the Participants and beneficiaries of this Plan. At the time the loan is made, the interest rate and price of Company Stock to be acquired with loan proceeds should not be such that the Plan assets might be drained off. The terms of a loan must, at the time the loan is made, be at least as favorable to the Plan as the terms of a comparable loan resulting from arms length negotiations between independent parties. (c) The proceeds of an exempt loan must be used within a reasonable time after receipt by the Plan and Trust only for any or all of the following purposes: (i) To acquire Company Stock; (ii) To repay such loan; or (iii) To repay a prior exempt loan. A new loan the proceeds of which are so used must satisfy the provisions of this paragraph (c). Except as otherwise provided in this section 17, or as otherwise required by applicable law, no Company Stock acquired with the proceeds of an exempt loan may be subject to a put, call, or other option, or buy-sell or similar arrangement while held by and when distributed from this Plan, whether or not this Plan is then an ESOP. (d) An exempt loan shall be without recourse against the Plan and Trust; and only Company Stock acquired with the proceeds of the exempt loan or with the proceeds of a prior exempt loan repaid with the proceeds of the current exempt loan may be given as collateral. (e) No person entitled to payment under the exempt loan shall have any rights to the assets of the Plan and Trust other than: (i) Collateral given for the loan, (ii) Contributions other than contributions of Company Stock that are made to the Plan to meet its obligations under the loan, and (iii) Earnings attributable to such collateral and the investment of such contributions. The payment made with respect to an exempt loan by the Plan and Trust during a Plan Year shall not exceed an amount equal to the sum of such contribution and earnings received during or prior to the year less such payments in prior years. Such contributions and earnings shall be accounted for separately on the books of account of the Plan until the loan is repaid. (f) In the event of a default upon an exempt loan, the value of the Plan assets transferred in satisfaction of the loan shall not exceed the amount of default. If the lender is a disqualified person, the loan shall provide for a transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of the loan. (g) The interest rate of an exempt loan must not be in excess of a reasonable rate of interest. (h) An exempt loan shall provide for the release from encumbrance under this subsection (h) of the Plan assets used as collateral for the loan in one of the two methods described in this subsection (h): (i) For each Plan Year during the duration of the loan, the number of securities released must equal the number of encumbered securities held immediately before release for the current Plan Year multiplied by a fraction, the numerator of which is the amount of principal and interest paid for the year and the denominator of which is the sum of the numerator plus the principal and interest to be paid for all future years. The number of future years on the loan must be definitely ascertainable and must be determined without taking into account any possible extensions or renewal periods. If the interest rate under the loan is variable, the interest to be paid in the future years must be computed by using the interest rate applicable as of the end of the Plan Year. (ii) The number of shares of Company Stock to be released from encumbrance may be determined solely with reference to principal payments provided the following requirements are satisfied. The loan must provide for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for ten (10) years. Interest included in any payment is disregarded only to the extent that it would be determined to be interest under standard loan amortization tables. This subparagraph (h)(ii) is not applicable from the time, that, by reason of a renewal, extension or refinancing, the sum of the expired duration of the exempt loan, the renewal period, the extension period, and the duration of the new exempt loan exceeds ten (10) years. (i) All assets acquired by the Plan and Trust with the proceeds of an exempt loan shall be held in a Suspense Account, and shall be released from encumbrance under subsection (h). For purposes of the allocation to be made under Section 4.2, assets released from the Suspense Account shall be treated as having been contributed to the Plan in the Plan Year in which they are released, and shall be allocated to Participant's ESOP Accounts in non-monetary units. Income with respect to Company Stock acquired with the proceeds of an exempt loan shall be allocated as provided in Sections 4.4 and 4.5 except to the extent that income from such Company Stock is to be used to repay the loan. 17.2 ESOP Voting Rights. Each Participant in the Plan (or, in the event of the Participant's death, the Participant's beneficiary) is, for purposes of this Section 17.2, hereby designated a "named fiduciary" within the meaning of Section 403(a)(1) of ERISA and shall be entitled to direct the Plan and Trustee as to the manner in which Company Stock allocated to the ESOP Account of such Participant is to be voted on each matter brought before an annual or special stockholders' meeting of the Employer. Before each such meeting of stockholders, the Trustee shall cause to be furnished to each Participant (or beneficiary) a copy of the proxy solicitation material, together with a form requesting confidential directions on how such shares of stock allocated to such Participant's ESOP Account shall be voted on each such matter. Upon timely receipt of such directions the Trustee shall on each such matter vote as directed the number of votes attributable, as provided below, to the shares allocated to the ESOP Account of such Participant. The instructions received by the Trustee from Participants shall be held by the Trustee in strict confidence and shall not be divulged or released to any person, including officers or employees of the Employer or any affiliate; provided, however, that to the extent necessary for the operation of the Plan, such instructions may be relayed by the Trustee to a recordkeeper, auditor or other person providing services to the Plan if such person (i) is not the Employer, an affiliate or any employee, officer or director thereof, and (ii) agrees not to divulge such directions to any other person, including employees, officers and directors of the Employer and its affiliates. The number of votes attributable to each Participant shall be determined as follows: (a) first, the total number of shares of Company Stock allocated to such Participant's ESOP Account as of the record date for the matter requiring the vote shall be determined: (b) next, the total number of votes attributable to all Company Stock owned by the Plan and allocated to ESOP Accounts of Participants shall be determined; (c) next, the number of votes attributable to allocated shares shall be determined by multiplying the total number of available votes by a fraction, the numerator of which shall be the number of allocated shares, and the denominator of which shall be total shares; (d) next, the number of votes determined under (c), above, shall be attributed to each Participant, in the ratio which the number of shares allocated to such Participant's ESOP Account as of the immediately preceding Valuation Date bears to the total number of shares allocated to all Participants' ESOP Accounts as of such date. Each Participant, as a named fiduciary, shall also be entitled to separately direct the vote of a portion of the number of votes with respect to which a signed voting-direction instrument is not timely received from the Participants and a portion of the number of votes with respect to any shares of stock not then released pursuant to Section 17.1(h) and (i) and held in the Suspense Account and a portion of the number of votes with respect to any shares of stock released pursuant to Section 17.1(h) and (i) and not allocated to Participants' ESOP Accounts ("Undirected ESOP Votes"). Such direction with respect to each Participant who timely elects to direct the vote of Undirected ESOP Votes as a named fiduciary shall be with respect to a number of Undirected ESOP Votes equal to the total number of Undirected Votes multiplied by a fraction, the numerator of which is the total number of votes attributable to shares of stock allocated to the ESOP Account of such Participant and the denominator of which is the total number of votes attributable to the ESOP Accounts of all Participants who timely elect to vote Undirected ESOP Votes as a named fiduciary. 17.3 Rights on Tender or Exchange Offer. Each Participant (or, in the event of the Participant's death, the Participant's beneficiary) is, for purposes of this Section 17.3, hereby designated a "named fiduciary" within the meaning of Section 403(a)(1) of ERISA and shall have the right, to the extent of the number of shares of Company Stock allocated to such Participant's ESOP Account, to direct the Trustee in writing as to the manner in which to respond to a tender or exchange offer with respect to shares of Company Stock. Each Participant, as a named fiduciary, shall also be entitled to separately direct the tender of a portion of the shares of Company Stock not released pursuant to Section 17.1(h) and (i) and held in the Suspense Account and a portion of the shares of Company Stock released pursuant to Section 17.1(h) and (i) and not allocated to Participants' ESOP Accounts. Such direction shall be with respect to the total of the number of shares of Company Stock in the Suspense Account and the number of shares of Company stock released and not allocated multiplied by a fraction, the numerator of which is the total shares of Company Stock allocated to the Participant's ESOP Account and the denominator of which is the total number of shares of Company Stock which are allocated to the ESOP Accounts of all Participants. The Trustee shall use its best efforts to timely distribute or cause to be distributed to each Participant (or beneficiary) such information as will be distributed to stockholders of the Employer in connection with any such tender or exchange offer. Upon timely receipt of such instructions, the Trustee shall respond as instructed with respect to shares of Company Stock allocated to such Participant's ESOP Account. The instructions received by the Trustee from Participants shall be held by the Trustee in strict confidence and shall not be divulged or released to any person, including officers or employees of the Employer or any affiliate; provided, however, that to the extent necessary for the operation of the Plan, such instructions may be relayed by the Trustee to a recordkeeper, auditor or other person providing services to the Plan if such person (i) is not the Employer, an affiliate or any employee, officer or director thereof, and (ii) agrees not to divulge such directions to any other person, including employees, officers and directors of the Employer and its affiliates. If the Trustee shall not receive timely instruction from a Participant (or beneficiary) as to the manner in which to respond to such a tender or exchange offer, the Trustee shall not tender or exchange any shares of Company Stock allocated to the ESOP Account of such Participant with respect to which such Participant has the right of direction. In effecting the foregoing, to the extent possible, the Trustee shall tender or exchange shares of Company Stock entitled to one vote per share prior to shares of Company Stock having greater than one vote per share. 17.4 Special Limitation Rules. Any Employer contributions which are used by the Trustee (not later than the due date, including extensions, for filing the Company's Federal income tax return for the Plan Year) to pay interest on an exempt loan shall not be included as annual additions under Section 4.8; provided, however, that the provisions of this Section 17.4 shall be applicable only for a Plan Year in which not more than one-third (1/3) of the Employer contributions applied to pay principal and/or interest on an exempt loan are allocated to Participants who are highly compensated employees, as defined in Section 414(q) of the Code; and the Committee shall reallocate such Employer contributions to the extent necessary to satisfy this special rule. 17.5 Limitation on Electing Shareholder. [RESERVED] 17.6 Investment Diversification. Each Participant in the Plan who has attained age fifty-five (55) and has completed at least ten (10) years of participation in the Plan shall be permitted to direct the investment of twenty-five percent (25%) of the total number of shares of Company Stock acquired by or contributed to the Plan after December 31, 1986 and allocated to his ESOP Account, Stock Bonus Account, and PAYSOP Account in the Plan, reduced by the number of shares of Company Stock previously diversified pursuant to an election under this paragraph. This election may be made within the ninety (90) day period following the end of each Plan Year during the six (6) Plan Year period beginning with the first Plan Year in which the Participant is eligible to make the election. For the last Plan Year in which the Participant can make an election, this paragraph shall be applied by substituting "fifty percent (50%)" for "twenty-five percent (25%)" herein. If a Participant elects to diversify pursuant to the preceding paragraph, the Committee shall facilitate such diversification by making available to the Participant at least three (3) investment options which are not Company Stock, and which are consistent with the requirements of regulations promulgated by the Secretary of the Treasury. These investment options may be provided either in this Plan or in another qualified plan sponsored by the Employer. The number and type of investment options available, and the determination regarding the inclusion of the investment options in this Plan or another qualified plan, shall be at the sole discretion of the Committee. The Trustee shall comply with any diversification election hereunder within ninety (90) days following the ninety (90) day election period by either (i) substituting other investment assets in this Plan for the Company Stock as to which the election is made, or (ii) if the Participant's investment options are made available under another qualified plan, transferring to such qualified plan the net cash proceeds realized from the sale by the Plan of the shares of Company Stock for which diversification is elected. The provisions of this Section 17.6 shall apply to a Participant's ESOP Account, Stock Bonus Account and PAYSOP Account. 17.7 Company Stock Distributions. (a) Notwithstanding the provisions of Sections 5, 6, 7 and 8, distributions of Company Stock from Participants' ESOP Accounts in the Plan shall be made in accordance with this Section 17.7, unless the application of Sections 5, 6, 7 and 8 would result in an earlier distribution date. (b) Unless the Participant (or his beneficiary, if the Participant is deceased) elects otherwise, if a Participant retires, dies or becomes disabled while employed by the Employer, distribution of Company Stock in his ESOP Account will be made or commenced as soon as practicable following the date on which the Participant retires, dies or becomes disabled, but not later than the sixtieth (60th) day next following the close of the Plan Year during which the Participant retires, dies or becomes disabled. (c) Unless the Participant elects otherwise, upon termination of employment of the Participant with the Employer for reasons other than retirement, death or disability, distribution of Company Stock in his ESOP Account will be made not later than the later of: (i) one (1) year after the close of the Plan Year which is the fifth (5th) Plan Year following the Plan Year in which his employment terminates, unless the Participant is reemployed by the Employer before the end of such year; or (ii) the earlier of: (A) the Plan Year in which an Exempt Loan is fully repaid with respect to distributions of Company Stock acquired with the proceeds of that Exempt Loan; or (B) the sixtieth (60th) day following the end of the Plan Year in which the Participant attains Normal Retirement Age. (d) Any distribution hereunder shall comply with the consent requirements contained in Sections 411(a)(11) and 409(o) of the Code. SECTION 18 STOCK BONUS PLAN PROVISIONS 18.1 Stock Bonus Voting Rights. Each Participant in the Plan (or, in the event of the Participant's death, the Participant's beneficiary) is, for purposes of this Section 18.1, hereby designated a "named fiduciary" within the meaning of Section 403(a)(1) of ERISA and shall be entitled to direct the Plan and Trustee as to the manner in which Company Stock allocated to the Stock Bonus Account of such Participant is to be voted on each matter brought before an annual or special stockholders' meeting of the Employer. Before each such meeting of stockholders, the Trustee shall cause to be furnished to each Participant (or beneficiary) a copy of the proxy solicitation material, together with a form requesting confidential directions on how such shares of stock allocated to such Participant's Stock Bonus Account shall be voted on each such matter. Upon timely receipt of such directions the Trustee shall on each such matter vote as directed the number of votes attributable, as provided below, to such Participant. The instructions received by the Trustee from Participants shall be held by the Trustee in strict confidence and shall not be divulged or released to any person, including officers or employees of the Employer or any affiliate; provided, however, that to the extent necessary for the operation of the Plan, such instructions may be relayed by the trustee to a recordkeeper, auditor or other person providing services to the Plan if such person (i) is not the Employer, an affiliate or any employee, officer or director thereof, and (ii) agrees not to divulge such directions to any other person, including employees, officers and directors of the Employer and its affiliates. The number of votes attributable to each Participant shall be determined as follows: (a) first, the total number of shares of Company Stock allocated to such Participant's Stock Bonus Account as of the record date for the matter requiring the vote shall be determined; (b) next, the total number of votes attributable to all Company Stock owned by the Plan and allocated to Stock Bonus Accounts of Participants shall be determined; (c) next, the number of votes attributable to allocated shares shall be determined by multiplying the total number of available votes by a fraction, the numerator of which shall be the number of allocated shares, and the dominator of which shall be total shares; (d) next, the number of votes determined under (c), above, shall be attributed to each Participant, in the ratio which the number of shares allocated to such Participant's Stock Bonus Account as of the immediately preceding Valuation Date bears to the total number of shares owned by the Plan and allocated to Stock Bonus Accounts of Participants as of such date. Each Participant, as a named fiduciary, shall also be entitled to separately direct the vote of a portion of the number of votes with respect to shares of stock allocated to Stock Bonus Accounts of Participants for which a signed voting-direction instrument is not timely received from the Participants and a portion of the number of votes with respect to any shares of stock purchased with Employer contributions designated as Stock Bonus contributions, not then allocated to Stock Bonus Accounts of Participants ("Undirected Stock Bonus Votes"). Such direction with respect to each Participant who timely elects to direct the vote of Undirected Stock Bonus Votes as a named fiduciary shall be with respect to a number of Undirected Votes equal to the total number of Undirected Votes multiplied by a fraction, the numerator of which is the total number of votes attributable to such Participant's Stock Bonus Account and the denominator of which is the total number of votes attributable to Stock Bonus Accounts of all Participants who timely elect to vote Undirected Stock Bonus Votes as a named fiduciary. 18.2 Rights on Tender or Exchange Offer. Each Participant (or, in the event of the Participant's death, the Participant's beneficiary) is, for purposes of this Section 18.2, hereby designated a "named fiduciary" within the meaning of Section 403(a)(1) of ERISA and shall have the right, to the extent of the number of shares of Company Stock allocated to such Participant's Stock Bonus Account to direct the Trustee in writing as to the manner in which to respond to a tender or exchange offer with respect to shares of Company Stock. Each Participant, as a named fiduciary, shall also be entitled to separately direct the tender of a portion of the shares of Company Stock purchased with Employer contributions designated as Stock Bonus contributions and not allocated to Stock Bonus Accounts of Participants. Such direction shall be with respect to the number of such unallocated shares of Company Stock multiplied by a fraction, the numerator of which is the total shares of Company Stock allocated to the Participant's Stock Bonus Account and the denominator of which is the total number of shares of Company Stock which are allocated to the Stock Bonus Accounts of all Participants. The Trustee shall use its best efforts to timely distribute or cause to be distributed to each Participant (or beneficiary) such information as will be distributed to stockholders of the Employer in connection with any such tender or exchange offer. Upon timely receipt of such instructions, the Trustee shall respond as instructed with respect to shares of Company Stock allocated to such Participant's Stock Bonus Account. The instructions received by the Trustee from Participants shall be held by the Trustee in strict confidence and shall not be divulged or released to any person, including officers or employees of the Employer or any affiliate; provided, however, that to the extent necessary for the operation of the Plan, such instructions may be relayed by the Trustee to a recordkeeper, auditor or other person providing services to the Plan if such person (i) is not the Employer, an affiliate or any employee, officer or director thereof, and (ii) agrees not to divulge such directions to any other person including employees, officers and directors of the Employer and its affiliates. If the Trustee shall not receive timely instruction from a Participant (or beneficiary) as to the manner in which to respond to such a tender or exchange offer, the Trustee shall not tender or exchange any shares of Company Stock allocated to the Stock Bonus Account of such Participant with respect to which such Participant has the right of direction. In effecting the foregoing, to the extent possible, the Trustee shall tender or exchange shares of Company Stock entitled to one vote per share prior to shares of Company Stock having greater than one vote per share. 18.3 Investment Diversification. The investment diversification rights provided for in Section 17.6 shall apply to Participants' Stock Bonus Accounts. SECTION 19 PAYSOP PROVISIONS 19.1 Nature of the Plan. (a) This Tax Credit Employee Stock Ownership Plan ("PAYSOP") is an addition to the Stock Bonus Plan previously established by the Employer and merged into this Plan. The PAYSOP forms a part of an ESOP and a Stock Bonus Plan under Section 401(a) of the Internal Revenue Code and is a Tax Credit Employee Stock Ownership Plan under Section 409 of the Code. The PAYSOP is intended to make available to the Company the payroll-based employee stock ownership credit described in Section 41 of the Code and is designed to be invested primarily (or exclusively) in Company Stock. (b) The PAYSOP has been and will be funded through the Stock Bonus and PAYSOP Trust established under the ESOP and is administered by the Plan Administrator described in Section 13 of the ESOP. The interests of Participants under the PAYSOP shall be reflected by separate PAYSOP Accounts under the Plan. Except as otherwise provided in this Section 19 or other Sections of this Plan, the provisions of the ESOP shall generally apply to the PAYSOP. 19.2 Definitions. Except to the extent that they are inconsistent with this Section 19, all of the definitions included in Section 1 of the ESOP apply to this Tax Credit Employee Stock Ownership Plan. Additional specific terms are defined below in this Section 19.2. (a) PAYSOP - This CenturyTel, Inc. Tax Credit Employee Stock Ownership Plan established by the Employer as an addition to the Stock Bonus Plan. (b) PAYSOP Account - The Account of a Participant which reflects his interest under the Plan attributable to PAYSOP contributions. (c) Stock Bonus Plan - The CenturyTel, Inc.Stock Bonus Plan, as merged into the CenturyTel, Inc. Employee Stock Ownership Plan and Trust. (d) PAYSOP Contributions - Employer contributions made to the Plan by the Company pursuant to Section 19.4 of the PAYSOP. (e) PAYSOP Compensation - The compensation of each Participant within the meaning of Section 415(e)(3) of the Code and the regulations thereunder. (f) ESOP - The CenturyTel, Inc. Employee Stock Ownership Plan and Trust, into which the Stock Bonus Plan was merged. 19.3 Eligibility and Participation. Each Participant under the ESOP will be eligible to share in the allocation of PAYSOP Contributions under Section 19.4 as of each Adjustment Date, provided that he is eligible to share in the allocation of Employer Contributions and forfeitures as described in Section 4 of the ESOP. 19.4 Employer Contributions. (a) PAYSOP Contributions shall be paid to the Plan for each Plan Year for which the Employer elects the payroll-based employee stock ownership credit available under Section 41 of the Code in any amount not exceeding the following percentages of PAYSOP Compensation of those Participants eligible to share in the allocation of such Employer Contributions for that Plan Year: Compensation Paid Applicable During Calendar Year Percentage 1984 .50 1985 .50 1986 .50 1987 .50 (b) PAYSOP Contributions shall be paid to the Plan not later than thirty (30) days after the due date (including extensions) for filing the Employer's Federal income tax return for that Plan Year. PAYSOP Contributions may be paid in shares of Company Stock or in cash, as determined by the Employer's Board of Directors; provided, however, that PAYSOP Contributions in cash shall be used by the Trustee to acquire Company Stock within thirty (30) days. (c) In the event that any Employer Contributions are paid to the Plan by reasons of a mistake of fact, such contributions may be returned to the Employer by the Trustee (upon the request of the Employer) within one year after payment to the Plan. 19.5 Participant's Accounts. (a) A PAYSOP Account shall be established for each Participant under the PAYSOP. It will be credited annually with shares of Company Stock (including fractional shares) representing his allocable share of PAYSOP Contributions, as well as Company Stock acquired with any dividends on Company Stock allocated to his PAYSOP Account (or with any net income of the Trust attributable to the PAYSOP). Each Participant shall at all times have a one hundred percent (100%) vested (nonforfeitable) interest in the balance of his PAYSOP Account. The allocations to the PAYSOP Accounts of Participants for each Plan Year shall be made in the following manner. (b) Employer Contributions - PAYSOP Contributions under Section 19.4(a) for each Plan Year will be allocated among the PAYSOP Accounts of Participants (so entitled under Section 19.3) as of the Adjustment Date in the ratio which the PAYSOP Compensation of each such Participant bears to the total PAYSOP Compensation of all such Participants for that Plan Year. For purposes of this allocation, however, PAYSOP Compensation of each Participant shall not exceed one hundred thousand dollars ($100,000) for each Plan Year. (c) Net Income and Dividends - Each Participant's PAYSOP Account shall share in any net income of the Trust attributable to the PAYSOP in the manner outlined in Section 4 of the ESOP. His PAYSOP Account shall also be credited with the amount of any dividends received on Company Stock allocated to such PAYSOP Account. All such amounts shall be allocated as of each Adjustment Date, but shall be reinvested in shares of Company Stock for allocation purposes. (d) Allocation Limitations - The limitations outlined in Sections 4.8 and 4.9 of the ESOP shall be applied by including each Participant's share of PAYSOP Contributions as Employer Contributions. In no event, however, shall the allocation of PAYSOP Contributions to a Participant's PAYSOP Account be reduced to comply with such limitation until after reductions have been made to the Participant's other Accounts under the ESOP. For each Plan Year, no more than one-third (1/3) of the PAYSOP Contributions under Section 19.4(a) may be allocated to the PAYSOP Accounts of Participants who are officers of the Employer, shareholders owning more than ten percent (10%) of Company Stock, as determined under Section 415(c)(6)(B)(iv) of the Code, or Participants whose PAYSOP Compensation for that Plan Year exceeds $60,000. The $60,000 amount shall be adjusted (after 1985) for increases in the cost of living, pursuant to regulations prescribed under Section 415(c)(6) and (d)(1) of the Code. The Plan Administrator may reallocate PAYSOP Contributions for any Plan Year in order to satisfy this additional limitation in accordance with the principles of Section 4.8. (e) Voting Company Stock - (i) Each Participant (or beneficiary) shall be entitled to direct the voting rights with respect to the shares of Company Stock owned by the PAYSOP, but only to the extent required by Sections 401(a)(22) and 409(e)(3) of the Code and the regulations thereunder.The number of votes to which each Participant is entitled shall be determined under (ii), below. On all other matters, the Plan Administrator need not solicit instructions from Participants. Prior to the holding of each annual or special meeting of Company shareholders, the Committee will send to all Participants who have Company Stock in their PAYSOP Accounts the proxy statements for such meeting, together with a form to be sent to the Trustee which will indicate the number of votes to which the Participant is entitled, and on which may be set forth each Participant's instructions as to the manner of voting the shares, including fractional shares, of Company Stock. Upon receipt of such instructions, the Trustee will vote the Company Stock in accordance with such instructions including fractional shares, which shares shall be aggregated with the fractional shares of other Participants with such accounts to the lowest whole number thereof for the purposes of voting. All shares of Company Stock held in PAYSOP Accounts of Participants for which no instructions have been received by the Trustee as to the manner of voting such shares prior to the established deadline for such meeting shall not be voted by the Trustee. (ii) The number of votes available to each Participant shall be determined as follows: (1) first, the total number of votes attributable to Company Stock owned by the PAYSOP shall be determined; (2) next, the amount of votes determined under (i), above, shall be allocated to each Participant in the ratio which such Participant's PAYSOP Account balance as of the immediately preceding Valuation Date bears to the total PAYSOP Account balances of all Participants as of such date. (f) Rights on Tender or Exchange Offer - Each Participant (or, in the event of the Participant's death, the Participant's beneficiary) is, for purposes of this Section 19.5(f), hereby designated a "named fiduciary" within the meaning of Section 403(a)(1) of ERISA and shall have the right, to the extent of the number of shares of Company Stock allocated to such Participant's PAYSOP Account, to direct the Trustee in writing as to the manner in which to respond to a tender or exchange offer with respect to shares of Company Stock. Each Participant, as a named fiduciary, shall also be entitled to separately direct the tender of a portion of the shares of Company Stock not allocated to Accounts of Participants. Such direction shall be with respect to the number of such unallocated shares of Company Stock multiplied by a fraction, the numerator of which is the total shares of Company Stock allocated to the Participant's PAYSOP Account and the denominator of which is the total number of shares of Company Stock which are allocated to the PAYSOP Accounts of all Participants. The Trustee shall use its best efforts to timely distribute or cause to be distributed to each Participant (or beneficiary) such information as will be distributed to stockholders of the Employer in connection with any such tender or exchange offer. Upon timely receipt of such instructions, the Trustee shall respond as instructed with respect to shares of Company Stock allocated to such Participant's PAYSOP Account. The instructions received by the Trustee from Participants shall be held by the Trustee in strict confidence and shall not be divulged or released to any person, including officers or employees of the Employer or any affiliate; provided, however, that to the extent necessary for the operation of the Plan, such instructions may be relayed by the Trustee to a recordkeeper, auditor or other person providing services to the Plan if such person (i) is not the Employer, an affiliate or any employee, officer or director thereof, and (ii) agrees not to divulge such directions to any other person including employees, officers and directors of the Employer and its affiliates. If the Trustee shall not receive timely instruction from a Participant (or beneficiary) as to the manner in which to respond to such a tender or exchange offer, the Trustee shall not tender or exchange any shares of Company Stock allocated to the Participant's PAYSOP Account with respect to which such Participant has the right of direction. In effecting the foregoing, to the extent possible, the Trustee shall tender or exchange shares of Company Stock entitled to one vote per share prior to shares of Company Stock having greater than one vote per share. (g) Investment Diversification - The investment diversification rights provided for in Section 17.6 shall apply to Participants' PAYSOP Accounts. 19.6 Expenses. If brokerage commissions charged with respect to the purchase or sale of Company Stock of the PAYSOP exceed the lesser of the following amounts, they shall be paid by the Employer: (a) the sum of - (i) 10% of the first $100,000 of the dividends paid to the PAYSOP with respect to Company Stock during the Plan Year, and (ii) 5% of the amount of such dividends in excess of $100,000, or (b) $100,000. 19.7 Distributions. (a) All distributions of benefits from a Participant's PAYSOP Account shall be made at the same time and in the same manner outlined in Sections 5, 6, 7 and 8 of the ESOP. (b) No Company Stock allocated to a Participant's PAYSOP Account may be distributed before the end of the eighty-fourth (84th) month beginning after the Adjustment Date as of which such Company Stock is allocated to such PAYSOP Account, except in the event of his retirement, disability, death or other termination of service. This eighty-four (84) month restriction shall not apply in the case of certain divisive corporate reorganizations, as provided in Section 409(d)(2) and (3) of the Code. 19.8 Future of the Plan. The PAYSOP may be amended or terminated by the Company in accordance with the provisions of Section 21. The PAYSOP may be amended or terminated without there being an amendment or termination of the ESOP. The Employer specifically reserves the right to amend the PAYSOP retroactively in order to satisfy the applicable requirements of Sections 401(a) and 409 of the Code. SECTION 20 QUALIFIED DOMESTIC RELATIONS ORDERS DEFINITIONS 20.1 Domestic Relations Order. Any judgment, decree, or order (including approval of a property settlement agreement) that relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of a Participant, made pursuant to a state domestic relations law, including a community property law. 20.2 Alternate Payee. Any spouse, former spouse, child or other dependent of a Participant who is recognized by a Qualified Domestic Relations Order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to a Participant. 20.3 Qualified Domestic Relations Order. A Domestic Relations Order as described in Section 414(p) of the Code which: (a) Creates or recognizes the existence of an Alternate Payee's right to, or assigns to an Alternate Payee the right to, receive all or a portion of the benefits payable with respect to a Participant under the Plan; and (b) Clearly specifies the following: (i) the name and last known mailing address (if available) of the Participant and each Alternate Payee to which the order relates (unless the Plan Administrator has reason to know such addresses independently); (ii) the amount or percentage of the Participant's benefits to be paid to an Alternate Payee or the manner in which the amount is to be determined; and (iii) the number of payments or period for which payments are required. A Qualified Domestic Relations Order does not include an order which: (a) requires the Plan to provide any type or form of benefit, or any option, not otherwise provided under the Plan; (b) requires the Plan to provide increased benefits, i.e., provides for the payment of benefits in excess of the benefits to which the Participant would be entitled in the absence of the order; or (c) requires the payment of benefits to an Alternate Payee that are required to be paid to another Alternate Payee under a previously existing Qualified Domestic Relations Order. PROCEDURES 20.4 Notice. Upon receipt of a Domestic Relations Order, the Plan Administrator shall promptly notify the Participant and any Alternate Payee of receipt of the order and of the Plan's procedures for determining whether the order is a Qualified Domestic Relations Order. 20.5 Determination of Qualification. Within a reasonable period of time after receipt of the order (as defined in regulations to be prescribed by the Secretary of Labor), the Plan Administrator shall determine whether the order is qualified and notify the Participant and any Alternate Payee of such determination. 20.6 Deferral of Payment. During any time period during which the issue of whether a Domestic Relations Order is qualified is being determined, any amount which would be payable pursuant to the terms of the order shall be deferred and the amounts so payable will be segregated into a separate account. 20.7 Payment after Deferral. If, within eighteen (18) months after payment is deferred in accordance with Section 20.6, the Plan Administrator determines that the Domestic Relations Order is qualified, the amounts segregated into the separate accounts, plus earnings thereon, shall be paid to the Alternate Payee(s) specified in the order, in accordance with the terms of the order (subject, however, to the provisions of Code Section 414 (p), this Section 20 and other applicable provisions of the Plan). 20.8 Payments after Eighteen Months. If, after eighteen (18) months have elapsed after the deferral of benefits pursuant to Section 20.6, the Plan Administrator determines that the order is qualified, the Plan Administrator shall make payments pursuant to the order; however, such payments shall be made prospectively only, and any amounts segregated into the special account for periods before the determination that the order is qualified shall be paid to the person or persons who would have received the amounts if the order had not been issued. Neither the Plan, nor the Plan Administrator, shall be liable for payments to any Alternate Payee for any period before the order is determined to be qualified. 20.9 Payments Under Qualified Domestic Relations Order. Payments may be made to an Alternate Payee prior to, coincident with, or after the Participant's termination of employment if made pursuant to a Qualified Domestic Relations Order. A distribution to an Alternate Payee may be made out of a Participant's Account on a date coincident with the Participant's "earliest retirement age," defined as the earlier of (i) the date on which the Participant is entitled to a distribution under the Plan, or (ii) the later of (A) the date the Participant attains age 50, or (B) the earliest date on which the Participant could begin receiving benefits under the Plan if he had separated from service. In addition, this Plan specifically authorizes distributions to an Alternate Payee under a Qualified Domestic Relations Order prior to the Participant's attainment of the earliest retirement age (as defined above and in Section 414(p) of the Code) but only if: (1) the order specifies distribution at the earlier date or permits an agreement between the Plan and the Alternate Payee authorizing an earlier distribution; and (2) the Alternate Payee consents to a distribution prior to the Participant's earliest retirement age if the present value of the Alternate Payee's benefits under the Plan exceeds $5,000. Nothing in this Section 20 shall provide a Participant with a right to receive a distribution at a time not otherwise permitted under the Plan, nor shall it provide the Alternate Payee with a right to receive a form of payment not permitted under the Plan. 20.10. Non-qualification. If the Plan Administrator determines that the order is not qualified, or if eighteen (18) months have expired since deferral of benefits, the Plan Administrator shall pay the amounts segregated pursuant to Section 20.6 above to the person or persons who would have received the amounts if the order had not been issued. 20.11 Effective Dates. The provisions of this Section 20 shall be effective for orders issued on or after January 1, 1985; however, the Plan Administrator may treat any order issued before such date as a Qualified Domestic Relations Order if it otherwise meets the requirements of this Section 20. Additionally, the Plan Administrator shall treat a Domestic Relations Order received before January 1, 1985 as a Qualified Domestic Relations Order to the extent payments are being made pursuant to the order. SECTION 21 AMENDMENT AND TERMINATION OF PLAN; ASSIGNMENT OF BENEFITS 21.1 Amendment. The Employer shall have the right at any time, and from time to time, to amend, in whole or in part, any or all of the provisions of the Plan. However, no such amendment shall authorize or permit any part of a Trust fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to purposes other than for the exclusive benefit of the Participants or their beneficiaries or estates. Any such amendment shall become effective upon the adoption thereof by an appropriate written instrument executed by order of the Board of Directors or upon such later date as may be specified in such instrument provided that any amendment affecting the powers and duties of the Trustee shall not be effective until the date it is accepted in writing by the Trustee. No amendment to the Plan shall be effective to eliminate or restrict an optional form of benefit. The preceding sentence shall not apply to a Plan amendment that eliminates or restricts the ability of a Participant to receive payment of his or her Account balance under a particular optional form of benefit if the amendment satisfies the conditions in (1) and (2) below: (1) The amendment provides a single-sum distribution form that is otherwise identical to the optional form of benefit eliminated or restricted. For purposes of this condition (1), a single-sum distribution form is otherwise identical only if it is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the Participant) except with respect to the timing of payments after commencement. (2) The amendment is not effective unless the amendment provides that the amendment shall not apply to any distribution with an annuity starting date earlier than the earlier of: (i) the 90th day after the date the Participant receiving the distribution has been furnished a summary that reflects the amendment and that satisfies the ERISA requirements at 29 CFR 2520.104b-3 relating to a summary of material modifications or (ii) the first day of the second Plan Year following the Plan Year in which the amendment is adopted. 21.2. Termination; Discontinuance of Contributions. The Employer shall have the right at any time to terminate this Plan. Such termination shall be effective upon execution by the Employer of an appropriate instrument terminating the Plan as authorized by the Board of Directors or upon such later date as may be specified in such instrument. A copy of such instrument shall be delivered to the Trustee. Upon termination or partial termination of the Plan by any method, the Accounts of all Participants shall become fully vested and the Plan Administrator shall direct the Trustee to distribute all assets remaining in the Plan to Participants, their beneficiaries or estates in the ratio of the Participants' Account balances in the Plan. In the event the Employer completely discontinues contributions for a fixed or indeterminate period, but without terminating this Plan, the Accounts of Participants shall be completely vested and nonforfeitable at the values determined by the Trustee as of the close of the year in which contributions have been suspended, and all adjustments in Participant's Accounts thereafter made under the terms of the Plan and Trust with respect to the amounts so vested shall similarly be completely vested in favor of each Participant but no distribution shall be made of any Account except on actual termination of the Plan or the occurrence of any of the events stated in Sections 5, 6, and 7 and then only in the manner provided in such Sections. 21.3. Assignment of Benefits. No benefit or interest available hereunder will be subject to assignment or alienation, either voluntarily or involuntarily. The interest of each Participant or beneficiary shall be held subject to the maximum restraint on alienation permitted or required by applicable Louisiana or Federal law. The preceding sentences shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant pursuant to a Domestic Relations Order, unless such order is determined to be a Qualified Domestic Relations Order, as defined in Section 414(p) of the Code. THUS DONE AND SIGNED on the day first above shown, in the presence of the undersigned competent witnesses, who hereunto sign their names with the said appearers and me, Notary after reading of the whole. WITNESSES: CENTURYTEL, INC. /s/ Sandra Post /s/ R. Stewart Ewing, Jr. _________________________________ By:____________________________ R. Stewart Ewing, Jr. Executive Vice-President /s/ Linda Vaughn and Chief Financial Officer _________________________________ /s/ G. Robert Collier, Jr. ____________________________ NOTARY PUBLIC

                                                                 Exhibit 10.1(a)
                                AMENDMENTS TO THE
                                CENTURYTEL, INC.
                          EMPLOYEE STOCK OWNERSHIP PLAN

STATE OF LOUISIANA

PARISH OF OUACHITA

         BE IT KNOWN, that on this 31st day of December, 2002, before me, a
Notary Public, duly commissioned and qualified in and for the Parish of
Ouachita, State of Louisiana, therein residing, and in the presence of the
undersigned witnesses:

         PERSONALLY CAME AND APPEARED:
         CENTURYTEL,  INC., represented herein by its Executive Vice-President
and Chief Financial Officer, R. Stewart Ewing, Jr., as Plan Sponsor, which
hereby executes the following amendments to the CenturyTel, Inc. Employee Stock
Ownership Plan:

         1.   Preamble:

         "These amendments to the Plan are adopted to reflect certain provisions
         of the Economic Growth and Tax Relief Reconciliation Act of 2001
         ("EGTRRA"). These amendments are intended to constitute good faith
         compliance with the requirements of EGTRRA and are to be construed in
         accordance with EGTRRA and guidance issued thereunder. Except as
         otherwise provided herein, each amendment shall be effective as of the
         first day of the first Plan Year beginning after December 31, 2001."

         2.   Section 4.12(d) is hereby amended to read as follows:

         "(d) Defined contribution dollar limitation: $30,000, as adjusted under
         Code Section 415(d). For Limitation Years beginning after December 31,
         2001, the limitation shall be $40,000, as adjusted for increases in the
         cost-of-living under Section 415(d) of the Code."

         3.   The first paragraph of Section 4.12(k) is hereby amended to read
         as follows:

         "(k) Maximum permissible amount: The maximum annual addition that may
         be contributed or allocated to a Participant's Account under the Plan
         for any Limitation Year shall not exceed the lesser of:

         (i)  The defined contribution dollar limitation, or

         (ii) Twenty-five percent (25%) of the Participant's compensation
              for the Limitation Year. For Plan Years beginning after
              December 31, 2001, this percentage shall be one hundred
              percent (100%)."

         4.   Insert the following as the fifth paragraph of Section 1.7:

         "For Plan Years beginning after December 31, 2001, the annual
         compensation of each Participant taken into account in determining
         allocations for any Plan Year beginning after December 31, 2001, shall
         not exceed $200,000 as adjusted for cost-of-living increases in
         accordance with Code Section 401(a)(17)(B). Annual compensation means
         compensation during the Plan Year or such other consecutive 12-month
         period over which compensation is otherwise determined under the Plan
         (the determination period). The cost-of-living adjustment in effect for
         a calendar year applies to annual compensation for the determination
         period that begins with or within such calendar year."

         5.   Insert the following as the second paragraph of Section 16.1:

         "For Plan Years beginning after December 31, 2001, any Employee or
         former Employee (including any deceased Employee) who at any time
         during the Plan Year that includes the determination date was an
         officer of the Employer having annual compensation greater than
         $130,000 (as adjusted under Code Section 416(i)(1) for Plan Years
         beginning after December 31, 2002), a 5-percent owner of the Employer,
         or a 1-percent owner of the Employer having annual compensation of more
         than $150,000. For this purpose, annual compensation means compensation
         within the meaning of Code Section 415(c)(3). The determination of who
         is a Key Employee will be made in accordance with Code Section
         416(i)(1) and the applicable regulations and other guidance of general
         applicability issued thereunder."

         6.   Insert the following as the second paragraph of Section 16.5(c):

         "For Plan Years beginning after December 31, 2001, for purposes of (a)
         and (b), above, the provisions of this paragraph shall apply. The
         present value of accrued benefits and the amounts of account balances
         of an Employee as of the determination date shall be increased by the
         distributions made with respect to the Employee under the plan and any
         plan aggregated with the Plan under Code Section 416(g)(2) during the
         1-year period ending on the determination date. The preceding sentence
         shall also apply to distributions under a terminated plan which, had it
         not been terminated, would have been aggregated with the Plan under
         Code Section 416(g)(2)(A)(i). In the case of a distribution made for a
         reason other than severance from employment, death, or disability, this
         provision shall be applied by substituting `5-year period' for `1-year
         period.' The accrued benefits and accounts of any individual who has
         not performed services for the Employer during the 1-year period ending
         on the determination date shall not be taken into account."

         7.   Insert the following as the second paragraph of Section 7.6(b)(i):

         "For distributions made after December 31, 2001, a portion of a
         distribution shall not fail to be an eligible rollover distribution
         merely because the portion consists of after-tax employee contributions
         which are not includable in gross income. However, such portion may be
         transferred only to an individual retirement account or annuity
         described in Code Section 408(a) or (b), or to a qualified defined
         contribution plan described in Code Section 401(a) or 403(a) that
         agrees to separately account for amounts so transferred, including
         separately accounting for the portion of such distribution which is
         includable in gross income and the portion of such distribution which
         is not so includable."

         8.   Insert the following as the second paragraph of Section 7.6
         (b)(ii):

         "For distributions made after December 31, 2001, an eligible retirement
         plan shall also mean an annuity contract described in Code Section
         403(b) and an eligible plan under Code Section 457(b) which is
         maintained by a state, political subdivision of a state, or any agency
         or any instrumentality of a state or political subdivision of a state
         and which agrees to separately account for amounts transferred into
         such plan from this Plan. The definition of eligible retirement plan
         shall also apply in the case of a distribution to a surviving spouse,
         or to a spouse or former spouse who is the alternate payee under a
         qualified domestic relations order, as defined in Code Section 414(p)."

         9.   Insert the following at the end of Section 7.2(a):

         "For purposes of this Section, and Section 7.3, the value of a
         Participant's nonforfeitable account balance shall be determined
         without regard to that portion of the account balance that is
         attributable to rollover contributions (and earnings allocable thereto)
         within the meaning of Code Sections 402(c), 403(a)(4), 403(b)(8),
         408(d)(3)(A)(ii) and 457(e)(16). If the value of the Participant's
         nonforfeitable account balance as so determined is $5,000 or less, the
         Plan may immediately distribute the Participant's entire nonforfeitable
         account balance."

         10.  Section 1.7 is amended by inserting the following as the last
         paragraph thereof:

         "For Plan Years beginning on and after January 1, 2001, for purposes of
         the definition of compensation contained in this Section 1.7, and
         Sections 1.17, 1.19(b), 4.12(b) and 16.8 of the Plan, compensation paid
         or made available during such years shall include elective amounts that
         are not includable in the gross income of the Employee by reason of
         Code Section 132(f)(4)."


         THUS DONE AND SIGNED on the day first above shown, in the presence of
the undersigned competent witnesses, who hereunto sign their names with the said
appearer and me, Notary, after reading of the whole.

WITNESSES:                                   CENTURYTEL, INC.


/s/ Linda Vaughn                                 /s/ R. Stewart Ewing, Jr.
_________________________________            BY:________________________________
                                                  R. Stewart Ewing, Jr.
                                                  Executive Vice-President
/s/ Linda Reeves                                  and Chief Financial Officer
_________________________________



                     _____________________________________
                               NOTARY PUBLIC


                                                                 Exhibit 10.1(b)

                 CENTURYTEL, INC. DOLLARS & SENSE PLAN AND TRUST

               As Amended and Restated Effective September 1, 2000


         CenturyTel, Inc. (the "Company") previously established the CenturyTel,
Inc. Dollars & Sense Plan (the "Plan"), for the exclusive benefit of eligible
employees of the Company and its participating affiliates. The Plan is intended
to constitute a qualified profit sharing plan, as described in Code Section
401(a), which includes a qualified cash or deferred arrangement, as described in
Code Section 401(k). Effective July 1, 1993, the San Marcos Telephone Company,
Inc. and SM Telecorp Companies Retirement Plan was merged into the Plan.
Effective January 10, 1998, assets from the PacifiCorp K Plus Employee Savings
Plan attributable to participants thereunder who immediately prior to the date
of transfer were employees of Pacific Telecom, Inc. were transferred to the
Plan.

         This amendment and restatement hereby effectuates a merger into this
Plan of the CenturyTel, Inc. Frozen Savings Plan, previously the Universal
Telephone, Inc. Employees' Savings Plan, originally effective September 1, 1986,
and amended and restated, and renamed as the CenturyTel, Inc. Frozen Savings
Plan, effective October 1, 1997.

         The provisions of the Plan and Trust relating to the Trustee constitute
the trust agreement which is entered into by and between CenturyTel, Inc. and T.
Rowe Price Trust Company. This amendment and restatement also serves to remove
Merrill Lynch Trust Company, FSB as trustee and to appoint T. Rowe Price Trust
Company as trustee. The Trust is intended to be tax exempt, as described in Code
Section 501(a).

         The Plan is intended to comply with the qualification requirements of
the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA),
the Uruguay Round Agreements Act (GATT), the Small Business Job Protection Act
of 1996 (SBJPA), the Taxpayer Relief Act of 1997 (TRA `97), and the
Restructuring and Reform Act of 1998 (RRA `98), and is intended to comply in
operation therewith. To the extent that the Plan, as set forth below, is
subsequently determined to be insufficient to comply with such requirements and
any regulations issued, the Plan shall later be amended to so comply.

         The Plan constitutes an amendment and restatement of the CenturyTel,
Inc. Dollars & Sense Plan effective September 1, 2000, which was originally
established effective as of May 1, 1986, and its related trust agreement.

         The CenturyTel, Inc. Dollars & Sense Plan and Trust, as set forth in
this document, is hereby amended and restated effective as of September 1, 2000.
The Plan and Trust were last restated generally effective January 1, 1998.


                                    ARTICLE I

                                   DEFINITIONS

         1.1   Accrued Benefit. The balance in a Participant's or Beneficiary's
account, including contributions, forfeitures, income, expenses, gains and
losses (whether or not realized) allocated or attributable thereto, which
account shall consist of its pro rata proportion of all commingled Trust assets
or any Trust assets separately earmarked therefor. Said account balance shall
be determined as of the most recent Valuation Date. Each Accrued Benefit shall
be divided into one or more of the following subaccounts, to the extent
applicable:

         (a)      Additional Match Account;
         (b)      Elective Deferral Account;
         (c)      Employer Match Account;
         (d)      ESOP Transfer Account;
         (e)      Frozen After-Tax Account;
         (f)      Frozen Other Employer Account;
         (g)      Frozen Pre-Tax Account;
         (h)      Frozen Qualified Nonelective Account;
         (i)      Frozen Rollover Account;
         (j)      Prior Match Account;
         (k)      Qualified Non-Elective Contribution Account;
         (l)      Qualified Matching Contribution Account;
         (m)      Rollover/Transfer Account; and
         (n)      Voluntary After-Tax Account.

The foregoing accounts, which are designated as functional accounts, are derived
from the source of the funds contributed thereto.

         1.2   Active Participant.  Any Participant on whose behalf
contributions are being made to the Plan.

         1.3   Additional Match Account. The portion of a Participant's Accrued
Benefit which consists of Additional Match Contributions made to the Plan for
the Plan Year by the Employer and, if applicable, amounts transferred from the
Predecessor Plans as set forth on Exhibit A.

         1.4   Additional Match Contributions.  Matching Contributions made
to the Plan for the Plan Year by the Employer pursuant to Section 3.2(b)
of the Plan.

         1.5   Administrator or Plan Administrator.  The person, persons or
entity designated by the Employer pursuant to Article XII to administer and
operate the Plan.


         1.6   Affiliated Employer. The Employer and any corporation which is a
member of a controlled group of corporations (as defined in Section 414(b) of
the Code) which includes the Employer, any trade or business (whether or not
incorporated) which is under common control (as defined in Section 414(c) of the
Code) with the Employer, any organization (whether or not incorporated) which is
a member of an affiliated service group (as defined in Section 414(m) of the
Code) which includes the Employer, and any other entity required to be
aggregated with the Employer pursuant to regulations under Section 414(o) of the
Code.

         1.7   Beneficiary. The person or persons so designated by the
Participant to receive his benefits under the Plan in the event of his death.

         1.8   Code.  The Internal Revenue Code of 1986, as amended.


         1.9   Company.  CenturyTel, Inc. or any successor by merger, purchase
or otherwise.

         1.10  Company Stock.  Shares of voting common stock, $1.00 par value,
issued by the Company.


         1.11  Compensation.  All of each Participant's W-2 earnings, including
any amount which is contributed by the Employer pursuant to a salary reduction
agreement and which is not includible in the gross income of the Employee under
Section 125, 402(e)(3), 402(h)(1)(B), 403(b), 408(p)(2)(A)(i) or 457 of the
Code, and excluding (i) overtime, (ii) completion bonuses and Christmas bonuses,
(iii) restricted stock awards under the Company's Restricted Stock Plan or Key
Employee Incentive Compensation Plan, (iv) severance pay or termination
allowance in any form, and (v) reimbursements or other expense allowances, cash
and non-cash fringe benefits, moving expenses, deferred compensation and welfare
benefits. For any Self-Employed Individual covered under the Plan, Compensation
will mean Earned Income. Compensation shall include only that Compensation which
is actually paid to the Participant during the applicable period. Except as
provided elsewhere in this Plan, the applicable period shall be the Plan Year.

         The annual Compensation of each Participant taken into account under
the Plan for any year shall not exceed $170,000, as adjusted for Cost-of-Living
Increases pursuant to Code Sections 401(a)(17) and 415(d). The Cost-of-Living
Increase in effect for a calendar year applies to any determination period
beginning in such calendar year.

         If a determination period consists of fewer than twelve (12) months,
the annual compensation limit is an amount equal to the otherwise applicable
annual compensation limit multiplied by a fraction, the numerator of which is
the number of months in the short determination period, and the denominator of
which is twelve (12).

         For purposes of determining Highly Compensated Employees and Key
Employees, and for purposes of Section 5.4(j), Compensation for the entire Plan
Year shall be used. For purposes of determining ADP and ACP, Compensation shall
be limited to amounts paid to a Covered Employee while a Participant.

         1.12  Cost of Living Increase. An automatic increase (without necessity
of Plan amendment) in a dollar value set forth or described in the Plan, for the
purpose of reflecting increases in the cost of living to the extent prescribed
in or pursuant to regulations under Section 415(d) of the Code.

         1.13  Covered  Employee.  Any Employee eligible to participate in th
Plan pursuant to Article II who is not excluded from participation pursuant to
Section 2.2.

         1.14  Distribution Date.  The date on  which a Participant reaches
retirement, dies while in the active employ of the Employer, becomes totally
and permanently disabled, or otherwise terminates employment.

         1.15  Earned Income. The annual net earnings from self-employment in
the trade or business  with respect to which the Plan is  established,  provided
that personal services of the individual are a material income-producing factor.
Net earnings  will be determined  without  regard to items not included in gross
income and the deductions  allocable to such items.  Net earnings are reduced by
contributions by the Employer to a qualified plan to the extent deductible under
Section  404 of the Code.  Earned  Income will in all events be defined in a way
which  complies  with  Section  401(c)(2)  of  the  Code  and  other  applicable
provisions of the Code.

         Net earnings shall be determined with regard to the deduction allowed
to the Employer by Section 164(f) of the Code for taxable years beginning after
December 31, 1989.

         1.16  Effective  Date.  The effective date of this amendment and
restatement shall be September 1, 2000.

         1.17  Elective Deferral Account. The portion of a Participant's Accrued
Benefit which consists of Elective Deferrals made to the Plan for the Plan Year
by the Employer on behalf of the Participant and, if applicable, amounts
transferred from the Predecessor Plans as set forth on Exhibit A.

         1.18  Elective Deferrals. Contributions made to the Plan for the Plan
Year by the Employer at the election of the Participant in lieu of cash
compensation, pursuant to Section 3.1 of the Plan, including contributions made
pursuant to a salary reduction agreement.

         1.19  Employee. Any person, including a Self-Employed Individual,
employed by the Employer maintaining the Plan or of any other Employer required
to be aggregated with such Employer under Section 414(b), (c), (m) or (o) of the
Code and shall include Leased Employees within the meaning of Section 414(n)(2)
or (o) of the Code. Notwithstanding the foregoing, if such Leased Employees
constitute less than twenty percent of the Employer's non-highly compensated
work force within the meaning of Section 414(n)(5)(C)(ii) of the Code, the term
"Employee" shall not include those Leased Employees covered by a plan described
in Section 414(n)(5) of the Code unless otherwise provided by the terms of the
Plan.

         1.20  Employer.  The Company, any successor to the Company and any
Affiliated Employer which is a Participating Employer under the Plan.

         1.21  Employer Contribution Accounts.  The portion of a Participant's
Accrued Benefit consisting of his Employer Match Account and his Additional
Match Account.

         1.22  Employer Match Account.  The portion of a Participant's Accrued
Benefit which consists of Employer Match Contributions made to the Plan for
the Plan Year by the Employer.

         1.23  Employer Match Contributions.  Matching Contributions made to
the Plan for the Plan Year by the Employer pursuant to Section 3.2(a)
of the Plan.

         1.24  Entry Date. The first day on which a Covered Employee elects to
 participate in the Plan.


         1.25  ERISA. The Employee Retirement Income Security Act of 1974, as
amended.

         1.26  ESOP. The CenturyTel, Inc. Employee Stock Ownership Plan and
Trust.

         1.27  ESOP Transfer Account. The portion of a Participant's Accrued
Benefit which consists of amounts transferred to the Plan from the CenturyTel,
Inc. Employee Stock Ownership Plan and Trust pursuant to diversification
elections with respect to such plan under Section 401(a)(28) of the Code.

         1.28  Family Member.  An Employee's spouse and lineal ascendants or
descendants and the spouses of such lineal ascendants or descendants.

         1.29  Frozen Accounts.  Collectively, a Participant's Frozen After-Tax
Account, Frozen Other Employer Account, Frozen Pre-Tax Account, Frozen
Qualified Nonelective Account, and Frozen Rollover Account.

         1.30  Frozen After-Tax Account. The portion of a Participant's Accrued
Benefit which consists of amounts transferred from the Frozen Predecessor Plans
as set forth on Exhibit B.

         1.31  Frozen Other Employer Accounts. The portion of a Participant's
Accrued Benefit which consists of amounts attributable to "Employer Contribution
Account" and "Merger Account" amounts as such terms were defined under the
Frozen Plan prior to October 1, 1997 and amounts transferred from the Frozen
Predecessor Plans as set forth on Exhibit B.

         1.32  Frozen Plan. The CenturyTel, Inc. Frozen Savings Plan, which is
hereby merged into this Plan pursuant to this amendment and restatement of the
Plan.

         1.33  Frozen Predecessor Plans.  Plans which were merged, in whole or
in part, into the Frozen Plan, which were:

               (a)  Kingsley Telephone Company Retirement Savings Plan, a
         qualified profit sharing plan, as described in Code Section 401(a),
         which included a qualified cash or deferred arrangement, as described
         in Code Section 401(k), originally effective January 1, 1988 and merged
         into the Frozen Plan effective on or about October 1, 1997;

               (b)  Lake Dallas Telephone Company, Inc. 401(k) Profit Sharing
         Plan, a qualified profit sharing plan, as described in Code Section
         401(a), which included a qualified cash or deferred arrangement, as
         described in Code Section 401(k), originally effective January1, 1985
         and merged into the Frozen Plan effective on or about October 1, 1997;
         and

               (c)  Savings Plan for Employees of the National Telephone
         Cooperative Association and its Member Systems, a qualified profit
         sharing plan, as described in Code Section 401(a), which included a
         qualified cash or deferred arrangement, as described in Code Section
         401(k), originally effective September 1, 1977 and merged into the
         Frozen Plan, in part, effective on or about October 1, 1997.

         1.34  Frozen Pre-Tax Account. The portion of a Participant's Accrued
Benefit which consists of amounts attributable to "Employee Deferral Account"
amounts as such term was defined under the Frozen Plan prior to October 1, 1997
and amounts transferred from the Frozen Predecessor Plans as set forth on
Exhibit B.

         1.35  Frozen Qualified Nonelective Account. The portion of a
Participant's Accrued Benefit which consists of amounts transferred from the
Frozen Predecessor Plans as set forth on Exhibit B.

         1.36  Frozen Rollover Account. The portion of a Participant's Accrued
Benefit which consists of amounts attributable to "Rollover Account" amounts as
such term was defined under the Frozen Plan prior to October 1, 1997 and amounts
transferred from the Frozen Predecessor Plans as set forth on Exhibit B.

         1.37  Highly Compensated Employee.  The term Highly Compensated
Employee includes active Highly Compensated Employees and former Highly
Compensated Employees.

         An active Highly Compensated Employee includes any Employee who:

                     (1)   was a five-percent (5%) owner at any time during the
               year or the  preceding year, or

                     (2)   for the preceding year had compensation within
               the meaning of Section 415(c)(3) of the Code from the Employer
               in excess of $80,000. The $80,000 amount is adjusted at the
               same time and in the same manner as under Code Section 415(d),
               except that the base period is the calendar quarter ending
               September 30, 1996. The applicable year of the Plan for which
               a determination is being made is called a determination year
               and the preceding twelve (12) month period is called a
               look-back year.

         A former Highly Compensated Employee is determined based on the rules
applicable to determining highly compensated employee status as in effect for
the determination year, in accordance with Temp. Regulations Section
1.414(q)-1T, A-4, and Notice 97-45.

         1.38  Inactive Participant. Any Employee or former Employee who has
ceased to be an Active Participant and on whose behalf an account is maintained
under the Plan.

         1.39  Investment Options. Any regulated investment companies registered
under the Investment Company Act of 1940, any common trust fund or collective
investment fund of T. Rowe Price Associates, Inc. qualified under Sections 401
and 501 of the Code, and any other funding vehicle which the Employer permits
under the terms of the Plan. The initial Investment Options under the Plan are
as listed on Exhibit C. The Employer may change the available Investment Options
from time to time, by attaching a new Exhibit C hereto, without the necessity of
amending the Plan.

         1.40  Leased Employee. Any person (other than an Employee of the
recipient) who, pursuant to an agreement between the recipient and any other
person ("leasing organization"), has performed services for the recipient (or
for the recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full time basis for a period of at
least one (1) year, and such services are performed under primary direction by
the recipient employer.

         Any Leased Employee shall be treated as an Employee of the recipient
Employer. However, contributions or benefits provided by the leasing
organization which are attributable to Service performed for the recipient
Employer shall be treated as provided by the recipient Employer. The preceding
sentence shall not apply to any Leased Employee if Leased Employees do not
constitute more than twenty percent (20%) of the Employer's non-highly
compensated force and, if such Employee is covered by a money purchase pension
plan providing: (a) a nonintegrated Employer contribution rate of at least ten
percent (10%) of Compensation as defined in Section 415(c)(3) of the Code, but
including amounts contributed by the Employer pursuant to a salary reduction
agreement which are excludible from the Employee's gross income under Section
125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code, (b) full and immediate
vesting, and (c) each employee of the leasing organization (other than employees
who perform substantially all of their services for the leasing organization)
immediately participate in the plan. Item (c) shall not apply to any individual
whose compensation from the leasing organization in each Plan Year during the
4-year period ending with the Plan Year is less than $1,000.

         1.41  Matching Contributions. Contributions to the Plan made by the
Employer and allocated to a Participant's account by reason of the
Participant's Elective Deferrals.

         1.42  Net Profits.  Current and accumulated earnings of the Employer,
before federal and state taxes and contributions to this Plan or any other
qualified plan.

         1.43  Non-Highly Compensated Employee. An Employee of the Employer
who is neither a Highly Compensated Employee nor a Family Member.

         1.44  Normal Retirement Age.  Age fifty-five (55).

         1.45  Normal Retirement Date. The date on which a Participant attains
age fifty-five (55).

         1.46  Owner-Employee.  A sole proprietor, if the Employer is a sole
proprietorship, or a partner who owns either more than ten percent (10%) of the
capital interests or more than ten percent (10%) of the profits interest, if the
Employer is a partnership.

         1.47  Participant. Any Covered Employee of the Employer who has met the
eligibility requirements as specified in Article II.

         1.48  Participating Employer.  Any Affiliated Employer other than:

                           Spectra Communications Group, L.L.C.
                           Telephone USA of Wisconsin, L.L.C.
                           CenturyTel Security Systems, Inc.

         1.49  Plan. The retirement plan set forth herein as amended from time
to time.


         1.50  Plan Year.  The calendar year.


         1.51  Predecessor Plans.  Plans which were merged, in whole or in
part, into the Plan, which were:

               (a)   San Marcos Telephone Company, Inc. and SM Telecorp
         Companies Retirement Plan, a qualified profit sharing plan, as
         described in Code Section 401(a), which included a qualified cash or
         deferred arrangement, as described in Code Section 401(k), merged, in
         whole, into the Plan effective July 1, 1993; and

               (b)   PacifiCorp K Plus Employee Savings Plan, a qualified
         profit sharing plan, as described in Code Section 401(a), which
         included a qualified cash or deferred arrangement, as described in Code
         Section 401(k), merged, in part, into the Plan effective January 10,
         1998.

         1.52  Prior Match Account. The portion of a Participant's Accrued
Benefit which consists of amounts transferred from the Predecessor Plans as
set forth on Exhibit A.

         1.53  Qualified Matching Contribution Account.  The portion of a
Participant's  Accrued Benefit which consists of Qualified Matching
Contributions made to the Plan for the Plan Year by the Employer.

         1.54  Qualified Matching Contributions. Matching Contributions made by
the Employer and allocated to the Participant's account that the Participant may
not elect to receive in cash until distributed from the Plan, which are fully
vested when made, which are subject to the distribution restrictions as provided
in Article VI of this Plan, and which the Employer elects to treat as Qualified
Matching Contributions.


         1.55  Qualified Non-Elective Contribution Account.  The portion of a
Participant's  Accrued Benefit which consists of Qualified Non-Elective
Contributions made to the Plan for the Plan Year by the Employer.

         1.56  Qualified Non-Elective Contributions. Contributions (other than
Matching Contributions) made by the Employer and allocated to the Participant's
account that the Participant may not elect to receive in cash until distributed
from the Plan, which are fully vested when made, which are subject to the
distribution restrictions as provided in Article VI of said Plan, and which the
Employer elects to treat as Qualified Non-Elective Contributions.

         1.57  Rollover/Transfer Account. The portion of a Participant's Accrued
Benefit established in accordance with Section 3.5 of the Plan.

         1.58  Self-Employed Individual. An individual who has Earned Income for
the taxable year from the trade, business or partnership with respect to which
the Plan is established; also, an individual who would have had Earned Income
but for the fact the trade, business or partnership had no Net Profits for the
taxable year.

         1.59  Sponsor.  The Sponsor of this Plan shall be CenturyTel, Inc..

         1.60  Trust Agreement.  The agreement between the Employer and the
Trustee under which the assets of the Plan are held, administered and managed.

         1.61  Trustee.  The individual or corporate Trustee or Trustees under
the Trust Agreement as they may be constituted from time to time.

         1.62  Valuation Date.  The last day of each Plan Year and such other
dates as may be necessary for the proper administration of the Plan.

         1.63  Voluntary After-Tax Account. That portion of a Participant's
Accrued Benefit attributable to amounts transferred from the Predecessor Plans
as set forth on Exhibit A.

                                   ARTICLE II

                          ELIGIBILITY AND PARTICIPATION

         2.1   Active Participation.  Each Covered Employee shall be eligible
to participate in the Plan on the Entry Date coincident with or following the
date of employment of such Covered Employee.

         2.2   Exclusion of Certain Employees.  The following Employees are
excluded from participation in the Plan:

               (a)   Employees whose compensation and conditions of employment
         are covered by a collective bargaining agreement to which the Employer
         is a party unless the agreement calls for the Employee's participation
         in the Plan;

               (b)   Temporary Employees hired specifically to fill temporary
         or occasional needs;

               (c)   Employees who are non-resident aliens and who receive no
         Earned Income from the Employer which constitutes income from sources
         within the United States; and

               (d)   Employees of any Affiliated Employer which is not a
         Participating Employer under the Plan.

         In the event an Employee who is not a member of the eligible class of
Employees becomes a member of the eligible class, such Employee shall be
eligible to participate immediately.

         In the event a Participant is no longer a member of an eligible class
of Employees and becomes ineligible to participate, such Employee shall be
eligible to participate immediately upon returning to an eligible class of
Employees.

         2.3   Re-employment. A former Participant shall become a Participant
immediately upon returning to the employ of the Employer if such former
Participant is a member of the eligible class of Employees when re-employed.

         2.4   Waiver of Participation. The Employer may grant a waiver of
participation to any Employee who so requests. Whether or not such waiver shall
be granted, and the terms and conditions (including duration) thereof, shall be
made in accordance with written and objective rules and shall be applied in a
uniform and nondiscriminatory manner. Notwithstanding the foregoing, any
Employee who has met the Plan's eligibility requirements shall be considered an
"Eligible Participant" for purposes of Sections 3.7 and 3.8 of the Plan.

                                   ARTICLE III

                                  CONTRIBUTIONS

         3.1   Elective Deferral Contributions.  Subject to the limitation on
Annual Additions as described in Article V of the Plan, for any Plan Year:

               (a)   Participant Election. A Participant may elect to defer, in
         the form of Employer contributions to the Plan on his behalf,
         Compensation that would otherwise be paid to him but for the deferral
         of such Compensation, in an amount expressed as a whole percentage from
         one percent (1%) to sixteen percent (16%) of his Compensation as he
         shall elect in writing on a form prescribed by the Employer. The
         Employer may change from time to time, in writing, without the
         necessity of amending the Plan, the minimum and maximum percentages of
         Compensation that a Participant can elect to defer hereunder. Such
         salary deferral contributions shall be accomplished through the direct
         reduction of Compensation in each payroll period during which the
         election is in effect. A Participant may elect to increase, decrease or
         discontinue his salary deferral contributions by submitting a written
         request to the Employer on a form prescribed by the Employer.

               The Employer shall pay to the Trustee all salary deferral
         contributions no later than fifteen (15) days after the end of the
         month which includes the last day of the payroll period for which such
         contributions were deducted. A separate account shall be established
         for each Participant and such Participant's salary deferral
         contributions, as adjusted for withdrawals thereof, investment gain and
         losses, and income or expenses, shall be credited to such account. A
         Participant shall at all times have a nonforfeitable interest in his
         Elective Deferral Account.

               (b)   Elective Deferrals. With respect to any taxable year, a
         Participant's Elective Deferrals are the sum of all Employer
         contributions made on behalf of such Participant pursuant to an
         election to defer under any qualified CODA as described in Section
         401(k) of the Code, any simplified employee pension or cash or deferred
         arrangement as described in Section 408(k)(b) of the Code, any SIMPLE
         IRA plan described in Section 408(p) of the Code, any eligible deferred
         compensation plan under Section 457 of the Code, any plan described
         under Section 501(c)(18) of the Code, and any Employer contributions
         made on the behalf of Participant for the purchase of an annuity
         contract under Section 403(b) of the Code pursuant to a salary
         reduction agreement. Elective Deferrals shall not include any deferrals
         properly distributed as excess Annual Additions.

               (c)   Limitation on Elective Deferrals. No Participant shall be
         permitted to have Elective Deferrals made under this Plan, or any other
         qualified plan maintained by the Employer, during any taxable year, in
         excess of the dollar limitation contained in Section 402(g) of the Code
         in effect at the beginning of such taxable year. Notwithstanding any
         other provisions of the Plan, the Employer may distribute to the
         Participant, not later than April 15 following the calendar year to
         which the deferral is attributable, any deferral in excess of the
         aforesaid limit together with any income (or minus any loss) allocable
         thereto. A Participant is deemed to notify the Plan Administrator of
         any Excess Elective Deferrals that arise by taking into account only
         those Elective Deferrals made to this Plan and any other plans of this
         Employer. Excess Deferrals that are distributed after April 15 are
         includible in the Participant's gross income in both the taxable year
         in which deferred and the taxable year in which distributed. The
         Employer may also distribute to the Participant any deferrals, together
         with any income allocable thereto which the Participant has advised the
         Employer (in writing by March 1) represent excess deferrals because of
         amounts deferred by the Participant during the preceding calendar year
         under any other plans or arrangements described in Section 401(i),
         408(k) or 403(b) of the Code.

               For purposes of the above, "Excess Elective Deferrals" shall
         mean those Elective Deferrals that are includible in a Participant's
         gross income under Section 402(g) of the Code to the extent such
         Participant's Elective Deferrals for a taxable year exceed the dollar
         limitation under such Code section. Excess Elective Deferrals shall be
         treated as Annual Additions under the Plan, unless such amounts are
         distributed no later than the first April 15 following the close of
         Participant's taxable year.

               Determination of income or loss: Excess Elective Deferrals
         shall be adjusted for any income or loss. The income or loss allocable
         to Excess Elective Deferrals is the income or loss allocable to the
         Participant's Elective Deferral Account for the taxable year multiplied
         by a fraction, the numerator of which is such Participant's Excess
         Elective Deferrals for the year and the denominator is the
         Participant's account balance attributable to Elective Deferrals
         without regard to any income or loss occurring during such taxable
         year.

         3.2   Employer Contributions.

               (a)   Employer Match Contributions. Subject to the limitation on
         Annual Additions as described in Article V of the Plan, for any Plan
         Year, the Employer shall contribute to the Plan on behalf of each
         eligible Participant in the form of a Matching Contribution, an amount
         equal to a percentage of such Participant's Elective Deferral
         Contributions as established by the Employer. The Employer Match
         Contribution to be made by the Employer for each period shall be equal
         to fifty-five percent (55%) of each Participant's Elective Deferrals,
         provided that no Employer Match Contribution shall be made based upon a
         Participant's Employee Deferrals in excess of six percent (6%) of his
         Compensation for such period. The percentage matching rate and
         percentage of considered Compensation as stated in the preceding
         sentence shall continue in effect until otherwise changed by resolution
         of the Employer's Board of Directors. Matching Contributions made on
         behalf of a Participant, as adjusted for withdrawals thereof,
         investment gain and losses, and income or expenses, shall be credited
         to such Participant's Employer Match Account. Any Matching
         Contributions made under this Section 3.2(a) on behalf of a Participant
         during the Plan Year, which are attributable to Excess Deferrals, shall
         be deemed forfeited.

         Employer Match Contributions shall be fully vested at all times.

               (b)   Additional Match Contributions. Subject to the limitation
         on Annual Additions as described in Article V of the Plan, for any Plan
         Year, the Employer may make an additional Matching Contribution to the
         Plan in such amount as the Employer may, in its discretion, determine.
         Any such Additional Match Contribution shall be made on behalf of each
         eligible Participant who was an Active Participant in the Plan at any
         time during the Plan for the Plan Year and who was an Employee on the
         last day of the Plan Year, and shall be allocated to each such eligible
         Participant's Additional Match Account in the same proportion as the
         Employer Match Contributions on behalf of such Participant bears to the
         Employer Match Contributions on behalf of all Participants. Additional
         Match Contributions made on behalf of a Participant, as adjusted for
         withdrawals thereof, investment gain and losses, and income or
         expenses, shall be credited to such Participant's Additional Match
         Account.

         Additional Match Contributions shall be fully vested at all times.

               (c)   Payment. All Employer contributions made pursuant to this
         Section 3.2 of the Plan shall become due on the last day in such Plan
         Year, unless actually paid prior thereto. The Employer shall pay to the
         Trustee all Employer contributions not later than the due date
         (including extensions) of the Employer's federal income tax return for
         the taxable year ending with or within the Plan Year.

               (d)   Qualified Matching Contributions. The Employer may make
         Qualified Matching Contributions to the Plan. A separate account shall
         be established for that portion of a Participant's Accrued Benefit
         attributable to such Qualified Matching Contributions and such account
         shall be adjusted for withdrawals thereof, and investment gain and
         losses and income or expenses allocable thereto. A Participant shall at
         all times have a nonforfeitable interest in his Qualified Matching
         Contributions Account.

               The Employer shall pay to the Trustee all Qualified Matching
         Contributions no later than thirty (30) days after the close of the
         Plan Year for which such contributions are deemed to be made, or such
         other time as provided in applicable regulations under the Code.

         3.3   Contribution Limitation. The Employer shall make all
contributions to the Plan without regard to current or accumulated  earnings and
profits for the taxable year or years ending with or within such Plan Year.  Not
withstanding the foregoing, the Plan shall continue to be designed to qualify as
a profit sharing plan for purposes of Sections 401(a),  402 and 417 of the Code.
In no event shall Employer contributions in the aggregate exceed fifteen percent
(15%) of all  Participants'  compensation as reportable on the Participants' IRS
Form W-2 or such greater amount deductible for federal income tax purposes under
Section 404 of the Code.

         3.4   Payroll Taxes. The Employer shall withhold from the Compensation
of each Participant, any FICA or other payroll taxes as the Employer determines
necessary with respect to salary deferral contributions.

         3.5   Rollovers and Transfers.

               (a)   A Covered Employee may pay over to the Trust an amount
         which constitutes a qualified rollover contribution under Section
         402(c) or 408(d)(3) of the Code.

               (b)   The Trustee may accept a direct transfer of funds,
         pursuant to Section 401(a)(31) of the Code from a plan which the
         Trustee reasonably believes to be qualified under Section 401(a) of the
         Code, in which a Covered Employee was a Participant.

               (c)   The Trustee may accept a transfer of funds from the ESOP
         pursuant to diversification elections of Participants under Section
         401(a)(28) of the Code.

               (d)   Any such rollover or transfer to the Plan shall constitute
         a part of the Covered Employee's Accrued Benefit under the Plan, shall
         be accounted for separately and shall be fully vested at all times.

         3.6   Average Actual Deferral Percentage Test Under Section 401(k) of
the Code.

               (a)   General Tests. Notwithstanding any other provisions in the
         Plan, for any Plan Year, the Employer shall be permitted to limit the
         amount which may be deferred by any Highly Compensated Employee (as
         defined in Article I of the Plan) to the extent necessary to ensure
         that the Plan satisfies one of the following tests:

                     (i)   The Average Actual Deferral Percentage for
               Eligible Participants who are Highly Compensated Employees for
               the Plan Year shall not exceed the Average Actual Deferral
               Percentage for Eligible Participants who are Non-Highly
               Compensated Employees for the Plan Year multiplied by 1.25; or

                     (ii)  the Average Actual Deferral Percentage for
               Eligible Participants who are Highly Compensated Employees for
               the Plan Year shall not exceed the Average Actual Deferral
               Percentage for Eligible Participants who are Non-Highly
               Compensated Employees for the Plan Year multiplied by two (2),
               provided that the Average Actual Deferral Percentage for
               Eligible Participants who are Highly Compensated Employees
               does not exceed the Average Actual Deferral Percentage for
               Eligible Participants who are Non-Highly Compensated Employees
               by more than two (2) percentage points.

               (b)   Definitions. For purposes of this Section 3.6 of the Plan,
         the following definitions shall apply:


                     (i)   Actual Deferral Percentage (ADP) shall mean, for
               a specified group of Participants for a Plan Year, the average
               of the ratio (calculated separated for each Participant in
               such group) of (1) the amount of Employer contributions
               actually paid over to the Trust on behalf of such Participant
               for the Plan Year to (2) the Compensation of the Participant
               while a Participant during such Plan Year. Employer
               contributions on behalf of any Participant shall include: (1)
               any Elective Deferrals made pursuant to the Participant's
               deferral election (including Excess Elective Deferrals of
               Highly Compensated Employees), but excluding (a) Excess
               Elective Deferrals of Non-Highly Compensated Employees that
               arise solely from Elective Deferrals made under the Plan or
               plans, of this Employer, and (b) Elective Deferrals that are
               taken into account in the Contribution Percentage Test
               (provided the ADP test is satisfied both with and without
               exclusion of these Elective Deferrals); and (2) at the
               election of the Employer, Qualified Non-Elective Contributions
               and Qualified Matching Contributions. For purposes of
               computing Actual Deferral Percentages, an Employee who would
               be a Participant but for the failure to make Elective
               Deferrals shall be treated as a Participant on whose behalf no
               Elective Deferrals are made.

                     (ii)  Average Actual Deferral Percentage shall mean
               the average (expressed as a percentage) of the Actual Deferral
               Percentages of the Eligible Participants in a group of either
               Highly Compensated Employees or Non-Highly Compensated
               Employees.

                     (iii) Eligible Participant shall mean any Employee of
               the Employer who is otherwise eligible under the Plan to have
               Elective Deferrals or Qualified Non-Elective Contributions
               allocated to his account for the Plan Year.

               (c)   Special Rules.  The following special rules shall apply for
         purposes of this Section 3.6:

                     (i)   A Participant is a Highly Compensated Employee
               for a particular Plan Year if he or she meets the definition
               of a Highly Compensated Employee in effect for that Plan Year.
               Similarly, a Participant is a Non-Highly Compensated Employee
               for a particular Plan Year if he or she does not meet the
               definition of a Highly Compensated Employee in effect for that
               Plan Year.

                     (ii)  The Actual Deferral Percentage for any Eligible
               Participant who is a Highly Compensated Employee for the Plan
               Year and who is eligible to have Elective Deferrals or
               Qualified Non-Elective Contributions or Qualified Matching
               Contributions allocated to his account under two or more
               plans, or arrangements, described in Section 401(k) of the
               Code that are maintained by the Employer or an Affiliated
               Employer shall be determined as if all such Elective
               Deferrals, Qualified Non-Elective Contributions and Qualified
               Matching Contributions were made under a single arrangement.
               If a Highly Compensated Employee participates in two or more
               cash or deferred arrangements that have different Plan Years,
               all cash or deferred arrangements ending with or within the
               same calendar year shall be treated as a single arrangement.
               Notwithstanding the foregoing, certain plans will be treated
               as separate if mandatorily disaggregated under regulations
               under Section 401(k) of the Code.

                     (iii) For purposes of determining the ADP test,
               Elective Deferrals, Qualified Non-Elective Contributions and
               Qualified Matching Contributions must be made before the last
               day of the 12-month period immediately following the Plan Year
               to which contributions relate.

                     (iv)  The Employer shall maintain records sufficient
               to demonstrate satisfaction of the ADP test and the amount of
               Qualified Non-Elective Contributions or Qualified Matching
               Contributions, or both, used in such test.

                     (v)   The determination and treatment of the Elective
               Deferrals, Qualified Non-Elective Contributions, Qualified
               Matching Contributions and Actual Deferral Percentage of any
               Participant shall satisfy such other requirements as may be
               prescribed by the Secretary of the Treasury.

                     (vi)  In the event that this Plan satisfies the
               requirements of Section 401(k), 401(a)(4) or 410(b) of the
               Code only if aggregated with one or more other plans, or if
               one or more other plans satisfy the requirements of such
               sections of the Code only if aggregated with this Plan, then
               this Section shall be applied by determining the ADP of
               Employees as if all such plans were a single plan. Plans may
               be aggregated in order to satisfy Section 401(k) of the Code
               only if they have the same Plan Year and use the same ADP
               testing method.

               (d)   Distribution of Excess Contributions. Notwithstanding any
         other provisions of this Plan, Excess Contributions, plus any income
         and minus any loss allocable thereto, shall be distributed no later
         than the last day of each Plan Year to Participants to whose accounts
         such Excess Contributions were allocated for the preceding Plan Year.
         If such excess amounts are distributed more than 2 1/2 months after the
         last day of the Plan Year in which such excess amounts arose, a ten
         percent (10%) excise tax will be imposed on the Employer maintaining
         the Plan with respect to such amounts. Excess Contributions are
         allocated to the Highly Compensated Employees with the largest amounts
         of Employer contributions taken into account in calculating the ADP
         test for the year in which the excess arose, beginning with the Highly
         Compensated Employee with the largest amount of such Employer
         contributions and continuing in descending order until all the Excess
         Contributions have been allocated. For purposes of the preceding
         sentence, the "largest amount" is determined after distribution of any
         Excess Contributions.

               Excess Contributions (including the amounts recharacterized)
         shall be treated as Annual Additions under the Plan.

               Determination of Income or Loss: Excess Contributions shall be
         adjusted for any income or loss up to the date of distribution. The
         income or loss allocable to Excess Contributions allocated to each
         Participant is the income or loss allocable to the Participant's
         Elective Deferral Account (and, if applicable, the Qualified
         Non-Elective Contribution Account or the Qualified Matching
         Contribution Account or both) for the Plan Year up to the date of
         distribution multiplied by a fraction, the numerator of which is such
         Participant's Excess Contributions for the year and the denominator is
         the Participant's account balance attributable to Elective Deferrals
         (and Qualified Non-Elective Contributions or Qualified Matching
         Contributions, or both, if any of such contributions are included in
         the ADP test) without regard to any income or loss occurring during
         such Plan Year.

               Accounting for Excess Contributions: Excess Contributions
         allocated to a Participant shall be distributed from the Participant's
         Elective Deferral Account and Qualified Matching Contribution Account
         (if applicable) in proportion to the Participant's Elective Deferrals
         and Qualified Matching Contributions (to the extent used in the ADP
         test) for the Plan Year. Excess Contributions shall be distributed from
         the Participant's Qualified Non-Elective Contribution Account only to
         the extent that such Excess Contributions exceed the balance in the
         Participant's Elective Deferral Account and Qualified Matching
         Contribution Account.

               For purposes of this Section, "Excess Contributions" shall
         mean, with respect to any Plan Year, the excess of:

                     (i)   The aggregate amount of Employer Contributions
               actually taken into account in computing the ADP of Highly
               Compensated Employees for such Plan Year, over

                     (ii)  The maximum amount of such contributions
               permitted by the ADP test (determined by hypothetically
               reducing contributions made on behalf of Highly Compensated
               Employees in order of the ADPs, beginning with the highest of
               such percentages).

               (e)   Qualified Non-Elective Contributions. In lieu of
         distributing Excess Contributions as provided in Section 3.6(d) above,
         the Employer may make Qualified Non-Elective Contributions on behalf of
         Employees that are sufficient to satisfy the Actual Deferral Percentage
         test. In addition, in lieu of distributing Excess Aggregate
         Contributions as provided in Section 3.7 of the Plan, the Employer may
         make Qualified Non-Elective Contributions on behalf of Non-Highly
         Compensated Employees that are sufficient to satisfy either the Actual
         Deferral Percentage test or the Average Contribution Percentage test,
         or both, pursuant to regulations under the Code.

               For purposes of this Section, "Qualified Non-Elective
         Contributions" shall mean contributions (other than Matching
         Contributions or Qualified Matching Contributions) made by the Employer
         and allocated to Participant's accounts that the Participant may not
         elect to receive in cash until distributed from the Plan, that are
         fully vested when made and that are distributable only in accordance
         with the distribution provisions that are applicable to Elective
         Deferrals and Qualified Matching Contributions.

         3.7   Limitations on Employee Contributions and Employer
Matching Contributions.

               (a)   General Tests. Notwithstanding any other provisions in the
         Plan, for any Plan Year, the Employer shall be permitted to limit the
         contributions, as described in Section 3.2 of the Plan, for any Highly
         Compensated Employee to the extent necessary to ensure that the Plan
         satisfies one of the following tests:

                     (i)   the Average Contribution Percentage for Eligible
               Participants who are Highly Compensated Employees for the Plan
               Year shall not exceed the Average Contribution Percentage for
               Eligible Participants who are Non-Highly Compensated Employees
               for the Plan Year multiplied by 1.25; or

                     (ii)  the Average Contribution Percentage for Eligible
               Participants who are Highly Compensated Employees for the Plan
               Year shall not exceed the Average Contribution Percentage for
               Eligible Participants who are Non-Highly Compensated Employees
               for the Plan Year multiplied by two (2), provided that the
               Average Contribution Percentage for Eligible Participants who
               are Highly Compensated Employees does not exceed the Average
               Contribution Percentage for Eligible Participants who are
               Non-Highly Compensated Employees by more than two (2)
               percentage points.

               (b)   Definitions. For purposes of this Section 3.7 of the Plan,
         the following definitions shall apply:

                     (i)   Average Contribution Percentage (ACP) shall mean
               the average (expressed as a percentage) of the Contribution
               Percentages of the Eligible Participants in a group.

                     (ii)  Contribution Percentage shall mean the ratio
               (expressed as a percentage) of the Participant's Contribution
               Percentage Amounts to the Compensation of the Participant
               while a Participant during the Plan Year.

                     (iii) Eligible Participant shall mean any Employee
               who is eligible to make Employee Contributions or an Elective
               Deferral (if the Employer takes such contributions into
               account in the calculation of the Contribution Percentage) or
               to receive a Matching Contribution (including forfeitures) or
               a Qualified Matching Contribution. If an Employee Contribution
               is required as a condition of participation in the Plan, any
               Employee who would be a Participant in the Plan if such
               Employee made such a contribution shall be treated as an
               Eligible Participant on behalf of whom no Employee
               Contributions were made.

                     (iv)  Aggregate Limit shall mean the sum of (1) 125%
               of the greater of the Average Deferral Percentage of the
               Non-Highly Compensated Employees for the Plan Year or the
               Average Contribution Percentage of Non-Highly Compensated
               Employees under the Plan subject to Section 401(m) of the Code
               for the Plan Year beginning with or within the Plan Year of
               the CODA and (2) the lesser of 200% or two plus the lesser of
               such Average Deferral Percentage or Average Contribution
               Percentage.

                     (v)   Contribution Percentage Amounts shall mean the
               sum of the Employee Contributions, Matching Contributions and
               Qualified Matching Contributions (to the extent not taken into
               account for purposes of the Average Deferral Percentage test)
               made under the Plan on behalf of the Participant for the Plan
               Year. Such Contribution Percentage Amounts shall not include
               Matching Contributions that are forfeited either to correct
               Excess Aggregate Contributions or because the contributions to
               which they relate are Excess Deferrals, Excess Contributions
               or Excess Aggregate Contributions. The Employer may include
               Qualified Non-Elective Contributions in the Contribution
               Percentage Amounts. The Employer also may elect to use
               Elective Deferrals in the Contribution Percentage Amounts so
               long as the Average Deferral Percentage test is met before the
               Elective Deferrals are used in the Actual Deferral Percentage
               test and continues to be met following the exclusion of those
               Elective Deferrals that are used to meet the Actual Deferral
               Percentage test.

                     (vi)  Employee Contribution shall mean any
               contribution made to the plan by or on behalf of a Participant
               that is included in the Participant's gross income in the year
               in which made and that is maintained under a separate account
               to which earnings and losses are allocated.

                     (vii) Matching Contribution shall mean an Employer
               contribution made to this or any other defined contribution
               plan on behalf of a Participant on account of an Employee
               Contribution made by such Participant, or on account of a
               Participant's Elective Deferral, under a plan maintained by
               the Employer.

               (c)   Special Rules. The following special rules shall apply for
         purposes of this Section 3.7:

                     (i)   A Participant is a Highly Compensated Employee
               for a particular Plan Year if he or she meets the definition
               of a Highly Compensated Employee in effect for that Plan Year.
               Similarly, a Participant is a Non-Highly Compensated Employee
               for a particular Plan Year if he or she does not meet the
               definition of a Highly Compensated Employee in effect for that
               Plan Year.

                     (ii)  For purposes of this Section, the Contribution
               Percentage for any Eligible Participant who is a Highly
               Compensated Employee for the Plan Year and who is eligible to
               have Contribution Percentage Amounts allocated to his or her
               account under two or more plans described in Section 401(a) of
               the Code or arrangements described in Section 401(k) of the
               Code that are maintained by the Employer or an Affiliated
               Employer shall be determined as if the total of such
               Contribution Percentage Amounts was made under each plan. If a
               Highly Compensated Employee participates in two or more cash
               or deferred arrangements that have different Plan Years, all
               cash or deferred arrangements ending with or within the same
               calendar year shall be treated as a single arrangement.
               Notwithstanding the foregoing, certain plans shall be treated
               as separate if mandatorily disaggregated under regulations
               under Section 401(m) of the Code.

                     (iii) In the event that this Plan satisfies the
               requirements of Section 401(m), 401(a)(4) or 410(b) of the
               Code only if aggregated with one or more other plans, or if
               one or more other plans satisfy the requirements of Section
               401(b) of the Code only if aggregated with this Plan, then
               this Section 3.7 of the Plan shall be applied by determining
               the contribution percentages of Eligible Participants as if
               all such plans were a single plan. Plans may be aggregated in
               order to satisfy Section 401(m) of the Code only if they have
               the same Plan Year and use the same ACP testing method.

                     (iv)  Multiple Use: If one or more Highly Compensated
               Employees participate in both a CODA and a plan subject to the
               Average Contribution Percentage test maintained by the
               Employer and the sum of the Average Deferral Percentage and
               Average Contribution Percentage of those Highly Compensated
               Employees subject to either or both test exceeds the Aggregate
               Limit, then the Average Contribution Percentage of those
               Highly Compensated Employees who also participate in a CODA
               will be reduced (beginning with such Highly Compensated
               Employee whose Average Contribution Percentage is the highest)
               so that the limit is not exceeded. The amount by which each
               Highly Compensated Employee's Contribution Percentage Amounts
               is reduced shall be treated as an Excess Aggregate
               Contribution. The Average Deferral Percentage and Average
               Contribution Percentage of the Highly Compensated Employees
               are determined after any corrections required to meet the
               Average Deferral Percentage and Average Contribution
               Percentage tests. Multiple use does not occur if both the
               Average Deferral Percentage and Average Contribution
               Percentage of the Highly Compensated Employees does not exceed
               1.25 multiplied by the Average Deferral Percentage and Average
               Contribution Percentage of the Non-Highly Compensated
               Employees.

                     (v)   For purposes of determining the Contribution
               Percentage test, Employee Contributions are considered to have
               been made in the Plan Year in which contributed to the Trust.
               Matching Contributions and Qualified Non-Elective
               Contributions will be considered made for a Plan Year if made
               no later than the end of the twelve-month period beginning on
               the day after the close of the Plan Year.

                     (vi)  The Employer shall maintain records sufficient
               to demonstrate satisfaction of the ACP test and the amount of
               Qualified Non-Elective Contributions or Qualified Matching
               Contributions, or both, used in such test.

                     (vii) The determination and treatment of the
               Contribution Percentage of any Participant shall satisfy such
               other requirements as may be prescribed by the Secretary of
               the Treasury.


               (d)   Distribution of Excess Aggregate Contributions.
         Notwithstanding any other provision of this Plan, Excess Aggregate
         Contributions, plus any income and minus any loss allocable thereto,
         shall be forfeited, if forfeitable, or if not forfeitable, distributed
         no later than the last day of each Plan Year to Participants to whose
         accounts such Excess Aggregate Contributions were allocated for the
         preceding Plan Year. Excess Aggregate Contributions are allocated to
         the Highly Compensated Employees with the largest Contribution
         Percentage Amounts taken into account in calculating the ACP test for
         the year in which the excess arose, beginning with the Highly
         Compensated Employee with the largest amount of such Contribution
         Percentage Amounts and continuing in descending order until all the
         Excess Aggregate Contributions have been allocated. For purposes of the
         preceding sentence, the "largest amount" is determined after
         distribution of any Excess Aggregate Contributions. If such Excess
         Aggregate Contributions are distributed more than 2 1/2 months after
         the last day of the Plan Year in which such excess amounts arose, a ten
         percent (10%) excise tax will be imposed on the Employer maintaining
         the Plan with respect to those amounts. Excess Aggregate Contributions
         shall be treated as Annual Additions under the Plan.

               Determination of Income or Loss: Excess Aggregate
         Contributions shall be adjusted for any income or loss up to the date
         of distribution. The income or loss allocable to Excess Aggregate
         Contributions allocated to each Participant is the income or loss
         allocable to the Participant's Matching Contribution Account, Qualified
         Matching Contribution Account (if any, and if all amounts therein are
         not used in the ADP test) and, if applicable, Qualified Non-Elective
         Contribution Account and Elective Deferral Account for the Plan Year up
         to the date of distribution multiplied by a fraction, the numerator of
         which is such Participant's Excess Aggregate Contributions for the year
         and the denominator is the Participant's account balance(s)
         attributable to Contribution Percentage Amounts without regard to any
         income or loss occurring during such Plan Year.

               Forfeitures of Excess Aggregate Contributions: Forfeitures of
         Excess Aggregate Contributions shall be applied to reduce Employer
         contributions.

               Accounting for Excess Aggregate Contributions: Excess
         Aggregate Contributions allocated to a Participant shall be forfeited,
         if forfeitable, or distributed on a pro rata basis from the Matching
         Contribution Account and Qualified Matching Contribution Account (and,
         if applicable, the Participant's Qualified Non-Elective Contribution
         Account or Elective Deferral Account, or both).

               For purposes of this Section, "Excess Aggregate Contributions"
         shall mean, with respect to any Plan Year, the excess of:

                     (i)   The aggregate Contribution Percentage Amounts
               taken into account in computing the numerator of the
               Contribution Percentage actually made on behalf of Highly
               Compensated Employees for such Plan Year, over

                     (ii)  The maximum Contribution Percentage Amounts
               permitted by the ACP test (determined by hypothetically
               reducing contributions made on behalf of Highly Compensated
               Employees in order of their Contribution Percentages beginning
               with the highest of such percentages).

               Such determination shall be made after first determining
         Excess Elective Deferrals pursuant to Section 3.1 and then determining
Excess Contributions pursuant to Section 3.6.


                                   ARTICLE IV
                               ALLOCATION OF FUNDS

         4.1   Allocation of Employer Contributions. Employer Match
Contributions  made pursuant to Section 3.2(a) of the Plan shall be allocated to
the Employer Match Accounts of the Participants for whom such  contributions are
made.  Additional Match  Contributions  made pursuant to Section 3.2 of the Plan
shall be allocated to the Additional Match Accounts of the Participants for whom
such contributions are made.

         4.2   Allocation of Net Earnings or Losses of the Trust. Subject to the
provisions of Section 3.1 of the Trust Agreement, as of each Valuation Date, the
net earnings or losses of the Trust, including capital gains and losses whether
or not realized, since the preceding Valuation Date shall be allocated to the
Accrued Benefit of all Participants (or Beneficiaries) in accordance with the
ratio which the Accrued Benefit of each Participant bears to the aggregate of
all such Accrued Benefits; provided, however, that earnings or losses of
accounts for which Participants direct investment shall be specifically
allocated to such accounts.

         4.3   Valuations. In determining the earnings or losses of the Trust,
as of each Valuation Date the Trust shall be valued at fair market value.

         4.4   Accounting for Distributions.  All withdrawals of Participant
contributions, all distributions made to a Participant or his Beneficiary, and
any transfers to another qualified plan shall be charged to the appropriate
subaccount of the Participant's Accrued Benefit.

         4.5   Separate Accounts. A separate account shall be established and
maintained to reflect the Accrued Benefit for each Participant, with subaccounts
to separately show the division described in Section 1.1 of the Plan.

         4.6   Investment of Funds.

               (a)   Investment Control. Subject to the provisions of
         subsections (b), (c), (d) and (e) below, and only to the extent
         accepted by the Trustee, the management and control of the Trust shall
         be vested in the Trustee.

               (b)   Investment Limitations. The Trustee shall invest all funds
         received from the Employer and all Fund earnings in the Investment
         Options in the manner from time to time directed in writing by the
         Employer.

               (c)   Participant Directed Investments.

                     (i)   Participants, subject to such reasonable
                  restrictions  as the  Employer  or  Sponsor  may  impose for
                  administrative convenience, may designate what percentage of
                  all contributions  other than Employer Match  Contributions,
                  and  all  accounts  other  than  Employer  Match   Accounts,
                  Additional    Match   Accounts   and   Qualified    Matching
                  Contribution  Accounts  will be invested  in the  Investment
                  Options.

                     (ii)  Employer Match Contributions, Employer Match
                  Accounts, Additional Match Accounts, and Qualified Matching
                  Contribution Accounts shall be invested entirely in Company
                  Stock; provided, however, that a Participant who has attained
                  age fifty-five (55) may direct the investment of the balances
                  in such accounts.

               (d)   Participant Election. If a Participant does not make a
         written designation of an Investment Option, the Employer shall direct
         the Trustee to invest all amounts held or received on account of such
         Participant in the Investment Option which in the opinion of the
         Employer best protects principal.

               (e)   Employer Securities. Participants may direct that
         contributions will be invested in Qualifying Employer Securities
         (within the meaning of Section 407(d)(5) of ERISA), subject to such
         restrictions as the Employer or the Trustee may impose for
         administrative convenience or legal compliance. Participants must
         provide such directions in a form satisfactory to the Trustee.

               (f)   Facilitation.  Notwithstanding any instruction from any
         Participant for investment of funds in an Investment Option as provided
         for herein, the Trustee shall have the right to hold uninvested any
         amounts intended for investment until such time as investment may be
         made in accordance with subsection (b), (c) or (e) above and the Trust
         Agreement.

                                    ARTICLE V

                            LIMITATION ON ALLOCATIONS

         5.1   Participants Not Covered Under Other Plans.

               (a)   If the Participant does not participate in, and has never
         participated in another qualified plan maintained by the Employer, or a
         welfare benefit fund (as defined in Section 419(e) of the Code)
         maintained by the Employer, or an individual medical account (as
         defined in Section 415(1)(2) of the Code), maintained by the Employer,
         which provides an Annual Addition (as defined in Section 5.4 below),
         the amount of Annual Additions which may be credited to the Accrued
         Benefit of the Participant for any Limitation Year shall not exceed the
         lesser of the Maximum Permissible Amount or any other limitation
         contained in this Plan. If contributions for and/or allocations to the
         Accrued Benefit of the Participant would cause the Annual Additions for
         the Limitation Year to exceed the Maximum Permissible Amount, the
         amount contributed or allocated will be reduced so that the Annual
         Additions for the Limitation Year will equal the Maximum Permissible
         Amount.

               (b)   Prior to determining a Participant's actual Compensation
         for the Limitation Year, the Employer may determine the Maximum
         Permissible Amount for the Participant on the basis of a reasonable
         estimation of the Participant's Compensation for the Limitation Year,
         uniformly determined for all participants similarly situated.


               (c)   As soon as is administratively feasible after the end of
         the Limitation Year, the Maximum Permissible Amount for the Limitation
         Year will be determined on the basis of the Participant's actual
         Compensation for the Limitation Year.

               (d)   If, for any Limitation Year the maximum Annual Additions
         is exceeded by reason of allocation of forfeitures, a reasonable error
         in estimating a Participant's Compensation, a reasonable error in
         determining the amount of Elective Deferrals or under other limited
         facts and circumstances approved by the Internal Revenue Service, then,
         any such excess shall be disposed of in the following order:

                     (i)   any non-deductible voluntary employee
               contributions, and any income attributable thereto, to the
               extent they would reduce the excess amount, shall be returned
               to the Participant;

                     (ii)  if after the application of paragraph (i) an
               excess amount still exists, elective deferrals, and any income
               attributable thereto, to the extent they would reduce the
               excess amount, shall be returned to the Participant;

                     (iii) if after the application of paragraph (ii) an
               excess amount still exists, and the Participant is covered by
               the Plan at the end of the Limitation Year, the excess amount
               in the Participant's account shall be used to reduce Employer
               contributions (including any allocation of forfeitures) for
               such Participant in the next Limitation Year, and each
               succeeding Limitation Year, if necessary;

                     (iv)  if after the application of paragraph (ii) an
               excess amount still exists, and the Participant is not covered
               by the Plan at the end of the Limitation Year, the excess
               amount shall be held unallocated in a suspense account. The
               suspense account shall be used to reduce future Employer
               contributions (including allocations of any forfeitures) for
               all remaining Participants in the next Limitation Year, and
               each succeeding Limitation Year if necessary;

                     (v)   if a suspense account is in existence at any time
               during the Limitation Year pursuant to this Section, no
               investment gains or losses or other income may be allocated to
               such suspense account, and amounts held in the account may not
               be distributed to the Participants or Beneficiaries. Any
               balance which may be in the account upon termination of the
               Plan shall revert to the Employer. If a suspense account is in
               existence at any time during a particular Limitation Year, all
               amounts in the suspense account must be allocated and
               reallocated to Participants' accounts before any Employer or
               any Employee contributions may be made to the Plan for that
               Limitation Year. Excess amounts may not be distributed to
               Participants or former Participants.

         5.2   Participants Covered Under Other Defined Contribution Plans.

               (a)   This Section applies if, in addition to this Plan, the
         Participant is covered under another qualified master or prototype
         defined contribution plan maintained by the Employer, a welfare benefit
         fund (as defined in Section 419(e) of the Code) maintained by the
         Employer, or an individual medical account (as defined in Section
         415(1)(2) of the Code) maintained by the Employer, which provides an
         Annual Addition as defined in Section 5.4(a), during any Limitation
         Year. The Annual Additions which may be credited to the Accrued Benefit
         of a Participant under this Plan for any such Limitation Year shall not
         exceed the Maximum Permissible Amount reduced by the Annual Additions
         credited to the Accrued Benefit of a Participant under the other plans
         and welfare benefit funds for the same Limitation Year. If the Annual
         Additions with respect to the Participant under other defined
         contribution plans and welfare funds maintained by the Employer are
         less than the Maximum Permissible Amount and the Employer contributions
         that would otherwise be contributed or allocated to the Accrued Benefit
         of the Participant under this plan would cause the Annual Additions for
         the Limitation Year to exceed the Maximum Permissible Amount, the
         amount contributed or allocated will be reduced to that the Annual
         Additions under all plans and funds for the Limitation Year shall equal
         the Maximum Permissible Amount. If Annual Additions with respect to the
         Participant under such other defined contribution plans and welfare
         benefit funds in the aggregate are equal to or grater than the Maximum
         Permissible Amount, no amount will be contributed or allocated to the
         Accrued Benefit of the Participant under this Plan for the Limitation
         Year.

               (b)   Prior to determining the Participant's actual Compensation
         for the Limitation Year, the Employer may determine the Maximum
         Permissible Amount for a Participant in the manner described in Section
         5.1(b).

               (c)   As soon as administratively feasible after the end of the
         Limitation Year, the Maximum Permissible Amount for the Limitation Year
         shall be determined on the basis of the Participant's actual
         Compensation for the Limitation Year.

               (d)   If pursuant to Section 5.2(c) or as a result of the
         allocation of forfeitures, a Participant's Annual Additions under this
         Plan and such other plans would result in an excess amount for a
         Limitation Year, the excess amount shall be deemed to consist of the
         Annual Additions last allocated, except that Annual Additions
         attributable to a welfare benefit fund or individual medical account
         will be deemed to have been allocated first regardless of the actual
         allocation date.

               (e)   If an excess amount was allocated to a Participant on an
         allocation date of this Plan which coincides with an allocation date of
         another plan, the excess amount attributed to this Plan will be the
         product of:

                     (i)   the total excess amount allocated as of such date,

                     (ii)  the ratio of (1) the Annual Additions allocated
               to the Participant for the Limitation Year as of such date
               under this Plan to (2) the total Annual Additions allocated to
               the Participant for the Limitation Year as of such date under
               this and all the other qualified master or prototype defined
               contributions plans.

               (f)   Any excess amount attributed to this Plan shall be
         disposed of in the manner described in Section 5.1(d).

               (g)   If the Participant is covered under another qualified
         defined contribution plan maintained by the Employer which is not a
         master or prototype plan, Annual Additions which may be credited to the
         Participant's account under this Plan for any Limitation Year will be
         limited in accordance with Sections (a) through (f) above as though the
         other plan were a master or prototype plan.

         5.3   Participants Covered Under Both Defined Benefit and Defined
Contribution Plans. If the Employer maintains, or at any time maintained, a
qualified defined benefit plan covering any Participant in this Plan, the sum of
the Participant's Defined Benefit Fraction and Defined Contribution Fraction
shall not exceed 1.0 in any Limitation Year. If the combined fraction exceeds
1.0 for any Plan Year, the Participant's benefit under any defined benefit plan
(to the extent it has not been distributed or used to purchase an annuity
contract) shall be limited so that the combined fraction does not exceed 1.0
before any defined contribution limits shall be enforced.

         This Section 5.3 shall not apply for Limitation Years beginning on or
after January 1, 2000.

         5.4   Definitions.  For purposes of Section 5.1 through 5.3, the
following definitions shall apply:

               (a)   Annual Additions shall mean the sum of the following
         amounts credited to a Participant's Account for the Limitation Year:

                     (i)   Employer contributions,

                     (ii)  Employee contributions excluding rollovers
               and plan-to-plan transfers under Section 3.5,

                     (iii) forfeitures,

                     (iv)  amounts allocated to an individual medical account,
               as defined in Section 415(1)(2) of the Code, which is part of
               a pension or annuity plan maintained by the Employer, and

                     (v)   amounts derived from contributions which are
               attributable to post-retirement medical benefits,  allocated
               to the  separate  account of a Key  Employee,  as defined in
               Section  419A(d)(3)  of the Code,  under a  welfare  benefit
               fund, as defined in Section  419(e) of the Code,  maintained
               by the Employer.

               For this purpose, any excess amount applied under Section 5.1
         or 5.2 in the Limitation Year to reduce Employer contributions will be
         considered Annual Additions for such Limitation Year.

               (b)   Compensation for purposes of this Article V shall mean a
         Participant's Earned Income, wages, salaries and fees for professional
         services and other amounts received (without regard to whether or not
         an amount is paid in cash) for personal services actually rendered in
         the course of employment with the Employer maintaining the Plan to the
         extent that the amounts are includible in gross income (including, but
         not limited to, commissions paid salesmen, compensation for services on
         the basis of a percentage of profits, commissions on insurance
         premiums, tips, bonuses, fringe benefits, and reimbursements or other
         expense allowances under a nonaccountable plan (as described in
         Regulation Section 1.62-2(c)), and excluding the following:

                     (i)   Employer contributions to a plan of deferred
               compensation which are not includible in the Employee's gross
               income for the taxable year in which contributed, or Employer
               contributions under a simplified employee pension plan to the
               extent such contributions are deductible by the Employee, or
               any distributions from a plan of deferred compensation;

                     (ii)  amounts realized from the exercise of a
               non-qualified stock option, or when restricted stock (or
               property) held by the Employee either becomes freely
               transferable or is no longer subject to a substantial risk of
               forfeiture;

                     (iii) amounts realized from the sale, exchange or
               other disposition of stock acquired under a qualified stock
               option; and

                     (iv)  other amounts which received special tax
               benefits, or contributions made by the Employer (whether or
               not under a salary reduction agreement) towards the purchase
               of an annuity described in Section 403(b) of the Code (whether
               or not the amounts are actually excludible from the gross
               income of the Employee).

               For purposes of applying the limitations of this Article,
         Compensation for a Limitation Year is the Compensation actually paid or
         includible in gross income during such year.

               Notwithstanding the above, Compensation for a Participant who
         is permanently and totally disabled (as defined in Code Section
         22(e)(3)) is the Compensation such Participant would have received for
         the Limitation Year if the Participant had been paid at the rate of
         Compensation paid immediately before becoming permanently and totally
         disabled; for Limitation Years beginning before January 1, 1997, such
         imputed Compensation for the disabled Participant may be taken into
         account only if the Participant is not a Highly Compensated Employee
         (as defined in Section 1.37 of the Plan) and contributions made on
         behalf of such Participant are nonforfeitable when made.

               For purposes of applying the limitations of this Section,
         Compensation paid or made available during such Limitation Year shall
         include any elective deferral (as defined in Code Section 401(g)(3)),
         and any amount which is contributed or deferred by the Employer at the
         election of the Employee and which is not includible in the gross
         income of the Employee by reason of Code Section 125 or 457.

               (c)   Defined Benefit Fraction shall mean a fraction, the
         numerator of which is the sum of the Participant's projected annual
         benefit under all defined benefit plans (whether or not terminated)
         maintained by the Employer, and the denominator of which is the lesser
         of 125% of the dollar limitation in effect for the Limitation Year
         under Section 415(b) and (d) of the Code or one hundred forty percent
         (140%) of the Highest Average Compensation including any adjustments
         under Section 415(b) of the Code.

               Notwithstanding the above, if the Participant was a
         Participant as of the first day of the first Limitation Year beginning
         after December 31, 1986, in one or more defined benefit plans
         maintained by the Employer which were in existence on May 6, 1986, the
         denominator of this fraction will not be less than 125% of the sum of
         the annual benefits under such plans which the Participant had accrued
         as of the close of the last Limitation Year beginning before January 1,
         1987, disregarding any changes in the terms and conditions of the Plan
         after May 5, 1986. The preceding sentence applies only if the defined
         benefit plans individually and in the aggregate satisfied the
         requirements of Section 415 of the Code for all Limitation Years
         beginning before January 1, 1987.

               (d)   Defined Contribution Dollar Limitation shall mean $30,000,
         as adjusted under Code Section 415(d).

               (e)   Defined Contribution Fraction shall mean a fraction, the
         numerator of which is the sum of the Annual Additions to the
         Participant's account under all defined contribution plans (whether or
         not terminated) maintained by the Employer for the current and all
         prior Limitation Years (including the annual Additions attributable to
         the Participant's nondeductible Employee Contributions to all defined
         benefit plans, whether or not terminated, maintained by the Employer
         and the annual Additions attributable to all welfare benefit funds, as
         defined in Section 419(e) of the Code, and individual medical accounts,
         as defined in Section 415(1)(2) of the Code, maintained by the
         Employer), and the denominator of which is the sum of the maximum
         aggregate amount for the current and all prior Limitation Years of
         Service with the Employer (regardless of whether a defined contribution
         plan was maintained by the Employer). The maximum aggregate amount in
         any Limitation Year is the lesser of one hundred twenty-five percent
         (125%) of the dollar limitation determined under Section 415(b) and (d)
         of the Code or thirty-five percent (35%) of the Participant's
         Compensation for such year.

               If the Employee was a Participant as of the end of the first
         day of the first Limitation Year beginning after December 31, 1986, in
         one or more defined contribution plans maintained by the Employer which
         were in existence on May 6, 1986, the numerator of this fraction will
         be adjusted if the sum of this fraction and the defined benefit
         fraction would otherwise exceed 1.0 under the terms of this Plan. Under
         the adjustment, an amount equal to the product of (1) the excess of the
         sum of the fractions over 1.0 times (2) the denominator of this
         fraction, will be permanently subtracted from the numerator of this
         fraction. The adjustment is calculated using the fractions as they
         would be computed as of the end of the last Limitation Year beginning
         before January 1, 1987, and disregarding any changes in the terms and
         conditions of the Plan made after May 5, 1986, but using the Section
         415 limitation applicable to the first Limitation Year beginning on or
         after January 1, 1987.

               Annual Additions for any Limitation Year beginning before
         January 1, 1987, shall not be recomputed to treat all Employees
         Contributions as an Annual Addition.

               (f)   Employer shall mean the Employer that adopts this Plan,
         and all members of a controlled group of corporations (as defined in
         Section 414(b) of the Code as modified by Section 415(h) of the Code),
         all commonly controlled trades or businesses (as defined in Section
         414(c) of the Code as modified by Section 415(h) of the Code) or
         affiliated service groups (as defined in Section 414(m) of the Code) of
         which the adopting Employer is a part and any other entity required to
         be aggregated with the Employer pursuant to regulations under Section
         414(o) of the Code.

               (g)   Excess Amount shall mean the excess of the Participant's
         Annual Additions for the Limitation Year over the Maximum Permissible
         Amount.

               (h)   Highest Average Compensation shall mean the average
         Compensation for the three consecutive Years of Service (as measured by
         the Limitation Year) with the Employer that produces the highest
         average.

               (i)   Limitation Year shall mean the calendar year. If the
         Limitation Year is amended to a different 12 consecutive month period,
         the new Limitation Year must begin on a date within the Limitation Year
         in which the amendment is made.

               (j)   Maximum Permissible Amount shall mean the maximum Annual
         Additions that may be contributed or allocated to a Participant's
         account under this Plan for any Limitation Year shall not exceed the
         lesser of:
                     (i)   the defined contribution dollar limitation, or

                     (ii)  twenty-five percent (25%) of the Participant's
               Compensation for the Limitation Year.

               The Compensation limitation referred to in (ii) above shall
         not apply to any contribution for medical benefits (within the meaning
         of Code Section 401(h) or 419A(f)(2)) which is otherwise treated as an
         Annual Addition under Section 415(l)(1) or 419A(d)(2) of the Code.

               If a short Limitation Year is created because of an amendment
         changing the Limitation Year to a different twelve (12) consecutive
         month period, the Maximum Permissible Amount shall not exceed the
         defined contribution dollar limitation, multiplied by the following
         fraction:

                     Number of months in the short Limitation Year
                                      12

               (k)   Projected Annual Benefit shall mean the annual retirement
         benefit (adjusted to an actuarially equivalent straight life annuity if
         such benefit is expressed in a form other than a straight life annuity
         or qualified joint and survivor annuity) to which a Participant would
         be entitled under the terms of the Plan assuming:

                     (i)   The Participant will continue employment until
               the Normal Retirement Age under the Plan (or current age if
               later), and

                     (ii)  the Participant's Compensation for the current
               Limitation Year and all other relevant factors used to
               determine benefits under the Plan remain constant for all
               future Limitation Years.

                                   ARTICLE VI

                             ENTITLEMENT TO BENEFITS

         6.1   Retirement. A Participant shall be deemed to have reached
retirement upon his termination of employment on or after reaching his Normal
Retirement Date.

         As of his Distribution Date, a retired Participant shall be entitled to
the full value of his Accrued Benefit, which shall be deemed to be one hundred
percent (100%) vested and nonforfeitable upon reaching his Normal Retirement
Date whether or not the Participant continues his employment with the Employer
beyond such date.

         6.2   Disability. In the event that a Participant, at any time prior to
his retirement or other termination of employment with the Employer, shall
become totally and permanently disabled, and if proof of such disability
satisfactory to the Employer is furnished (which proof shall include a
determination of approval for Social Security benefits or, if such is not
available, a written statement of a licensed physician appointed or approved by
the Employer), then, as of his Distribution Date, such Participant shall be
entitled to the full value of his Accrued Benefit which shall be deemed to be
one hundred percent (100%) vested and nonforfeitable. For purposes of this
Section 6.2, total and permanent disability shall mean the inability to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or to last
for a continuous period of at least twelve (12) months.

         6.3   Death.  In the event of the death of a Participant prior to his
retirement, disability or other termination of employment with the Employer, the
full value of his Accrued Benefit, which shall be deemed to be one hundred
percent (100%) vested and nonforfeitable shall become payable (according to the
provisions of Article VII of the Plan), to his designated Beneficiary, upon
submission of proof of death satisfactory to the Employer.

         6.4   Termination of Employment. In the event a Participant terminates
employment with the Employer for any reason other than retirement, disability or
death, such Participant shall become entitled to the vested portion of his
Accrued Benefit, payable according to the provisions of Article VII of the Plan,
which shall be determined as follows:

               (a)   A Participant shall at all times be one hundred percent
         (100%) vested in the portion of his Accrued Benefit derived from his
         Elective Deferral Account, Qualified Non-Elective Contribution Account,
         Qualified Matching Contribution Account and Rollover/ Transfer Account.

               (b)   A Participant shall at all times be one hundred percent
         (100%) vested in the portion of his Accrued Benefit derived from his
         Employer Contribution Accounts.

         6.5   Other Permitted Distributions.

               (a)   Hardship. In addition to the in-service withdrawals
         described in Section 7.9, where applicable, distributions of Elective
         Deferrals (and earnings thereon accrued as of December 31, 1988),
         amounts from the Participant's Rollover/Transfer Account and amounts
         from the Participant's Frozen Accounts (other than earnings on a Frozen
         Pre-Tax Account, and on any "Employer Contribution Account" in a Frozen
         Other Contribution Account, allocated after December 31, 1988) may be
         made on account of financial hardship if the distribution is necessary
         in light of the immediate and heavy financial needs of the Participant.
         Notwithstanding the preceding, for Plan Years beginning after December
         31, 1988, amounts attributable to Qualified Non-Elective Contributions
         and Qualified Matching Contributions may not be distributed merely on
         account of hardship. Also, income allocated to Elective Deferrals,
         Frozen Pre-Tax Accounts and any "Employer Contribution Account" within
         Frozen Other Employer Accounts after December 31, 1988 may not be
         distributed on account of hardship. For purposes of this Section,
         hardship is defined as an immediate and heavy financial need of the
         Employee where such Employee lacks other available resources.

                     (i)   The following are the only financial needs
               considered immediate and heavy: unreimburseable medical care
               expenses (within the meaning of Section 213(d) of the Code)
               incurred (or to be incurred) by the Employee, the Employee's
               spouse, children or dependents (as defined in Code Section
               152); the purchase (excluding mortgage payments) of a
               principal residence of the Employee; payment of
               unreimburseable tuition and related educational fees for the
               next twelve months of post-secondary education for the
               Employee, the Employee's spouse, children or dependents (as
               defined in Code Section 152); the payment of funeral expenses
               for an Employee's family member; or the need to prevent the
               eviction of the Employee from, or a foreclosure on the
               mortgage of, the Employee's principal residence.

                     (ii)  A distribution will be considered as necessary
               to satisfy an immediate and heavy financial need of the
               Employee only if:

                           (1)   The Employee has obtained all
                     distributions, other than hardship distributions, and
                     all nontaxable loans under all plans maintained by
                     the Employer;

                           (2)   All plans maintained by the Employer
                     provide that the Employee's Elective Deferrals (and
                     Employee Contributions) will be suspended for twelve
                     months after the receipt of the hardship
                     distribution;

                           (3)   The distribution is not in excess of the
                     amount of an immediate and heavy financial need
                     (including amounts necessary to pay any federal,
                     state or local income taxes or penalties reasonably
                     anticipated to result from the distribution); and

                           (4)   All plans maintained by the Employer
                     provide that the Employee may not make Elective
                     Deferrals for the Employee's taxable year immediately
                     following the taxable year of the hardship
                     distribution in excess of the applicable limit under
                     Section 402(g) of the Code for such taxable year less
                     the amount of such Employee's Elective Deferrals for
                     the taxable year of the hardship distribution.

                     (iii) Processing of applications and distributions of
               amounts under this Section, on account of a bona fide
               financial hardship, must be made as soon as administratively
               feasible.

                     (iv)  There is no minimum amount for a hardship
               withdrawal, and there is no restriction on the number of
               hardship withdrawals permitted to a Participant.

               (b)   Attainment of Age 59 1/2.

                     (i)   A Participant shall be permitted to withdraw all
               or a portion of his vested Accrued Benefit under the Plan, on
               or after the attainment of age 59 1/2.

                     (ii)  There is no minimum amount for an age-59 1/2
               withdrawal, and there is no restriction on the number of
               age-59 1/2 withdrawals permitted to a Participant.

               (c)   Distribution Upon Plan Termination. The full value of a
         Participant's Accrued Benefit shall be distributed to the Participant
         (or his Beneficiary) as soon as administratively feasible after the
         termination of the Plan, provided that neither the Employer nor an
         Affiliated Employer maintains a successor plan.

               (d)   Distribution Upon Sale of Assets. The full value of a
         Participant's Accrued Benefit may at the Participant's discretion be
         distributed to the Participant as soon as administratively feasible
         after the sale, to an entity that is not an Affiliated Employer, of
         substantially all of the assets used by the Employer in the trade or
         business in which the Participant is employed. If such entity continues
         to maintain this Plan, this provision shall not apply with respect to
         Employees who continue employment with the entity acquiring such
         assets.

               (e)   Distribution Upon Sale of Subsidiary. The full value of a
         Participant's Accrued Benefit may at the Participant's discretion be
         distributed to the Participant as soon as administratively feasible
         after the sale, to an entity that is not an Affiliated Employer, of an
         incorporated Affiliated Employer's interest in a subsidiary of which
         the Participant is employed. If such entity continues to maintain this
         Plan, this provision shall not apply with respect to Employees who
         continue employment with such subsidiary.

                                   ARTICLE VII

                            DISTRIBUTION OF BENEFITS

         7.1   General. The requirements of this Article shall apply to any
distribution of a Participant's interest and will take precedence over any
inconsistent provisions of this Plan.

         All distributions required under this Article shall be determined and
made in accordance with the Income Tax Regulations under Section 401(a)(9),
including the minimum distribution incidental benefit requirement of Regulations
Section 1.401(a)(9)-2.

         7.2   Method of Distribution. A Participant may elect to have his
Accrued Benefit distributed in the following manner:

               (a)   a single lump sum;

               (b)   a portion paid in a lump sum, and the remainder paid later
         (partial payment);

               (c)   periodic installments over a period not to exceed fifteen
         (15) years; or

               (d)   only with respect to a Participant's Frozen Accounts, a
         single life annuity, a single life annuity with a five (5) year or ten
         (10) year term certain or a joint and 50% or 100% survivor annuity.

         Any annuity option with respect to Frozen Accounts permitted and
selected by a Participant shall be provided through the purchase of a
non-transferable single premium contract from an insurance company which must
conform to the terms of the Plan and which shall be distributed to the
Participant or Beneficiary in complete satisfaction of the benefit due.

         In the absence of an election by the Participant, distribution will be
made in a lump sum payment in cash.

         Notwithstanding any other provision of this Article VII, and except
with respect to a Participant's Frozen Accounts, lump sum, installment, or any
other benefits may not be paid from the Plan in any form of a life annuity or
through the distribution of property in any form of a life annuity.

         7.3   Installment Payments. If all or any portion of a Participant's
Accrued Benefit is to be paid in installments, the Participant shall determine
the period over which such installments shall be paid. The total amount to be so
distributed shall continue to be invested in those assets currently retained in
the Trust, and any income, gain or loss attributable thereto (but not Employer
contributions or forfeitures) shall be reflected in the installment
distributions.

         7.4   Spousal Consent. Except as may be provided in Article VIII with
respect to a Participant's Frozen Accounts, a Participant is not required to
obtain spousal consent in order to receive a distribution of his Accrued
Benefit.

         7.5   Commencement of Benefits.

               (a)   Unless the Participant elects otherwise, distribution of
         benefits will begin no later than the 60th day after the latest of the
         close of the Plan Year in which:

                     (i)   the Participant attains age 65 (or the Normal
               Retirement Age specified in the Plan, if earlier);

                     (ii)  occurs the 10th anniversary of the year in which
               the Participant commenced participation in the Plan; or

                     (iii) the Participant terminates Service with the
               Employer.

               (b)   Notwithstanding the foregoing, the failure of a
         Participant to consent to a distribution while a benefit is immediately
         distributable within the meaning of Section 7.6 of the Plan, shall be
         deemed to be an election to defer commencement of payment of any
         benefit sufficient to satisfy this Section.

         7.6   Minimum Required Distributions.

               (a)   Required Beginning Date. The entire interest of a
         Participant must be distributed or begin to be distributed no later
         than the Participant's Required Beginning Date.

               (b)   Limits on Distribution Periods. As of the first
         distribution calendar year, distributions, if not made in a single sum,
         may only be made over one of the following periods (or a combination
         thereof):

                     (i)   a period certain not extending beyond the life
               expectancy of the Participant, or

                     (ii)  a period certain not extending beyond the joint
               life and last survivor expectancy of the Participant and a
               designated Beneficiary.

               (c)   Minimum Amounts to be Distributed. If the Participant's
         interest is to be distributed in other than a single sum, the following
         minimum distribution rules shall apply on or after the required
         beginning date:

                     (i)   If a Participant's benefit is to be distributed
               over (a) a period not extending beyond the life expectancy of
               the Participant or the joint life and last survivor expectancy
               of the Participant and the Participant's designated
               Beneficiary or (b) a period not extending beyond the life
               expectancy of the designated Beneficiary, the amount required
               to be distributed for each calendar year, beginning with
               distributions for the first distribution calendar year, must
               at least equal the quotient obtained by dividing the
               Participant's benefit by the applicable life expectancy.

                     (ii)  The amount to be distributed each year,
               beginning with distributions for the first distribution
               calendar year shall not be less than the quotient obtained by
               dividing the Participant's benefit by the lesser of (a) the
               applicable life expectancy or (b) if the Participant's spouse
               is not the designated Beneficiary, the applicable divisor
               determined from the table set froth in Q&A-4 of Section
               4.401(a)(9)-2 of the Income Tax Regulations. Distributions
               after the death of the Participant shall be distributed using
               the applicable life expectancy in Section 7.6(c)(i) above as
               the relevant divisor without regard to Regulations Section
               1.401(a)(9)-2.

                     (iii) The minimum distribution required for the
               Participant's first distribution calendar year must be made on
               or before the Participant's Required Beginning Date. The
               minimum distribution for other calendar years, including the
               minimum distribution for the distribution calendar year in
               which the Employee's required beginning date occurs, must be
               made on or before December 31 of that distribution calendar
               year.

         7.7   Distribution of Death Benefits.

               (a)   Method of Distributions.

                     (i)   If the Participant dies after distribution of his
               or her interest has begun, the remaining portion of such
               interest will continue to be distributed at least as rapidly
               as under the method of distribution being used prior to the
               Participant's death.

                     (ii)  If the Participant dies before distribution of
               his or her interest begins, distribution of the Participant's
               entire interest shall be completed by December 31 of the
               calendar year containing the fifth anniversary of the
               Participant's death except to the extent that an election is
               made to receive distributions in accordance with (1) or (2)
               below:

                           (1)   if any portion of the Participant's
                     interest is payable to a designated Beneficiary,
                     distributions may be made over the life or over a
                     period certain not greater than the life expectancy
                     of the designated Beneficiary commencing on or before
                     December 31, of the calendar year immediately
                     following the calendar year in which the Participant
                     died;

                           (2)   if the designated Beneficiary is the
                     Participant's surviving spouse, the date
                     distributions are required to begin in accordance
                     with (1) above shall not be earlier than the later of
                     (a) December 31 of the calendar year immediately
                     following the calendar year in which the Participant
                     died and (b) December 31 of the calendar year in
                     which the Participant would have attained age 70 1/2.

                           If the Participant has not made an election
                     pursuant to this Section (a) by the time of his or
                     her death, the Participant's designated Beneficiary
                     must elect the method of distribution no later than
                     the earlier of (a) December 31 of the calendar year
                     in which distributions would be required to begin
                     under this Section, or (b) December 31 of the
                     calendar year which contains the fifth anniversary of
                     the date of death of the Participant. If the
                     Participant has no designated Beneficiary, or if the
                     designated Beneficiary does not elect a method of
                     distribution, distribution of the Participant's
                     entire interest must be completed by December 31 of
                     the calendar year containing the fifth anniversary of
                     the Participant's death.

                     (iii) For purposes of Section 7.7(a)(ii) above, if
               the surviving spouse dies after the Participant, but before
               payments to such spouse begin, the provisions of Section
               7.7(a)(ii), with the exception of Paragraph (2) therein, shall
               be applied as if the surviving spouse were the Participant.

                     (iv)  For purposes of this Section 7.7, any amount
               paid to a child of the Participant will be treated as if it
               had been paid to the surviving spouse if the amount becomes
               payable to the surviving spouse when the child reaches the age
               of majority.

                     (v)   For the purposes of this Section 7.7,
               distribution of a Participant's interest is considered to
               begin on the Participant's Required Beginning Date (or, if
               Section 7.7(a)(iii) above is applicable, the date distribution
               is required to begin to the surviving spouse pursuant to
               Section 7.7(a)(ii) above).

               (b)   Definitions.

                     (i)   Applicable Life Expectancy. The life expectancy
               (or joint life and last survivor expectancy) is calculated
               using the attained age of the Participant (or designated
               Beneficiary) as of the Participant's (or designated
               Beneficiary's) birthday in the applicable calendar year
               reduced by one for each calendar year which has elapsed since
               the date life expectancy was first calculated. If life
               expectancy is being recalculated, the applicable life
               expectancy shall be the life expectancy as so recalculated.
               The applicable calendar year shall be the first distribution
               calendar year, and if life expectancy is being recalculated,
               such succeeding calendar year.

                     (ii)  Designated Beneficiary. The individual who is
               designated as the Beneficiary under the Plan in accordance
               with Section 401(a)(9) of the Code and the regulations
               thereunder.

                     (iii) Distribution Calendar Year. A calendar year for
               which a minimum distribution is required. For distributions
               beginning before the Participant's death, the first
               distribution calendar year is the calendar year immediately
               preceding the calendar year which contains the Participant's
               required beginning date. For distributions beginning after the
               Participant's death, the first distribution calendar year is
               the calendar year in which distributions are required to begin
               pursuant to Section 7.7(a) above.

                     (iv)  Life Expectancy. Life expectancy and joint life
               and last survivor expectancy are computed by use of the
               expected return multiples in Tables V and VI of Section 1.72-9
               of the Income Tax Regulations.

                     Unless otherwise elected by the Participant (or
               spouse, in the case of distributions described in Section
               7.6(a)(ii)(2) above) by the time distributions are required to
               begin, life expectancies shall be recalculated annually. Such
               election shall be irrevocable as to the Participant (or
               spouse) and shall apply to all subsequent years. The life
               expectancy of a nonspouse Beneficiary may not be recalculated.


                     (v)   Participant's Benefit.

                           (1)   The account balance as of the last
                     Valuation Date in the calendar year immediately
                     preceding the distribution calendar year (valuation
                     calendar year) increased by the amount of any
                     contributions or forfeitures allocated to the account
                     balance as of the dates in the valuation calendar
                     year after the Valuation Date and decreased by
                     distributions made in the valuation calendar year
                     after the Valuation Date.

                           (2)   Exception for second distribution
                     calendar year. For purposes of paragraph (1) above,
                     if any portion of the minimum distribution for the
                     first distribution calendar year is made in the
                     second distribution calendar year on or before the
                     required beginning date, the amount of the minimum
                     distribution made in the second distribution calendar
                     year shall be treated as if it has been made in the
                     immediately preceding distribution calendar year.

                     (vi)  Required Beginning Date.

                           (1)   General Rule. The required beginning
                     date of a Participant is the later of the April 1 of
                     the calendar year following the calendar year in
                     which the Participant attains age 70 1/2 or retires
                     except that benefit distributions to a 5-percent
                     owner must commence by the April 1 of the calendar
                     year following the calendar year in which the
                     Participant attains age 70 1/2.

                           (2)   Deferral or Cessation of Distributions.

                                 (A)   Any Participant attaining age 70
                           1/2 in years after 1995 may elect by April 1
                           of the calendar year following the year in
                           which the Participant attained age 70 1/2
                           (or by December 31, 1997 in the case of a
                           Participant attaining age 70 1/2 in 1996) to
                           defer distributions until the calendar year
                           following the calendar year in which the
                           Participant retires. If no such election is
                           made the Participant will begin receiving
                           distributions by the April 1 of the calendar
                           year following the year in which the
                           Participant attained age 70 1/2 (or by
                           December 31, 1997 in the case of a
                           Participant attaining age 70 1/2 in 1996).

                                 (B)   Any Participant attaining age 70
                           1/2 in years prior to 1997 may elect to stop
                           distributions and recommence by the April 1
                           of the calendar year following the year in
                           which the Participant retires. There will be
                           a new annuity starting date upon
                           recommencement.

                           (3)   5-Percent Owner. A Participant is
                     treated as a 5-percent owner for purposes of this
                     Section if such Participant is a 5-percent owner as
                     defined in Section 416 of the Code at any time during
                     the Plan Year ending with or within the calendar year
                     in which such owner attains age 70 1/2.


                           (4)   Distributions Begun. Once distributions
                     have begun to a 5-percent owner under this Section,
                     they must continue to be distributed, even if the
                     Participant ceases to be a 5-percent owner in a
                     subsequent year.

         7.8   Distribution Upon Termination of Employment and Restrictions on
Immediate Distribution. If the value of a Participant's vested account balance
derived from employer and employee contributions exceeds (or at the time of any
prior distribution exceeded) $5,000, and the account balance is immediately
distributable, the Participant must consent to any distribution of such account
balance. The consent of the Participant shall be obtained in writing within the
90-day period ending on the annuity starting date. The annuity starting date is
the first day of the first period for which an amount is paid as an annuity or
any other form. The Plan Administrator shall notify the Participant of the right
to defer any distribution until the Participant's account balance is no longer
immediately distributable. Such notification shall include a general description
of the material features, and an explanation of the relative values of the
optional forms of benefit available under the Plan, in a manner that would
satisfy the notice requirements of Section 417(a)(3) of the Code, and shall be
provided no less than 30 days and no more than 90 days prior to the annuity
starting date.

         The consent of the Participant shall not be required to the extent that
a distribution is required to satisfy Section 401(a)(9) or 415 of the Code. In
addition, upon termination of this Plan, if the Plan does not offer an annuity
option (purchased from a commercial provider), the Participant's account balance
may, without the Participant's consent, be distributed to the Participant or
transferred to another defined contribution plan (other than an employee stock
ownership plan as defined in Section 4975(e)(7) of the Code) within the same
controlled group.

         An account balance is immediately distributable if any part of the
account balance could be distributed to the Participant (or surviving spouse)
before the Participant attains (or would have attained if not deceased) the
later of Normal Retirement Age or age 62.

         For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the first Plan Year
beginning after December 31, 1988, the Participant's vested account balance
shall not include amounts attributable to accumulated deductible Employee
Contributions within the meaning of Section 72(o)(5)(B) of the Code.

         In the absence of an election to receive an immediate distribution, the
Participant's Accrued Benefit shall remain invested in the commingled Trust
assets. The following provisions shall apply to termination benefits:

               (a)   The distribution of benefits to a Participant who has
         reached his Distribution Date by reason of a termination of employment
         other than retirement, disability or death shall be deferred until the
         first date the Participant would have been eligible for retirement
         under the Plan unless the Participant elects to commence distribution
         of such benefits at an earlier date. Prior to the commencement of
         benefits, the deferred benefits shall, in the discretion of the
         Employer, remain invested in the commingled Trust assets or be
         transferred to a Segregated Account.

               (b)   If the vested portion of the Accrued Benefit of a
         Participant who terminates employment for reasons other than
         retirement, disability or death is less than 100%, so that his
         Distribution Date does not coincide with the date on which he ceases to
         be an Employee, such Accrued Benefit shall, in the discretion of the
         Employer, remain invested in the commingled assets of the Trust or be
         transferred to a Segregated Account pending distribution. The
         Participant may elect to receive the vested portion of his Accrued
         Benefit at any time prior to the Distribution Date.

               (c)   If a Participant separates from service before satisfying
         the age requirement for early retirement, but has satisfied the Service
         requirement, the Participant will be entitled to elect an early
         retirement benefit upon satisfaction of such age requirements.

         7.9   Distribution From After-Tax and Rollover/Transfer Accounts.

               (a)   Voluntary After-Tax and Frozen After-Tax Accounts. A
         Participant may withdraw any amount from his Voluntary After-Tax
         Account and Frozen After-Tax Account at such times as permitted by the
         Employer by submitting a written request to the Administrator
         specifying the amount to be withdrawn. A distribution from either such
         account shall be calculated on a pro-rata basis; thus, such
         distribution shall be considered in part a return of contributions and
         in part earnings on such contributions. However, if on May 5, 1986,
         Voluntary After-Tax Accounts and/or Frozen After-Tax Accounts were
         available for distribution under the terms of the Plan, the Frozen
         Plan, a Predecessor Plan, or a Frozen Predecessor Plan, prior to
         separation of service, then the pro-rata rules will not apply to
         after-tax contributions made to such accounts prior to January 1, 1987.
         The Participant may designate whether the distribution is to be made
         from pre-1987 or post-1986 contributions.

               (b)   Rollover/Transfer Account. A Participant may withdraw any
         amount from his Rollover/Transfer Account, not in excess of the value
         of his account, at such times as permitted by the Employer by
         submitting a written request to the Administrator specifying the amount
         to be withdrawn.

         Subject to the provisions of this Section 7.9 and Sections 6.5(a) and
(c) of the Plan, the Participant's Voluntary After-Tax Account, Frozen After-Tax
Account, and Rollover/Transfer Account shall be payable at the same time, in the
same manner, and, in the event of death, to the same Beneficiary as is his
Elective Deferral and Employer Contribution Accounts.

         7.10  Direct Rollover.

               (a)   Applicability. Notwithstanding any provision of the Plan
         to the contrary that would otherwise limit a distributee's election
         under this Article, a distributee may elect, at the time and in the
         manner prescribed by the Plan Administrator, to have any portion of an
         eligible rollover distribution paid directly to an eligible retirement
         plan specified by the distributee in a direct rollover.

               (b)   Definitions.

                     (i)   Eligible Rollover Distribution. An eligible
               rollover distribution is any distribution of all or any
               portion of the balance to the credit of the distributee,
               except that an eligible rollover distribution does not include
               any distribution that is one of a series of substantially
               equal periodic payments (not less frequently than annually)
               made for the life (or life expectancy) of the distributee or
               the joint lives (or joint life expectancies) of the
               distributee and the distributee's designated Beneficiary, or
               for a specified period of ten years or more; any distribution
               to the extent such distribution is required under Section
               401(a)(9) of the Code; any hardship distribution described in
               Code Section 401(k)(2)(B)(i)(iv) received after December 31,
               1998; and the portion of any distribution that is not
               includible in gross income (determined without regard to the
               exclusion for net unrealized appreciation with respect to
               Employer securities).

                     (ii)  Eligible Retirement Plan. An eligible retirement
               plan is an individual retirement account described in Section
               408(a) of the Code, an individual retirement annuity described
               in Section 408(b) of the Code, an annuity plan described in
               Section 403(a) of the Code, or a qualified trust described in
               Section 401(a) of the Code, that accepts the distributee's
               eligible rollover distribution. However, in the case of an
               eligible rollover distribution to the surviving spouse, an
               eligible retirement plan is an individual retirement account
               or individual retirement annuity.

                     (iii) Distributee. A distributee includes an Employee
               or former Employee. In addition, the Employee's or former
               Employee's surviving spouse and the Employee's or former
               Employee's spouse or former spouse who is the alternate payee
               under a qualified domestic relations order, as described in
               Section 414(p) of the Code, are distributees with regard to
               the interest of the spouse or former spouse.

                     (iv)  Direct Rollover. A direct rollover is a payment
               by the plan to the eligible retirement plan specified by the
               distributee.

                                  ARTICLE VIII

                              ANNUITY REQUIREMENTS

         To the extent applicable, provisions of this Article shall take
precedence over any conflicting provisions of the Plan.

         8.1   Applicability. The provisions of this Article shall apply to the
Frozen Accounts of a Participant who is eligible for payment in the form of an
annuity and who elects payment in the form of an annuity. The provisions of this
Article shall only apply with respect to a Participant's Frozen Accounts.

         8.2   Qualified Joint and Survivor Annuity. Unless an optional form of
benefit is selected pursuant to a qualified election within the 90-day period
ending on the annuity starting date, a married Participant's vested Accrued
Benefit attributable to Frozen Accounts will be paid in the form of a Qualified
Joint and Survivor Annuity and an unmarried Participant's vested Accrued Benefit
attributable to Frozen Accounts will be paid in the form of a life annuity. The
Participant may elect to have such annuity distributed upon attainment of the
earliest retirement age under the Plan.

         8.3   Qualified Preretirement Survivor Annuity. Unless an optional form
of benefit has been selected within the election period pursuant to a qualified
election, if a Participant dies before his annuity starting date, then the
Participant's vested Accrued Benefit attributable to Frozen Accounts shall be
applied toward the purchase of an annuity for the life of the surviving spouse.
The surviving spouse may elect to have such annuity distributed immediately
after the Participant's death.

         8.4   Definitions

               (a)   Election Period. The period which begins on the first day
         of the Plan Year in which the Participant attains age 35 and ends on
         the date of the Participant's death. If a Participant separates from
         Service prior to the first day of the Plan Year in which age 35 is
         attained, with respect to the account balance as of the date of
         separation, the election period shall begin on the date of separation.

               (b)   Earliest Retirement Age. The earliest date on which, under
         the Plan, the Participant could elect to receive retirement benefits.

               (c)   Qualified Election. A waiver of a Qualified Joint and
         Survivor Annuity or a Qualified Preretirement Survivor Annuity. Any
         waiver of a Qualified Joint and Survivor Annuity or a Qualified
         Preretirement Survivor Annuity shall not be effective unless: (i) the
         Participant's spouse consents in writing to the election; (ii) the
         election designates a specific Beneficiary, including any class of
         Beneficiaries or any contingent Beneficiaries, which may not be changed
         without spousal consent (or the spouse expressly permits designations
         by the Participant without any further spousal consent); (iii) the
         spouse's consent acknowledges the effect of the election; and (iv) the
         spouse's consent is witnessed by a Plan representative or notary
         public. Additionally, a Participant's waiver of the Qualified Joint and
         Survivor Annuity shall not be effective unless the election designates
         a form of benefit payment which may not be changed without spousal
         consent (or the spouse expressly permits designations by the
         Participant without any further spousal consent). If it is established
         to the satisfaction of a Plan representative that there is no spouse or
         that the spouse cannot be located, a waiver will be deemed a qualified
         election.

               Any consent by a spouse obtained under this provision (or
         establishment that the consent of a spouse may not be obtained) shall
         be effective only with respect to such spouse. A consent that permits
         designations by the Participant without any requirement of further
         consent by such spouse must acknowledge that the spouse has the right
         to limit consent to a specific Beneficiary, and a specific form of
         benefit where applicable, and that the spouse voluntarily elects to
         relinquish either or both of such rights. A revocation of a prior
         waiver may be made by a Participant without the consent of the spouse
         at any time before the commencement of benefits. The number of
         revocations shall not be limited. No consent obtained under this
         provision shall be valid unless the Participant has received notice as
         provided in Section 8.5 below.

               (d)   Qualified Joint and Survivor Annuity. An immediate annuity
         for the life of the Participant with a survivor annuity for the life of
         the spouse which is not less than 50% and not more than 100% of the
         amount of the annuity which is payable during the joint lives of the
         Participant and the spouse and which is the amount of benefit which can
         be purchased with the Participant's vested account balance. The
         percentage of the survivor annuity under the Plan shall be 50%.

               (e)   Spouse (Surviving Spouse). The spouse or surviving spouse
         of the Participant, provided that a former spouse will be treated as
         the spouse or surviving spouse (and a current spouse will not be
         treated as the spouse or surviving spouse to the extent provided) under
         a qualified domestic relations order as described in Section 414(p) of
         the Code.

               (f)   Annuity Starting Date. The first day of the first period
         for which an amount is paid as an annuity or any other form.

               (g)   Vested Account Balance. The aggregate value of the
         Participant's vested account balances derived from Employer and
         Employee contributions (including rollovers), whether vested before or
         upon death, including the proceeds of insurance contracts, if any, on
         the Participant's life. The provisions of this Article shall apply to a
         Participant who is vested in amounts attributable to Employer
         contributions, Employee contributions or both at the time of death or
         distribution.

         8.5   Notice Requirements.

               (a)   In the case of a Qualified Joint and Survivor Annuity as
         described in Section 8.4(d) of this Article, the Plan Administrator
         shall no less than 30 days and no more than 90 days prior to the
         annuity starting date provide each Participant a written explanation
         of: (i) the terms and conditions of a Qualified Joint and Survivor
         Annuity; (ii) the Participant's right to make and the effect of an
         election to waive the Qualified Joint and Survivor Annuity form of
         benefit; (iii) the rights of a Participant's spouse; and (iv) the right
         to make, and the effect of, a revocation of a previous election to
         waive the Qualified Joint and Survivor Annuity.

               (b)   In the case of a Qualified Preretirement Survivor Annuity
         as described in Section 8.3 of this Article, the Plan Administrator
         shall provide each Participant within the applicable notice period a
         written explanation of the Qualified Preretirement Survivor Annuity in
         such terms and in such manner as would be comparable to the explanation
         provided for meeting the requirements of Section 8.5(a) applicable to a
         Qualified Joint and Survivor Annuity.

               The applicable notice period means with respect to a
         Participant, whichever of the following periods ends last:

                     (i)   the period beginning with the first day of the
               Plan Year in which the Participant attains age 32 and ending
               with the close of the Plan Year preceding the Plan Year in
               which the Participant attains age 35,

                     (ii)  a reasonable period ending after the individual
               becomes a Participant,

                     (iii) a reasonable period ending after notice is
               required because of the cessation of a benefit subsidy as
               described in subsection (c) below,

                     (iv)  a reasonable period ending after this Article
               first applies to the Participant,

                     (v)   a reasonable period after separation from Service
                  in the case of a Participant who separates before attaining
                  age 35.

                     For purposes of applying the preceding paragraph, a
               reasonable period ending after the enumerated events described
               in (ii), (iii) and (iv) is the end of the two-year period
               beginning one year prior to the date the applicable event
               occurs, and ending one year after that date. In the case of a
               Participant who separates from Service before the Plan Year in
               which age 35 is attained, notice shall be provided within the
               two-year period beginning one year prior to separation and
               ending one year after separation. If such a Participant
               thereafter returns to employment with the Employer, the
               applicable period for such Participant shall be redetermined.

               (c)   Notwithstanding the other requirements of this Section
         8.5, the respective notices prescribed by this Section need not be
         given to a Participant if (i) the Plan "fully subsidizes" the costs of
         a Qualified Joint and Survivor Annuity or Qualified Preretirement
         Survivor Annuity and (ii) the Plan does not allow the Participant to
         waive the Qualified Joint and Survivor Annuity or Qualified
         Preretirement Annuity and does not allow a married Participant to
         designate a nonspouse Beneficiary. For purposes of this Section 8.5(c),
         a plan fully subsidizes the costs of a benefit if no increase in cost
         or decrease in benefits to the Participant may result from the
         Participant's failure to elect another benefit

              (d)    If a distribution is one to which Sections 401(a)(11) and
         417 of the Internal Revenue Code do not apply, such distribution may
         commence less than 30 days after the notice required under Section
         1.411(a)-11(c) of the Income Tax Regulations is given, provided that
         (i) the Plan Administrator clearly informs the Participant that the
         Participant has a right to a period of at least 30 days after receiving
         the notice to consider the decision of whether or not to elect a
         distribution (and, if applicable, a particular distribution option),
         and (ii) the Participant, after receiving the notice, affirmatively
         elects a distribution.

         8.6   Spousal Consent. A Participant is required to obtain spousal
consent for a distribution of his Accrued Benefit attributable to Frozen
Accounts if the provisions of this Article VIII apply to such Frozen Accounts
pursuant to Section 8.1.

                                   ARTICLE IX

                     BENEFICIARY AND PARTICIPANT INFORMATION

         9.1   Designation of Beneficiary.

               (a)   Each Participant from time to time may designate any
         person or persons (who may be named contingently or successively) to
         receive any benefits payable under the Plan upon or after his death,
         and any such designation may be changed from time to time by the
         Participant by filing a new designation. Each designation will revoke
         all prior designations made by the Participant, shall be in writing in
         the form prescribed by the Employer and shall be effective only when
         the written designation is filed with the Employer during his lifetime.

               (b)   The beneficiary of a Participant who is married at the
         time of his death shall be his surviving spouse unless his surviving
         spouse consents in writing on the form provided for that purpose by the
         Plan Administrator to the designation of another beneficiary. A consent
         by a Participant's spouse shall not be effective unless such consent is
         witnessed by the Plan Administrator or a Notary Public.

               (c)   In the absence of a valid Beneficiary designation (except
         in conjunction with the election of a form of benefit payment which
         does not require the designation of a specific Beneficiary) or if, at
         the time any benefit becomes payable to a Beneficiary, there is no
         living Beneficiary properly designated by the Participant to receive
         the benefit, the Employer shall direct the Trustee to distribute such
         benefit to the Participant's spouse, if then living. If there is no
         surviving spouse, then the benefit shall be paid to the Participant's
         then living descendants, if any, per stirpes, otherwise to the
         Participant's then living parent or parents, equally, otherwise to the
         Participant's estate.

         9.2   Information to be Furnished by Participant and Beneficiaries. Any
communications, addressed to a Participant or Beneficiary at his last post
office address filed with the Employer, shall be binding on the Participant or
Beneficiary for all purposes of the Plan. Except for the Employer's sending of a
registered letter to the last known address, neither the Trustees nor the
Employer shall be obliged to search for any Participant or Beneficiary.

         If a benefit is forfeited because the Participant or Beneficiary cannot
be found, such benefit will be reinstated if a claim is made by the Participant
or Beneficiary.

                                    ARTICLE X

                              LOANS TO PARTICIPANTS

         Subject to the consent of the Trustee, the Plan Administrator shall
establish a loan program under which:

         (1)   Loans shall be made available to all Participants and
Beneficiaries on a reasonably equivalent basis.

         (2)   Loans shall not be made available to Highly Compensated Employees
(as defined in Section 414(q) of the Code) in an amount greater than the amount
made available to other Employees.

         (3)   Loans must be adequately secured and bear a reasonable interest
rate.

         (4)   No Participant loan shall exceed 50% of the present value of the
Participant's vested Accrued Benefit.

         (5)   A Participant is not required to obtain the consent of his or her
spouse, if any, to use of the account balance as security for the loan.

         (6)   In the event of default, foreclosure on the note and attachment
of security will not occur until a distributable event occurs in the Plan.

         (7)   No loans will be made to any shareholder-employee or
Owner-Employee. For purposes of this requirement, a shareholder-employee means
an Employee or officer of an electing small business (Subchapter S) corporation
who owns (or is considered as owning within the meaning of Section 318(a)(1) of
the Code), on any day during the taxable year of such corporation, more than 5%
of the outstanding stock of the corporation.

         (8)   Loan repayments will be suspended under the Plan as permitted
under Code Section 414(u)(4).

         (9)   Loans are only available from a Participant's Elective Deferral
Account and Rollover/Transfer Account.

         Notwithtstanding any other provision of this Plan, the portion of the
Participant's vested account balance used as a security interest held by the
Plan by reason of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the account balance payable at
the time of death or distribution, but only if the reduction is used as
repayment of the loan. If less than 100% of the Participant's vested account
balance (determined without regard to the preceding sentence) is payable to the
surviving spouse, then the account balance shall be adjusted by first reducing
the vested account balance by the amount of the security used as repayment of
the loan, and then determining the benefit payable to the surviving spouse.

         No loan to any Participant or Beneficiary can be made to the extent
that such loan when added to the outstanding balance of all other loans to the
Participant or Beneficiary would exceed the lesser of (a) $50,000 reduced by the
excess (if any) of the highest outstanding balance of loans during the one year
period ending on the day before the loan is made, over the outstanding balance
of loans from the Plan on the date the loan is made, or (b) one-half the present
value of the nonforfeitable Accrued Benefit of the Participant. For the purpose
of the above limitation, all loans from all plans of the Employer and other
members of a group of Employers described in section 414(b), (c), (m) and (o) of
the Code are aggregated. Furthermore, any loan shall by its terms require that
repayment (principal and interest) be amortized in level payments, not less
frequently than quarterly, over a period not extending beyond five years from
the date of the loan, unless such loan is used to acquire a dwelling unit which
within a reasonable time (determined at the time the loan is made) will be used
as the principal residence of the Participant. An assignment or pledge of any
portion of the Participant's interest in the Plan and a loan, pledge or
assignment with respect to any insurance contract purchased under the Plan, will
be treated as a loan under this paragraph.

                                   ARTICLE XI

                              TOP HEAVY PROVISIONS

         11.1  Applicability. Notwithstanding any other provisions of the Plan
or Adoption Agreement to the contrary, if for any Plan Year the Plan becomes a
Top Heavy Plan, the requirements of this Article XI of the Plan shall be
applied for such Plan Year.

         11.2  Definitions. The following terms shall have the following
meanings in the determination of whether or not the Plan is a Top Heavy Plan:

               (a)   Determination Date. For any Plan Year subsequent to the
         first Plan Year, the last day of the preceding Plan Year. For the first
         Plan Year of the Plan, the last day of that year.

               (b)   Employer. The Employer who adopted this Plan and any other
         Employer some or all of whose Employees participate in this Plan or in
         a retirement plan which is aggregated with this Plan as part of a
         permissive or required aggregation group.

               (c)   Employer Group. A group of Employers who, for purposes of
         Section 416 of the Code, are treated as a single Employer under Section
         414(b), (c) or (m) of the Code.

               (d)   Key Employee. Any Employee or former Employee (and the
         beneficiaries of such Employee) who, at any time during the
         determination period, was an officer of the Employer if such
         individual's annual Compensation exceeds 50% of the dollar limitation
         under Section 415(b)(1)(A) of the Code, an owner (or considered an
         owner under Section 318 of the Code) of one of the ten largest
         interests in the Employer if such individual's Annual Compensation
         exceeds 100% of the dollar limitation under Section 415(c)(1)(A) of the
         Code, a 5-percent owner of the Employer, or a 1-percent owner of the
         Employer who has Annual Compensation of more than $150,000. Annual
         Compensation means Compensation as defined in Section 415(c)(3) of the
         Code, but including amounts contributed by the Employer pursuant to a
         salary reduction agreement which are excludible from the Employee's
         gross income under Section 125, 402(e)(3), 401(h)(1)(B) or 403(b) of
         the Code. The determination period is the Plan Year containing the
         Determination Date and the 4 preceding Plan Years. The determination of
         who is a Key Employee will be made in accordance with Section 416(i)(l)
         of the Code and the regulations thereunder.

               (e)   Non-Key Employee. Any Employee or former Employee (or
         Beneficiaries of such Employee) who is not considered to be a Key
         Employee.

               (f)   Permissive Aggregation Group. The required aggregation
         group of plans plus any other plan or plans of the Employer which, when
         considered as a group with the required aggregation group, would
         continue to satisfy the requirements of Sections 401(a)(4) and 410 of
         the Code.

               (g)   Present Value. Present value shall be based only on the
         interest and mortality rates specified in the Adoption Agreement.

               (h)   Required Aggregation Group. (i) Each qualified plan of the
         Employer in which at least one Key Employee participates or
         participated at any time during the determination period (regardless of
         whether the plan has terminated), and (ii) any other qualified plan of
         the Employer which enables a plan described in (i) to meet the
         requirements of Section 401(a)(4) or 410 of the Code.

               (i)   Top Heavy Plan. For any Plan Year, this Plan is Top Heavy
         if any of the following conditions exist:

                     (i)   If the Top Heavy Ratio for this Plan exceeds 60%
               and this Plan is not part of any required aggregation group or
               permissive aggregation group of plans.

                     (ii)  If this Plan is a part of a required aggregation
               group of plans but not part of a permissive aggregation group
               of the Top Heavy Ratio for the group of plans exceeds 60%.

                     (iii) If this Plan is a part of a required
               aggregation group and part of a permissive aggregation group
               of plans and the Top Heavy Ratio for the permissive
               aggregation group exceeds 60%.

               (j)   Top Heavy Ratio.

                     (i) If the Employer maintains one or more defined
               contribution plans (including any Simplified Employee Pension
               Plan) and the Employer has not maintained any defined benefit
               plan which during the 5-year period ending on the
               determination date(s) has or has had Accrued Benefits, the Top
               Heavy Ratio for this Plan alone or for the required or
               permissible aggregation group as appropriate is a fraction,
               the numerator of which is the sum of the account balances of
               all Key Employees as of the determination date(s) (including
               any part of any account balance distributed in the 5-year
               period ending on the determination date(s)), and the
               denominator of which is the sum of all account balances
               (including any part of any account balance distributed in the
               5-year period ending on the determination date(s)), both
               computed in accordance with Section 416 of the Code and the
               regulations thereunder. Both the numerator and denominator of
               the Top Heavy Ratio are increased to reflect any contribution
               not actually made as of the determination date, but which is
               required to be taken into account on that date under Section
               416 of the Code and the regulations thereunder.

                     (ii)  If the Employer maintains one or more defined
               contribution plans (including any Simplified Employee Pension
               Plan) and the Employer maintains or has maintained one or more
               defined benefit plans which during the 5-year period ending on
               the determination date(s) has or has had any accrued benefits,
               the Top Heavy Ratio for any required or permissive aggregation
               group as appropriate is a fraction, the numerator of which is
               the sum of account balances under the aggregated defined
               contribution plan or plans for all Key Employees, determined
               in accordance with (a) above, and the present value of accrued
               benefits under the aggregated defined benefit plan or plans
               for all Key Employees as of the determination date(s), and the
               denominator of which is the sum of the account balances under
               the aggregated defined contribution plan or plans for all
               Participants, determined in accordance with (a) above, and the
               present value of accrued benefits under the defined benefit
               plan or plans for all Participants, determined in accordance
               with (a) above, and the present value of accrued benefits
               under the defined benefit plan or plans for all Participants
               as of the determination date(s), all determined in accordance
               with Section 416 of the Code and the regulations thereunder.
               The accrued benefits under a defined benefit plan in both the
               numerator and denominator of the Top Heavy Ratio are increased
               for any distribution of an accrued benefit made in the five
               year period ending on the determination date.

                     (iii) For purposes of (i) and (ii) above, the value
               of account balances and the present value of accrued benefits
               will be determined as of the most recent Valuation Date that
               falls within or ends with the twelve (12) month period ending
               on the determination date, except as provided in Section 416
               of the Code and the regulations thereunder for the first and
               second plan years of a defined benefit plan. The account
               balances and accrued benefits of a Participant (1) who is not
               a Key Employee but who was a Key Employee in a prior year, or
               (2) who has not been credited with at least one Hour of
               Service with any employer maintaining the Plan at any time
               during the 5-year period ending on the determination date will
               be disregarded. The calculation of the Top Heavy Ratio, and
               the extent to which distributions, rollovers and transfers are
               taken into account will be made in accordance with Section 416
               of the Code and the regulations thereunder. Deductible
               employee contributions will not be taken into account for
               purposes of computing the Top Heavy Ratio. When aggregating
               plans, the value of account balances and accrued benefits will
               be calculated with reference to the determination dates that
               fall within the same calendar year.

                     The accrued benefit of a Participant other than a Key
               Employee shall be determined under (1) the method, if any,
               that uniformly applies for accrual purposes under all defined
               benefit plans maintained by the Employer, or (2) if there is
               no such method, as if such benefit accrued not more rapidly
               than the slowest accrual rate permitted under the fractional
               rule of Section 411(b)(1)(C) of the Code.

               (k)   Valuation Date. December 31 in each Plan Year, the date as
         of which account balances or Accrued Benefits are valued for purposes
         of calculating the Top Heavy Ratio.

               (l)   Present Value. For purposes of establishing the present
         value of accrued benefits under defined benefit plans required to be
         aggregated with this Plan to compute the Top Heavy Ratio, any benefit
         shall be discounted only for mortality and interest based on the
         mortality assumptions and interest rate specified in such defined
         benefit plan.

         11.3  Minimum Compensation. For any Plan Year in which the Plan is Top
Heavy, only the first $170,000 (or such larger amount as may be prescribed by
the Secretary of Treasury or his delegate) of a Participant's annual
Compensation shall be taken into account for purposes of determining Employer
contributions under the Plan.

         11.4  Minimum Allocation.

               (a)   Except as otherwise provided in (c) and (d) below, the
         Employer contributions and forfeitures allocated on behalf of any
         Participant who is not a Key Employee shall not be less than the lesser
         of three percent of such Participant's Compensation or in the case
         where the Employer has no defined benefit plan which designates this
         Plan to satisfy Section 401 of the Code, the largest percentage of
         Employer contributions (including any salary deferral contribution) and
         forfeitures, as a percentage of the Key Employee's Compensation, as
         limited by Section 401(a)(17) of the Code, allocated on behalf of any
         Key Employee for that year. The minimum allocation is determined
         without regard to any Social Security contribution. This minimum
         allocation shall be made even though under other plan provisions, the
         Participant would not otherwise be entitled to receive an allocation,
         would have received a lesser allocation for the year because of (i) the
         Participant's failure to complete 1,000 hours of service (or any
         equivalent provided in the Plan), (ii) the Participant's failure to
         make mandatory employee contributions (including elective deferral
         contributions) to the Plan, or (iii) Compensation less than a stated
         amount. Neither Elective Deferrals nor Matching Contributions may be
         taken into account for the purpose of satisfying the minimum Top Heavy
         contribution requirements.

               (b)   For purposes of computing the minimum allocation,
         Compensation will mean Compensation as defined in Section 1.11 of the
         Plan, as limited by Section 401(a)(17) of the Code.

               (c)   The provision in (a) above shall not apply to any
         Participant who was not employed by the Employer on the last day of the
         Plan Year.

               (d)   The Employer hereby designates that the minimum allocation
         or benefit requirement applicable to Top Heavy plans will be met in any
         other plan or plans maintained by the Employer, and the provision in
         (a) above shall not apply to any Participant to the extent the
         Participant is covered under any other such plan or plans of the
         Employer.

               (e)   The minimum allocation or benefit requirement applicable
         to Top Heavy plans (to the extent required to be nonforfeitable under
         section 416(b) of the Code) may not be forfeited under Section
         411(a)(3)(B) or 411(a)(3)(D) of the Code.

         11.5  Vesting. For any Plan Year in which this Plan is Top Heavy, each
Employee's interest in his or her Account Balance attributable to Employer
contributions shall be fully vested and nonforfeitable. The minimum vesting
schedule applies to all benefits within the meaning of Section 411(a)(7) of the
Code except those attributable to employee contributions, including benefits
accrued before the effective date of Section 416 of the Code and benefits
accrued before the Plan became Top Heavy. Further, no decrease in a
Participant's nonforfeitable percentage may occur in the event the Plan's status
as Top Heavy changes for any Plan Year. However, this Section does not apply to
the account balances of any Employee who does not have an hour of service after
the Plan has initially become Top Heavy and such Employee's account balance
attributable to Employer contributions and forfeitures will be determined
without regard to this Section.

                                   ARTICLE XII

                           ADMINISTRATION OF THE PLAN

         12.1  Duties and Responsibilities of Fiduciaries; Allocation of
Fiduciary Responsibility. A fiduciary to the Plan shall have only those specific
powers, duties, responsibilities and obligations as are explicitly given him
under the Plan and Trust Agreement. In general, the Employer shall have the sole
responsibility for making contributions to the Plan required under Article III
of the Plan, appointing the Trustee and the Plan Administrator, and determining
the funds available for investment under the Plan. The Plan Administrator shall
have the sole responsibility for the administration of the Plan, as more fully
described in Section 12.2. It is intended that each fiduciary shall be
responsible only for the proper exercise of his own powers, duties,
responsibilities and obligations under the Plan and Trust Agreement, and shall
not be responsible for any act or failure to act of another fiduciary. A
fiduciary may serve in more than one fiduciary capacity with respect to the
Plan.

         12.2  Powers and Responsibilities of the Plan Administrator.

               (a)   Administration of the Plan. The Plan Administrator shall
         have all powers necessary to administer the Plan, including the power
         to construe and interpret the Plan documents; to decide all questions
         relating to an individual's eligibility to participate in the Plan; to
         determine the amount, manner and timing of any distribution of benefits
         or withdrawal under the Plan; to approve and insure the repayment of
         any loan to a Participant under the Plan; to resolve any claim for
         benefits in accordance with Section 12.7; and to appoint or employ
         advisors, including legal counsel, to render advice with respect to any
         of the Plan Administrator's responsibilities under the Plan. Any
         construction, interpretation or application of the Plan by the Plan
         Administrator shall be final, conclusive and binding. All actions by
         the Plan Administrator shall be taken pursuant to uniform standards
         applied to all persons similarly situated. The Plan Administrator shall
         have no power to add to, subtract from or modify any of the terms of
         the Plan, or to change or add to any benefits provided by the Plan, or
         to waive or fail to apply any requirements of eligibility for a benefit
         under the Plan.



               (b)   Records and Reports. The Plan Administrator shall be
         responsible for maintaining sufficient records to reflect the
         Compensation of each Participant for purposes of determining the amount
         of contributions that may be made by or on behalf of the Participant
         under the Plan. The Plan Administrator shall be responsible for
         submitting all required reports and notification relating to the Plan
         to Participants or their Beneficiaries, the Internal Revenue Service
         and the Department of Labor.

               (c)   Furnishing Trustee with Instructions. The Plan
         Administrator shall be responsible for furnishing the Trustee with
         written instructions regarding all contributions to the Trust, all
         distributions to Participants and all loans to Participants. In
         addition, the Plan Administrator shall be responsible for furnishing
         the Trustee with any further information respecting the Plan which the
         Trustee may request for the performance of its duties or for the
         purpose of making any returns to the Internal Revenue Service or
         Department of Labor as may be required of the Trustee.

               (d)   Rules and Decisions. The Plan Administrator may adopt such
         rules as it deems necessary, desirable or appropriate in the
         administration of the Plan. All rules and decisions of the Plan
         Administrator shall be applied uniformly and consistently to all
         Participants in similar circumstances. When making a determination of
         calculation, the Plan Administrator shall be entitled to rely upon
         information furnished by a Participant or Beneficiary, the Employer,
         and the legal counsel of the Employer or the Trustee.

               (e)   Application and Forms for Benefits. The Plan Administrator
         may require a Participant or Beneficiary to complete and file with it
         an application for a benefit, and to furnish all pertinent information
         requested by it. The Plan Administrator may rely upon all such
         information so furnished to it, including the Participant's or
         Beneficiary's current mailing address.

         12.3  Allocation of Duties and Responsibilities. The Plan Administrator
may by written instrument allocate among its members or employees any of its
duties and responsibilities not already allocated under the plan or may carry
out any of the Plan Administrator's duties and responsibilities under the Plan.
Any such duties or responsibilities thus allocated must be described in the
written instrument. If a person other than an Employee of the Employer is so
designated, such person must acknowledge in writing his acceptance of the duties
and responsibilities allocated to him.

         12.4  Appointment of the Plan Administrator. The Employer shall
designate the Plan Administrator who shall administer the Plan. Such Plan
Administrator may consist of an individual, a committee of two or more
individuals, whether or not, in either such case, the individual or any of such
individuals are Employees of the Employer, a consulting firm or other
independent agent, the Trustee (with its consent) or the Employer itself. Except
as the Employer shall otherwise expressly determine, the Plan Administrator
shall be charged with the full power and the responsibility for administering
the Plan in all its details. If no Plan Administrator has been appointed by the
Employer, or if the person designated as Plan Administrator by the Employer is
not serving as such for any reason, the Employer shall be deemed to be the Plan
Administrator of the Plan. The Plan Administrator may be removed by the
Employer, or may resign by giving notice in writing to the Employer, and in the
event of the removal, resignation or death, or other termination of service by
the Plan Administrator, the Employer shall, as soon as practicable, appoint a
successor Plan Administrator, such successor thereafter to have all of the
rights, privileges, duties and obligations of the predecessor Plan
Administrator.

         12.5  Expenses. The Employer shall pay all expenses authorized and
incurred by the Plan in the administration of the Plan (including Trustee's
fees) except to the extent such expenses are paid from the Trust.

         12.6  Liabilities. The Plan Administrator and each person to whom
duties and responsibilities have been allocated pursuant to Section 12.3 may be
indemnified and held harmless by the Employer with respect to any alleged breach
of responsibilities performed or to be performed hereunder.

         12.7  Claims Procedure.

               (a)   Filing a Claim. Any Participant or Beneficiary under the
         Plan may file a written claim for a Plan Benefit with the Plan
         Administrator or with a person named by the Plan Administrator to
         receive claims under the Plan.

               (b)   Notice of Denial of Claim. In the event of a denial or
         limitation of any benefit or payment due to or requested by any
         Participant or Beneficiary under the Plan ("Claimant"), Claimant shall
         be given a written notification containing specific reasons for the
         denial or limitation of his benefit. The written notification shall
         contain specific reference to the pertinent Plan provisions on which
         the denial or limitation of his benefit is based. In addition, it shall
         contain a description of any other material or information necessary
         for the Claimant to perfect a claim, and an explanation of why such
         material or information is necessary. The notification shall further
         provide appropriate information as to the steps to be taken if the
         Claimant wishes to submit his claim for review. This written
         notification shall be given to a Claimant within 90 days after receipt
         of his claim by the Plan Administrator unless special circumstances
         require an extension of time for processing the claim. If such an
         extension of time for processing is required, written notice of the
         extension shall be furnished to the claimant prior to the termination
         of said 90-day period, and such notice shall indicate the special
         circumstances which make the postponement appropriate.

               (c)   Right of Review. In the event of denial or limitation of
         his benefit, the Claimant or his duly authorized representative shall
         be permitted to review pertinent documents and to submit to the Plan
         Administrator issues and comments in writing. In addition, the Claimant
         or his duly authorized representative may make a written request for a
         full and fair review of his claim and its denial by the Plan
         Administrator; provided, however, that such written request must be
         received by the Plan Administrator (or its delegate to receive such
         requests) within 60 days after receipt by the Claimant of written
         notification of the denial or limitation of the claim. The 60-day
         requirement may be waived by the Plan Administrator in appropriate
         cases.

               (d)   Decision on Review. A decision shall be rendered by the
         Plan Administrator within 60 days after the receipt of the request for
         review, provided that where special circumstances require an extension
         of time for processing the decision, it may be postponed on written
         notice to the Claimant (prior to the expiration of the initial 60-day
         period) for an additional 60 days after the receipt of such request for
         review. Any decision by the Plan Administrator shall be furnished to
         the Claimant in writing and shall set forth the specific reasons for
         the decision and the specific Plan provisions on which the decision is
         based.

               (e)   Court Action. No Participant, Beneficiary or other
         Claimant shall have the right to seek judicial review of a denial of
         benefits, or to bring any action in any court to enforce a claim for
         benefits prior to filing a claim for benefits or exhausting his rights
         to review under this Section 12.7.

                                  ARTICLE XIII

                        AMENDMENT, TERMINATION AND MERGER

         13.1  Amendments.

               (a)   The Employer expressly reserves the right to amend this
         Plan and Trust from time to time. No such amendment shall in any way
         impair, reduce or affect any Participant's vested and nonforfeitable
         rights in the Trust.

               (b)   No amendment to the Plan shall be effective to the extent
         that it has the effect of decreasing a Participant's Accrued Benefit.
         Notwithstanding the preceding sentence, a Participant's account balance
         may be reduced to the extent permitted under Section 412(c)(8) of the
         Code. For purposes of this paragraph, a plan amendment which has the
         effect of decreasing a Participant's account balance or eliminating an
         optional form of benefit, with respect to benefits attributable to
         service before the amendment shall be treated as reducing an Accrued
         Benefit. Furthermore, if the vesting schedule of a plan is amended, in
         the case of an Employee who is a Participant in the Plan as of the
         later of the date such amendment is adopted or the date it becomes
         effective, the nonforfeitable percentage (determined as of such date)
         of such Employee's right to his Employer-derived Accrued Benefit will
         not be less than his percentage computed under the Plan without regard
         to such amendment.

         13.2  Plan Termination; Discontinuance of Employer Contributions.

               (a)   The Employer may terminate the Plan at any time in whole
         or in part. In the event of the dissolution, merger, consolidation or
         reorganization of the Employer, the Plan shall automatically terminate
         and the Trust shall be liquidated as provided in paragraph (b) below
         unless the Plan is continued by a successor Employer in accordance with
         Section 13.3.

               (b)   Upon the complete or partial termination of the Plan or
         the complete discontinuance of Employer contributions under the Plan,
         the Accrued Benefit of all Participants affected thereby shall become
         fully vested and nonforfeitable, and the Plan Administrator shall
         direct the Trustee to distribute assets remaining in the Trust, after
         payment of any expenses properly chargeable thereto, to Participants or
         their Beneficiaries.

         13.3  Successor Employer. In the event of the dissolution, merger,
consolidation or reorganization of the Employer, provision may be made by which
the Plan and Trust shall be continued by a successor Employer, in which case
such successor Employer shall be substituted for the Employer under the Plan.
The substitution of the successor Employer shall constitute an assumption of
Plan liabilities by the successor Employer, and the successor Employer shall
have all powers, duties and responsibilities of the Employer under the Plan.

         13.4  Merger, Consolidation or Transfer. In the event of a merger or
consolidation of the Plan with, or transfer of assets or liabilities of the Plan
to, any other plan of deferred compensation maintained or to be established for
the benefit of all or some of the Participants of the Plan, the transaction
shall be structured so that each Participant would (if the Plan then terminated)
receive a benefit immediately after the merger, consolidation or transfer which
is equal to or greater than the benefit the Participant would have been entitled
to receive immediately before the merger, consolidation or transfer (if this
Plan had then terminated).

                                   ARTICLE XIV

                            MISCELLANEOUS PROVISIONS

         14.1  Exclusive Benefit of Participants and Beneficiaries.

               (a)   All assets of the Trust shall be retained for the
         exclusive benefit of Participants and their Beneficiaries, and shall be
         used only to pay benefits to such persons or to pay reasonable fees and
         expenses of the Trust and of the administration of the Plan. The assets
         of the Trust shall not revert to the benefit of the Employer, except as
         otherwise specifically provided in Section 14.1(b).

               (b)   Contributions to the Trust under this Plan are subject to
         the following conditions:

                     (i)   If a contribution or any part thereof is made to
               the Trust by the Employer under a mistake of fact, such
               contribution or part thereof shall be returned to the Employer
               within one year after the date the contribution is made;

                     (ii)  In the event that the Commissioner of Internal
               Revenue determines that the Plan is not initially qualified
               under the Internal Revenue Code, any contribution made
               incident to that initial qualification by the Employer must be
               returned to the Employer within one year after the date the
               initial qualification is denied, but only if the application
               for the qualification is made by the time prescribed by law
               for filing the Employer's return for the taxable year in which
               the Plan is adopted, or such later date as the Secretary of
               the Treasury may prescribe; and

                     (iii) Contributions to the Trust are specifically
               conditioned on their deductibility under the Code and, to the
               extent a deduction is disallowed for any such contribution,
               such amount shall be returned to the Employer within one year
               after the date of the disallowance of the deduction.

         14.2  Nonguarantee of Employment. Nothing contained in this Plan shall
be construed as a contract of employment between the Employer and any Employee,
or as a right of any Employee to be continued in the employment of the Employer,
or as a limitation of the right of the Employer to discharge any of its
Employees, with or without cause.

         14.3  Rights to Trust Assets. No Employee, Participant or Beneficiary
shall have any right to, or interest in, any assets of the Trust upon
termination of employment or otherwise, except as provided under the Plan. All
payments of benefits under the Plan shall be made solely out of the assets of
the Trust.

         14.4  Nonalienation of Benefits. Except as provided under Article X of
the Plan, with respect to Plan loans, benefits payable under the Plan shall not
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, voluntary or involuntary; provided, however, that the Trustee shall not be
hereby precluded from complying with a qualified domestic relations order
described in Section 414(p) of the Code, or any domestic relations order entered
before January 1, 1985, requiring deduction from distributions to a recipient in
pay status for alimony or support payments. Any attempt to anticipate, alienate,
sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any
right to benefits payable hereunder shall be void. The Trust shall not in any
manner be liable for, or subject to, the debts, contracts, liabilities,
engagements or torts of any person entitled to benefits hereunder.

         14.5  Gender . The use of the masculine pronoun shall extend to and
include the feminine gender wherever appropriate, the use of the singular shall
include the plural and the use of the plural shall include the singular wherever
appropriate.

         14.6  Titles and Headings. The titles or headings of the respective
Articles and Sections are inserted merely for convenience and shall be given no
legal effect.

         14.7  Compliance with Laws, Rules and Regulations. If any of the
provisions of this Plan or of the Trust Agreement are at any time in any way
inconsistent with any laws of the United States of America or the laws of any
state if not preempted by ERISA, or any regulations of the Internal Revenue
Service, U.S. Department of Labor, or any other Federal or state regulatory
authority, in a manner that adversely affects the qualified status of the Plan
under Section 401(a) of the Code or the tax-exempt status of the Trust under
Section 501(a) of the Code, or may result in any civil penalties under ERISA or
any other law, then the Employer, the Administrator and the Trustee shall comply
with the requirements of such laws or regulations, rather than with the
provisions of the Plan and Trust which are inconsistent therewith. The Employer,
Administrator and Trustee shall incur no liability for following such laws,
rules or regulations.

         14.8  Qualified Military Service. Notwithstanding any provision of this
Plan to the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u) of
the Code.

                                 TRUST AGREEMENT

         The Employer has established a Plan to provide retirement, death and
disability benefits for eligible Employees and their Beneficiaries pursuant to
section 401 of the Internal Revenue Code of 1986, as amended. As part of the
Plan, the Employer has requested T. Rowe Price Trust Company to serve as Trustee
pursuant to the Trust established for the investment of contributions under the
Plan upon the terms and conditions set forth in this Agreement. Unless the
context of this Trust Agreement clearly indicates otherwise, the terms defined
in Article I of the Plan entered into by the Employer, of which this Trust
Agreement forms a part, shall, when used herein, have the same meaning as in
said Plan.

                                    ARTICLE I
Accounts

1.1      Establishing Accounts

         The Trustee shall open and maintain a trust account for the Plan and,
         as part thereof, Participant's accounts for such individuals as the
         Administrator shall, from time to time, give written notice to the
         Trustee as being Participants in the Plan. The Trustee shall also open
         and maintain such other accounts as may be appropriate or desirable to
         aid in the administration of the Plan. A separate account shall be
         maintained for each Participant and shall be credited with the
         contributions made and any forfeitures allocated to each such
         Participant pursuant to the Plan (and all earnings thereon). The
         Trustee shall open and maintain as a part of the Trust a separate
         account for each Participant who makes required or voluntary
         contributions, each such account to be credited with the Participant's
         required or voluntary contributions (and all earnings attributable to
         such contributions).

1.2      Charges Against Accounts

         Upon receipt of written instructions from the Administrator, the
         Trustee shall charge the appropriate account of the Participant for
         any withdrawals or distributions made under the Plan and any
         forfeiture of unvested interests attributable to Employer
         contributions which may be required under the Plan. The Administrator
         will give written instructions to the Trustee specifying the manner in
         which Employer contributions and any forfeiture of the nonvested
         portion of accounts, as allocated by the Administrator in accordance
         with the provisions of the Plan, are to be credited to the various
         accounts maintained for Participants.

1.3      Prospectus to be Provided

         The Administrator shall ensure that a Participant who makes a required
         or voluntary contribution has previously received or receives a copy of
         the then current prospectus relating to the Investment Options.
         Delivery of such a required or voluntary contribution, pursuant to the
         provisions of the Plan by the Administrator to the Trustee, shall
         entitle the Trustee to assume that the Participant has received such a
         prospectus.

                                   ARTICLE II

2.1      Receipt of Contributions

         The Trustee shall accept and hold in the trust contributions made by
         the Employer and Participants under the Plan. The Administrator shall
         give written instructions to the Trustee specifying the specific
         Participants' accounts to which contributions are to be credited, the
         amount of each such credit which is attributable to Employer
         contributions and the amount, if any, which is attributable to the
         Participants' required or voluntary contributions. If written
         instructions are not received by the Trustee, or if such instructions
         are received but are deemed by the Trustee to be unclear, upon notice
         to the Employer, the Trustee may elect to hold all or part of any such
         contribution in cash, without liability for rising security prices or
         distributions made pending receipt by it from the Administrator of
         written instructions or other clarifications. If any contributions or
         earnings are less than any minimum which the then current prospectus
         for the Investment Options require, the Trustee may hold the specified
         portion of the contributions or earnings in cash, without interest,
         until such time as the proper amount has been contributed or earned so
         that the investment in the Investment Options required under the Plan
         may be made.

                                   ARTICLE III

Investment Powers of the Trustee

3.1      Investment of Trust Assets.

         The Trustee shall invest the amount of each contribution made hereunder
         and all earnings thereon in full and fractional shares of the
         Investment Options in accordance with the current prospectus for such
         Investment Option, in such amounts and proportions as shall from time
         to time be designated by the Administrator, or the Participant if the
         Plan so permits, on forms provided by T. Rowe Price Associates, Inc. or
         a subsidiary thereof, and shall credit such Investment Options to the
         accounts of each Participant on whose behalf or by whom the
         contributions are made and any forfeitures are allocated. All dividends
         and capital gain distributions received on the Investment Options held
         by the Trustee in each account, shall, if received in cash, be
         reinvested in such Investment Options in accordance with the current
         prospectus for such Investment Option and shall in any event be
         credited to such account. The Trustee shall deliver, or cause to be
         executed and delivered, to the Administrator all notices, prospectuses,
         financial statements, proxies and proxy soliciting materials relating
         to the Investment Options held hereunder. The Trustee shall not vote
         any of the shares of the Investment Options held hereunder, except in
         accordance with the written instructions of the Administrator and/or
         Participant. The obligations of the Trustee hereunder may be delegated
         by it as provided in Sections 9.1 and 9.2 of this Trust Agreement.

         The Trustee shall sell shares and purchase shares in the Investments
         Options to accomplish any change in investments desired by the Employer
         as indicated in any amended Plan or other instruction in accordance
         with the terms of the Plan.

3.2      Directed Investments.

         With respect to any directions received by the Trustee with regard to
         the investment of Employer and Participant contributions, designating
         the investments to be made in the Investment Options by Participants,
         the Trustee is authorized and empowered to make and deal with such
         investments as provided in such direction and shall have in connection
         with such investments all powers herein provided.

3.3      General Investment Powers.

         To the extent that the Trustee is not given appropriate directions with
         respect to investments, then, the Trustee shall be authorized and
         empowered to invest and reinvest all of the funds in any of the
         Investment Options which, in the opinion of the Trustee, offers
         reasonable possibilities for preservation of capital.

3.4      Other Powers of the Trustee

         The Trustee is authorized and empowered with respect to the Trust:

         (a)   subject to the requirement of investment in shares of the
               Investment Options, the Trustee may sell, exchange, convey,
               transfer or otherwise dispose of, either at public or private
               sale, any property, any time held by it, for such
               consideration and on such terms and conditions as to credit or
               otherwise as the Trustee may deem best;

         (b)   subject to the provisions of Section 3.1 hereof, and subject
               to the provisions of Section 3.7 hereof, to vote in person or
               by proxy any shares of the Investment Options held by it and
               to join in, or to dissent from and to oppose, the
               reorganization, consolidation, liquidation, sale or merger of
               any corporation or properties in which it may be interested as
               Trustee, upon such terms and conditions as it may deem wise;

         (c)   to make, execute, acknowledge and deliver any and all
               documents of transfer and conveyance and any and all other
               instruments that may be necessary or appropriate to carry out
               the powers herein granted;

         (d)   to register any investment held in the trust in its own name,
               in the name of the Trust or in the name of a nominee, and to
               hold any investment in bearer form, but the books and records
               of the Trustee shall at all times show that all such
               investments are part of the Trust;

         (e)   to employ suitable agents and counsel (who may also be counsel
               for the Employer) and to pay their reasonable expenses and
               compensation;

         (f)   to borrow or raise monies for the purpose of the Trust from
               any source and for any sum so borrowed to issue its promissory
               note as Trustee, and to secure the repayments thereof by
               pledging all or any part of the Trust, but nothing herein
               contained shall obligate the Trustee to render itself liable
               individually for the amount of any such borrowing; and no
               person loaning money to the Trustee shall be bound to see to
               the application of money loaned or to inquire into the
               validity, expedience or propriety of any such borrowing; and

         (g)   if any dispute shall arise as to the persons to whom payments
               and the delivery of any monies or property shall be made by
               the Trustee or the amounts thereof, to retain such payments
               and/or postpone such delivery until actual adjudication of
               such dispute shall have been made in a court of competent
               jurisdiction or until the Trustee shall be indemnified against
               loss to his satisfaction.

         Each and all of the foregoing powers may be exercised without court
         order or approval. No one dealing with the Trustee need inquire
         concerning the validity or propriety of anything that is done or need
         see to the application of any money paid or property transferred to or
         upon the order of the Trustee.

3.5      General Powers

         The Trustee shall have all of the powers necessary or desirable to do
         all acts, take all such proceedings and exercise all such rights and
         privileges, whether or not expressly authorized herein, which it may
         deem necessary or proper for the administration and protection of the
         property of the Trust and to accomplish any action provided for in the
         Plan.

3.6      Employer Securities

         The Administrator and/or Participants in the Plan may direct that all
         or a portion of the Fund be invested in Qualifying Employer Securities
         within the meaning of Section 407(d)(5) of the Employee Retirement
         Income Security Act of 1974, as amended, and the Trustees shall follow
         the proper directions of the Administrator and/or Participants as to
         such investment.

         The Trustee shall be fully entitled to rely upon the directions of the
         Administrator and/or Participants as to investments in Qualifying
         Employer Securities and the Employer shall indemnify and hold harmless
         the Trustee against any and all claims, liabilities and expenses
         arising out of or related to such directions and the acquisition and
         retention of Qualifying Employer Securities pursuant thereto.

         As a condition of acquiring or retaining Qualifying Employer Securities
         pursuant to this Section 3.6, the Trustee may, in its discretion,
         require assurances satisfactory to it that the acquisition and holding
         of such Qualifying Employer Securities will not constitute prohibited
         transactions under Section 406 of ERISA, or under Section 4975 of the
         Code.

         The Trustee shall deliver, or cause to be executed and delivered to the
         Administrator, all notices, prospectuses, financial statements, proxies
         and proxy-soliciting materials relating to Qualifying Employer
         Securities held by it.

3.7      Voting, Tendering and Exchanging Company Stock

         Each Participant in the Plan (or, in the event of the Participant's
         death, the Participant's Beneficiary) is, for purposes of this Section
         3.7, hereby designated a "named fiduciary" within the meaning of ERISA
         Section 403(a)(1).

         (a)   Instructed Share Voting. Each Participant (or, if applicable,
               Beneficiary), as a named fiduciary, shall be entitled to direct
               the Plan and Trustee as to the manner in which Company Stock
               allocated to such Participant's (or Beneficiary's) accounts is to
               be voted on each matter brought before an annual or special
               stockholders' meeting of the Company. Before each such meeting of
               stockholders, the Trustee shall cause to be furnished to each
               Participant (or, if applicable, Beneficiary) a copy of the proxy
               solicitation material, together with a form requesting
               confidential directions on how such shares of Company Stock
               allocated to such Participant's (or Beneficiary's) accounts shall
               be voted on each such matter. Upon timely receipt of such
               directions, the Trustee shall on each such matter, vote as
               directed the number of votes attributable to such Participant (or
               Beneficiary).

               The number of votes attributable to each Participant (or, if
               applicable, Beneficiary) shall be determined as follows:

               (1)   first, the total number of votes attributable to
                     Company Stock held in the Plan shall be determined;

               (2)   second, the number of votes determined under (1),
                     above, shall be attributed to each Participant (or,
                     if applicable, Beneficiary), in the ratio which the
                     number of shares of Company Stock allocated to such
                     Participant's accounts as of the record date bears to
                     the total number of shares of Company Stock held in
                     the Plan as of such date.

               Each Participant (or, if applicable, Beneficiary), as a named
               fiduciary, shall be entitled to separately direct the vote of
               a portion of the number of votes with respect to which a
               signed voting-direction instrument is not timely received from
               other Participants (or, if applicable, Beneficiaries)
               ("Undirected Votes"). Such direction with respect to each
               Participant (or, if applicable, Beneficiary) who timely elects
               to direct the vote of Undirected Votes as a named fiduciary
               shall be with respect to a number of Undirected Votes equal to
               the total number of Undirected Votes multiplied by a fraction,
               the numerator of which is the total number of votes
               attributable to such Participant (or Beneficiary) and the
               denominator of which is the total number of votes attributable
               to all Participants (or, if applicable, Beneficiaries) who
               timely elect to vote Undirected Votes as a named fiduciary.

         (b)   Responding to Tender and Exchange Offers. Each Participant (or,
               if applicable, Beneficiary), as a named fiduciary, shall have the
               right, to the extent of the number of shares of Company Stock
               allocated to such Participant's (or Beneficiary's) accounts, to
               direct the Trustee in writing as to the manner in which to
               respond to such tender or exchange offer with respect to shares
               of Company Stock. The Trustee shall use its best efforts to
               timely distribute or cause to be distributed to each Participant
               (or, if applicable, Beneficiary) such information as will be
               distributed to stockholders of the Company in connection with any
               such tender or exchange offer. Upon timely receipt of such
               instructions, the Trustee shall respond as instructed with
               respect to shares of Common Stock allocated to such Participant's
               accounts. If the Trustee shall not receive timely instructions
               from a Participant (or, if applicable, Beneficiary) as to the
               manner in which to respond to such a tender or exchange offer,
               the Trustee shall not tender or exchange any shares of Company
               Stock with respect to which such Participant (or Beneficiary) has
               the right of direction. In effecting the foregoing, to the extent
               possible, the Trustee shall tender or exchange shares of Company
               Stock entitled to one vote per share prior to shares of Company
               Stock having greater than one vote per share.

         Any instructions received by the Trustee from Participants (or, if
         applicable, Beneficiaries) pursuant to this Section 3.7 shall be held
         by the Trustee in strict confidence and shall not be divulged or
         released to any person, including officers or Employees of the Company
         or a Related Company; provided, however, that to the extent necessary
         for the operation of the Plan, such instructions may be relayed by the
         Trustee to a recordkeeper, auditor or other person providing services
         to the Plan if such person (i) is not the Company, an Affiliated
         Employer or any Employee, officer or director thereof, and (ii) agrees
         not to divulge such directions to any other person, including
         Employees, officers and directors of the Company and its Affiliated
         Employers.

3.8      Registration and Disclosure for Company Stock

         The Plan Administrator shall be responsible for determining the
         applicability (and, if applicable, complying with) the requirements of
         the Securities Act of 1933, as amended, the California Corporate
         Securities Law of 1968, as amended, and any other applicable blue sky
         law. The Plan Administrator shall also specify what restrictive legend
         or transfer restriction, if any, is required to be set forth on the
         certificates for the securities and the procedure to be followed by the
         Trustee to effectuate a resale of such securities.

                                   ARTICLE IV

4.1      Distributions from a Participant's Account

         Distribution from the Trust shall be made by the Trustee in accordance
         with proper written directions or the Administrator in accordance with
         the provisions of Articles VII and VIII of the Plan, and the
         Administrator shall have the sole responsibility for determining that
         the directions given conform to provisions of the Plan and applicable
         law, including (without limitation) responsibility for calculating the
         vested interests of the Participants, for calculating the amounts
         payable to a Participant pursuant to Article VII of the Plan, and for
         determining the proper person to whom benefits are payable under the
         Plan.

                                    ARTICLE V

5.1      Reports of the Trustee and the Administrator

         The Trustee shall keep accurate and detailed records of all receipts,
         investments, disbursements and other transactions required to be
         performed hereunder with respect to the Trust. Not later than ninety
         (90) days after the close of each Plan Year (or after the Trustee's
         resignation or removal pursuant to Article XI hereof), the Trustee
         shall file with the Administrator a written report or reports
         reflecting the receipts, disbursements and other transactions effected
         by it with respect to the Trust during such Plan Year (or period ending
         with such resignation or removal) and the assets and liabilities of the
         Trust at the close of each Plan Year. Such report or reports shall be
         open to inspection by any Participant for a period of one hundred
         eighty (180) days immediately following the date on which it is filed
         with the Administrator. Except as otherwise prescribed by ERISA, upon
         the expiration of such one hundred eighty (180) days period, the
         Trustee shall be forever released and discharged from all liability and
         accountability to anyone with respect to its acts, transactions,
         duties, obligations or responsibilities as shown in or reflected by
         such report, except with respect to any such acts or transactions as to
         which the Administrator shall have filed written objections with the
         Trustee within such one hundred eighty (180) day period, and except for
         willful misconduct or lack of good faith on the part of the Trustee.

                                   ARTICLE VI

6.1      Trustee's Fees and Expenses of the Trust

         The Trustee's fees for performing its duties hereunder shall be such
         reasonable amounts as shall be established by it from time to time. The
         Trustee will furnish the Administrator with its current schedule of
         fees and shall give written notice to the Administrator whenever its
         fees are changed or revised. Such fees, any taxes of any kind
         whatsoever which may be levied or assessed upon or in respect of the
         Trust, and any and all expenses incurred by the Trustee in the
         performance of its duties, including fees for legal services rendered
         to the Trustee, shall, unless paid by the Employer, be paid from the
         Trust in the manner provided for in the Plan.

         All fees of the Trustee and taxes and other expenses charged to a
         Participant's account will be collected by the Trustee from the amount
         of any contribution to be credited or distribution to be charged to
         such account or, if there are no such contributions or distributions,
         shall be paid by redeeming or selling assets credited to such accounts.

                                   ARTICLE VII

Duties of the Employer and the Administrator

7.1      Information and Data to be Furnished the Trustee.

         In addition to making the contributions called for in Article II
         hereof, the Employer, through the Administrator, agrees to furnish the
         Trustee with such information and data relative to the Plan as is
         necessary for the proper administration of the Trust established
         hereunder.

7.2      Limitation of Duties.

         Neither the Employer nor any of its officers, directors or partners,
         nor the Administrator shall have any duties or obligations with respect
         to this Trust Agreement, except those expressly set forth herein and in
         the Plan.

                                  ARTICLE VIII

8.1      Liability of the Trust

         (1)   The Trustee shall not be responsible in any way for the
               collection of contributions provided for under the Plan, the
               adequacy of the assets of the Plan to meet the Plan's obligation,
               the propriety of any contribution, the purpose or the propriety
               of any distribution made pursuant to Article VII thereof or of
               any allocation of contributions or forfeitures, or any other
               action or nonaction taken pursuant to the Administrator's
               request. The Trustee shall not be responsible for the
               administration of the Plan, its validity or effect, or the
               qualification of the Plan under the Code. The Trustee shall be
               under no duty to take any action other than as herein specified
               with respect to the Trust unless the Administrator shall furnish
               the Trustee with instructions in proper form and such
               instructions shall have been specifically agreed to by the
               Trustee in writing; or to defend or engage in any suit with
               respect to the Trust unless the Trustee shall have first agreed
               in writing to do so and shall have been fully indemnified to the
               satisfaction of the Trustee. The Trustee, unless it knows that
               the instruction constitutes a breach of the Administrator's
               duties or responsibilities under the Plan, may conclusively rely
               upon and shall be protected in acting upon any written order from
               the Administrator or any other notice, request, consent,
               certificate or other instrument or paper believed by it to be
               genuine and to have been properly executed and, so long as it
               acts in good faith, in taking or omitting to take any other
               action.

         (2)   The Employer shall indemnify and hold the Trustee (including its
               affiliates, representatives and agents) harmless from and against
               any liability, cost or other expense, including, but not limited
               to, the payment of attorney's fees that the Trustee may incur in
               connection with this Agreement or the Plan unless such liability,
               cost or other expenses (whether direct or indirect) arises from
               the Trustee's own willful misconduct or gross negligence. The
               Employer recognizes that a burden of litigation may be imposed
               upon the Trustee as a result of some act or transaction for which
               it has no responsibility or over which it has no control under
               this Agreement. Therefore, the Employer agrees to indemnify and
               hold harmless and, if requested, defend the Trustee (including
               its affiliates, representatives and agents) from any expenses
               (including counsel fees, liabilities, claims, damages, actions,
               suits or other charges) incurred by the Trustee in prosecuting or
               defending against any such litigation.

         (3)   The Trustee shall not be liable for, and the Employer will
               indemnify and hold harmless the Trustee (including its
               affiliates, representatives and agents) from and against all
               liability or expense (including counsel fees) because of (i) any
               investment action taken or omitted by the Trustee in accordance
               with any direction of the Employer or Participant, or investment
               inaction in the absence of directions from the Employer or a
               Participant or (ii) any investment action taken by the Trustee
               pursuant to an order to purchase or sell securities placed by the
               Employer or a Participant directly with a broker, dealer or
               issuer. It is understood that although, when the Trustee is
               subject to the direction of the Employer or a Participant, the
               Trustee will perform certain ministerial duties with respect to
               the portion of the Trust subject to such direction (the "Directed
               Fund"). Such duties do not involve the exercise of any
               discretionary authority or other authority to manage and control
               assets of the Directed Fund and will be performed in the normal
               course of business by officers and Employees of the Trustee or
               its affiliates, representatives or agents who may be unfamiliar
               with investment management. It is agreed that the Trustee is not
               undertaking any duty or obligation, express or implied, to
               review, and will not be deemed to have any knowledge of or
               responsibility with respect to, any transaction involving the
               investment of the Directed Fund as a result of the performance of
               its ministerial duties. Therefore, in the event that "knowledge"
               of the Trustee shall be a prerequisite of imposing a duty upon or
               determining liability of the Trustee under the Plan or this Trust
               or any law or regulation regulating the conduct of the Trustee,
               with respect to the Directed Fund, as a result of any act or
               omission of the Employer of any Participant, or as a result of
               any transaction engaged in by any of them, then the receipt and
               processing of investment orders or other documents relating to
               Plan assets by an officer or other Employee of the Trustee or its
               affiliates, representatives or agents engaged in the performance
               of purely ministerial functions shall not constitute "knowledge"
               of the Trustee.

                                   ARTICLE IX

Delegation of Powers

9.1      Delegation by the Trustee.

         The Trustee may delegate, by instrument in writing, to a person
         (individual, corporate or other entity) appointed as agent or custodian
         by it, any of the powers or functions of the Trustee hereunder other
         than the investment of the Trust assets, including (without
         limitation):

         o     custodianship of all or any part of the assets of the Trust;

         o     maintaining and accounting for the Trust and for Participant
               and other accounts as a part thereof;

         o     distribution of benefits as directed by the Administrator; and

         o     preparation of the annual report on the status of the Trust.

         The agent or custodian so appointed may act as agent for the Trustee,
         without investment responsibility, for fees to be mutually agreed upon
         by the Employer and the agent or custodian and paid in the same manner
         as Trustees' fees. The Trustee shall not be responsible for any act or
         omission of the agent or custodian arising from any such delegation,
         except to the extent provided in Article VIII hereof.

         If the Plan has more than one (1) Trustee, then fiduciary duties may be
         allocated among such Trustees.

9.2      Delegation with Employer Approval

         The Trustee and the Employer may, by mutual agreement, arrange for the
         delegation by the Trustee to the Administrator or any agent of the
         Employer of any powers or functions of the Trustee hereunder other than
         the investment and custody of the Trust assets. The Trustee shall not
         be responsible for any act or omission of such person or persons
         arising from any such delegation, except to the extent provided in
         Article VIII hereof.

                                    ARTICLE X

10.1     Amendment

         As provided in Article XII of the Plan, and subject to the limitations
         set forth therein, the Plan and Trust Agreement may be amended at any
         time, in whole or in part, by the Employer. No amendment to the Plan or
         Trust Agreement shall place any greater burden on the Trustee without
         the Trustee's written consent.

                                   ARTICLE XI

11.1     Resignation or Removal of Trustee

         The Trustee may resign at any time upon ninety (90) days notice in
         writing to the Employer, and may be removed by the Employer at any time
         upon ninety (90) days notice in writing to the Trustee. Upon such
         resignation or removal, the Employer shall appoint a successor Trustee
         or Trustees. Upon receipt by the Trustee of written acceptance of such
         appointment by the successor Trustee, the Trustee shall transfer and
         pay over to such successor the assets of the Trust and all records
         pertaining thereto, provided that any successor Trustee shall agree not
         to dispose of any such records without the Trustee's consent. The
         successor Trustee shall be entitled to rely on all accounts, records
         and other documents received by it from the Trustee, and shall not
         incur any liability whatsoever for such reliance. The Trustee is
         authorized, however, to reserve such sum of money or property as it may
         deem advisable for payment of all its expenses, or for payment of any
         other liabilities constituting a charge on or against the assets of the
         Trust or on or against the Trustee, with any balance or of such reserve
         remaining after the payment of all such items to be paid over to the
         successor Trustee. Upon the assignment, transfer and payment over of
         the assets of the Trust, and obtaining a receipt thereof from the
         successor Trustee, the Trustee shall be released and discharged for any
         and all claims, demands, duties and obligations arising out of the
         Trust and its management thereof, excepting only claims based upon the
         Trustee's willful misconduct or lack of good faith. The successor
         Trustee shall hold the assets paid over to it under terms similar to
         those of an agreement that qualifies under section 401 of the code. If
         within thirty (30) days after the Trustee's resignation or removal, the
         Employer has not appointed a successor Trustee which has accepted such
         appointment, the Trustee shall, unless it elects to terminate the Trust
         pursuant to Article XII hereof, appoint such successor itself.

                                   ARTICLE XII

Termination of the Trust Agreement

12.1     Term of the Trust Agreement.

         This Trust Agreement shall continue so long as the Plan is in full
         force and effect. If the Plan ceases to be in full force and effect,
         this Trust Agreement shall thereupon terminate unless expressly
         extended by the Employer.

12.2     Termination by the Trustee

         The Trustee may elect to terminate the Agreement if within thirty (30)
         days after its resignation or removal pursuant to Article XI the
         Employer has not appointed a successor Trustee which has accepted such
         appointment. Termination of the Agreement shall be effected by
         distributing all assets thereof to the Participants or other persons
         entitled thereto pursuant to the direction of the Administrator (or in
         the absence of such direction, as determined by the Trustee) as
         provided in Article VII of the Plan, subject to the Trustee's right to
         reserve Trusts as provided in Article XI hereof. Upon the completion of
         such distribution, the Trustee shall be relieved from all further
         liability with respect to all amounts so paid, other than any liability
         arising out of the Trustee's willful misconduct or lack of good faith.

12.3     Failure of Initial Qualification

         Anything herein to the contrary notwithstanding, if a final
         determination letter is received from the Internal Revenue Service that
         the Plan as herein set forth or as amended prior to the receipt of such
         ruling does not qualify under Section 401 and 501 of the Code as to the
         Employer for the first taxable year for which it has been adopted by
         the Employer, the Employer, at its option, may withdraw all
         contributions theretofore made by it and any income earned thereon,
         less all expenses incurred, at the then current value thereof, and the
         Plan shall thereupon terminate and all rights of each Participant or
         his Beneficiary in the contributions made on his behalf by the Employer
         shall cease and come to an end. In the event of termination of the Plan
         pursuant to this Article there shall also be forthwith paid to each
         Participant the then value, if any, of his salary reduction and
         Rollover/Transfer Accounts. In the event of the receipt of such an
         adverse determination letter and the termination of the Plan as to an
         Employer, no Participant or Beneficiary of a Participant shall have a
         right or claim against the Trust or to any benefit under the Plan, and
         no benefits shall be paid to any Participant, former Participant or his
         Beneficiary.

                                  ARTICLE XIII

Miscellaneous

13.1     No Diversion of Assets

         At no time shall it be possible for any part of the assets of the Trust
         to be used for or diverted to purposes other than for the exclusive
         benefit of Participants and their Beneficiaries or revert to the
         Employer, except as specifically provided in the Plan or this Trust
         Agreement.

13.2     Notices

         Any notice from the Trustee to the Employer or from the Employer to the
         Trustee provided for in this Plan and Trust Agreement shall be
         effective if sent by first class mail at their respective last address
         of record.

13.3     Multiple Trustees

         In the event that there shall be two (2) or more Trustees serving
         hereunder, any action taken or decision made by any such Trustees may
         be taken or made by a majority of them with the same effect as if all
         had joined therein, if there be more than two (2), or unanimously if
         there be two (2).

13.4     Conflict with Plan

         In the event of any conflict between the provisions of the Plan and
         those of this Trust Agreement, the former shall prevail.

13.5     Applicable Law

         This Trust Agreement shall be construed in accordance with the laws of
         the state where the Trustee has its principal place of business.



         THUS DONE AND SIGNED this 1st day of September, 2000.

                                      CENTURYTEL, INC.

                                            /s/ R. Stewart Ewing, Jr.
                                        By:____________________________________
                                               R. Stewart Ewing, Jr.



         THUS DONE AND SIGNED this 1st day of September, 2000.

                                       T. ROWE PRICE TRUST COMPANY


                                       By:_____________________________________


                                      -xiv-

                                TABLE OF CONTENTS

ARTICLE I...................................................................1
         DEFINITIONS........................................................1
                  1.1      Accrued Benefit..................................1
                  1.2      Active Participant...............................1
                  1.3      Additional Match Account.........................1
                  1.4      Additional Match Contributions...................1
                  1.5      Administrator or Plan Administrator..............1
                  1.6      Affiliated Employer..............................1
                  1.7      Beneficiary......................................2
                  1.8      Code.............................................2
                  1.9      Company..........................................2
                  1.10     Company Stock....................................2
                  1.11     Compensation.....................................2
                  1.12     Cost of Living Increase..........................2
                  1.13     Covered Employee.................................3
                  1.14     Distribution Date................................3
                  1.15     Earned Income....................................3
                  1.16     Effective Date...................................3
                  1.17     Elective Deferral Account........................3
                  1.18     Elective Deferrals...............................3
                  1.19     Employee.........................................3
                  1.20     Employer.........................................3
                  1.21     Employer Contribution Accounts...................3
                  1.22     Employer Match Account...........................4
                  1.23     Employer Match Contributions.....................4
                  1.24     Entry Date.......................................4
                  1.25     ERISA............................................4
                  1.26     ESOP.............................................4
                  1.27     ESOP Transfer Account............................4
                  1.28     Family Member....................................4
                  1.29     Frozen Accounts..................................4
                  1.30     Frozen After-Tax Account.........................4
                  1.31     Frozen Other Employer Accounts...................4
                  1.32     Frozen Plan......................................4
                  1.33     Frozen Predecessor Plans.........................4
                  1.34     Frozen Pre-Tax Account...........................5
                  1.35     Frozen Qualified Nonelective Account.............5
                  1.36     Frozen Rollover Account..........................5
                  1.37     Highly Compensated Employee......................5
                  1.38     Inactive Participant.............................6
                  1.39     Investment Options...............................6
                  1.40     Leased Employee..................................6
                  1.41     Matching Contributions...........................6
                  1.42     Net Profits......................................6
                  1.43     Non-Highly Compensated Employee..................6
                  1.44     Normal Retirement Age............................6
                  1.45     Normal Retirement Date...........................6
                  1.46     Owner-Employee...................................7
                  1.47     Participant......................................7
                  1.48     Participating Employer...........................7
                  1.49     Plan.............................................7
                  1.50     Plan Year........................................7
                  1.51     Predecessor Plans................................7
                  1.52     Prior Match Account..............................7
                  1.53     Qualified Matching Contribution Account..........7
                  1.54     Qualified Matching Contributions.................7
                  1.55     Qualified Non-Elective Contribution Account......8
                  1.56     Qualified Non-Elective Contributions.............8
                  1.57     Rollover/Transfer Account........................8
                  1.58     Self-Employed Individual.........................8
                  1.59     Sponsor..........................................8
                  1.60     Trust Agreement..................................8
                  1.61     Trustee..........................................8
                  1.62     Valuation Date...................................8
                  1.63     Voluntary After-Tax Account......................8

ARTICLE II..................................................................8
         ELIGIBILITY AND PARTICIPATION......................................8
                  2.1      Active Participation.............................8
                  2.2      Exclusion of Certain Employees...................8
                  2.3      Re-employment....................................9
                  2.4      Waiver of Participation..........................9

ARTICLE III.................................................................9
         CONTRIBUTIONS......................................................9
                  3.1      Elective Deferral Contributions..................9
                  3.2      Employer Contributions...........................11
                           (a)  Employer Match Contributions................11
                           (b)  Additional Match Contributions..............11
                           (c)  Payment.....................................12
                           (d)  Qualified Matching Contributions............12
                  3.3      Contribution Limitation..........................12
                  3.4      Payroll Taxes....................................12
                  3.5      Rollovers and Transfers..........................12
                  3.6      Average Actual Deferral Percentage Test
                           Under Section 401(k) of the Code.................13
                           (a)  General Tests...............................13
                           (b)  Definitions.................................13
                                    (i)   Actual Deferral Percentage........13
                                    (ii)  Average Actual Deferral
                                          Percentage........................14
                                    (iii) Eligible Participant..............14
                           (c)  Special Rules...............................14
                           (d) Distribution of Excess Contributions.........15
                           (e) Qualified Non-Elective Contributions.........16
                  3.7      Limitations on Employee Contributions
                           and Employer Matching Contributions..............16
                           (a)  General Tests...............................16
                           (b)  Definitions.................................17
                                    (i)   Average Contribution Percentage...17
                                    (ii)  Contribution Percentage...........17
                                    (iii) Eligible Participant..............17
                                    (iv)  Aggregate Limit...................17
                                    (v)   Contribution Percentage Amounts...17
                                    (vi)  Employee Contribution.............18
                                    (vii) Matching Contribution.............18
                           (c)  Special Rules...............................18
                           (d)  Distribution of Excess Aggregate
                                Contributions...............................19

ARTICLE IV..................................................................21
         ALLOCATION OF FUNDS................................................21
                  4.1      Allocation of Employer Contributions.............21
                  4.2      Allocation of Net Earnings or Losses of the Trust21
                  4.3      Valuations.......................................21
                  4.4      Accounting for Distributions.....................21
                  4.5      Separate Accounts................................21
                  4.6      Investment of Funds..............................21
                           (a)  Investment Control..........................21
                           (b)  Investment Limitations......................21
                           (c)  Participant Directed Investments............21
                           (d)  Participant Election........................22
                           (e)  Employer Securities.........................22
                           (f)  Facilitation................................22

ARTICLE V...................................................................22
         LIMITATION ON ALLOCATIONS..........................................22
                  5.1      Participants Not Covered Under Other Plans.......22
                  5.2      Participants Covered Under Other Defined
                           Contribution Plans...............................23
                  5.3      Participants Covered Under Both Defined Benefit
                           and Defined Contribution Plans...................25
                  5.4      Definitions......................................25
                           (a)  Annual Additions............................25
                           (b)  Compensation................................26
                           (c)  Defined Benefit Fraction....................27
                           (d)  Defined Contribution Dollar Limitation......27
                           (e)  Defined Contribution Fraction...............27
                           (f)  Employer....................................28
                           (g)  Excess Amount...............................28
                           (h)  Highest Average Compensation................28
                           (i)  Limitation Year.............................28
                           (j)  Maximum Permissible Amount..................28
                           (k)  Projected Annual Benefit....................29

ARTICLE VI..................................................................29
         ENTITLEMENT TO BENEFITS............................................29
                  6.1      Retirement.......................................29
                  6.2      Disability.......................................29
                  6.3      Death............................................30
                  6.4      Termination of Employment........................30
                  6.5      Other Permitted Distributions....................30
                           (a)  Hardship....................................30
                           (b)  Attainment of Age 591/2.....................31
                           (c)  Distribution Upon Plan Termination..........32
                           (d)  Distribution Upon Sale of Assets............32
                           (e)  Distribution Upon Sale of Subsidiary........32

ARTICLE VII.................................................................32
         DISTRIBUTION OF BENEFITS...........................................32
                  7.1      General..........................................32
                  7.2      Method of Distribution...........................32
                  7.3      Installment Payments.............................33
                  7.4      Spousal Consent..................................33
                  7.5      Commencement of Benefits.........................33
                  7.6      Minimum Required Distributions...................33
                           (a)  Required Beginning Date.....................33
                           (b)  Limits on Distribution Periods..............34
                           (c)  Minimum Amounts to be Distributed...........34
                  7.7      Distribution of Death Benefits...................35
                           (a)      Method of Distributions.................35
                           (b)      Definitions.............................36
                                    (i)   Applicable Life Expectancy........36
                                    (ii)  Designated Beneficiary............36
                                    (iii) Distribution Calendar Year........36
                                    (iv)  Life Expectancy...................36
                                    (v)   Participant's Benefit.............37
                                    (vi)  Required Beginning Date...........37
                  7.8      Distribution Upon Termination of Employment
                           and Restrictions on Immediate Distribution.......38
                  7.9      Distribution From After-Tax and Rollover/
                           Transfer Accounts................................39
                           (a)  Voluntary After-Tax and Frozen After-Tax
                                Accounts....................................39
                           (b)  Rollover/Transfer Account...................39
                  7.10     Direct Rollover..................................39
                           (a)  Applicability...............................39
                           (b)  Definitions.................................40
                                    (i)   Eligible Rollover Distribution....40
                                    (ii)  Eligible Retirement Plan..........40
                                    (iii) Distributee.......................40
                                    (iv)  Direct Rollover...................40
ARTICLE VIII................................................................40
         ANNUITY REQUIREMENTS...............................................40
                  8.1      Applicability....................................40
                  8.2      Qualified Joint and Survivor Annuity.............41
                  8.3      Qualified Preretirement Survivor Annuity.........41
                  8.4      Definitions......................................41
                           (a)  Election Period.............................41
                           (b)  Earliest Retirement Age.....................41
                           (c)  Qualified Election..........................41
                           (d)  Qualified Joint and Survivor Annuity........42
                           (e)  Spouse (Surviving Spouse)...................42
                           (f)  Annuity Starting Date.......................42
                           (g)  Vested Account Balance......................42
                  8.5      Notice Requirements..............................42
                  8.6      Spousal Consent..................................44

ARTICLE IX..................................................................44
         BENEFICIARY AND PARTICIPANT INFORMATION............................44
                  9.1      Designation of Beneficiary.......................44
                  9.2      Information to be Furnished by Participant
                           and Beneficiaries................................44

ARTICLE X...................................................................44
         LOANS TO PARTICIPANTS..............................................44

ARTICLE XI..................................................................46
         TOP HEAVY PROVISIONS...............................................46
                  11.1     Applicability....................................46
                  11.2     Definitions......................................46
                           (a)  Determination Date..........................46
                           (b)  Employer....................................46
                           (c)  Employer Group..............................46
                           (d)  Key Employee................................46
                           (e)  Non-Key Employee............................46
                           (f)  Permissive Aggregation Group................47
                           (g)  Present Value...............................47
                           (h)  Required Aggregation Group..................47
                           (i)  Top Heavy Plan..............................47
                           (j)  Top Heavy Ratio.............................47
                           (k)  Valuation Date..............................48
                           (l)  Present Value...............................49
                  11.3     Minimum Compensation.............................49
                  11.4     Minimum Allocation...............................49
                  11.5     Vesting..........................................50

ARTICLE XII.................................................................50
         ADMINISTRATION OF THE PLAN.........................................50
                  12.1     Duties and Responsibilities of Fiduciaries;
                           Allocation of Fiduciary Responsibility...........50

                  12.2     Powers and Responsibilities of the Plan
                           Administrator....................................50
                           (a)  Administration of the Plan..................50
                           (b)  Records and Reports.........................51
                           (c)  Furnishing Trustee with Instructions........51
                           (d)  Rules and Decisions.........................51
                           (e)  Application and Forms for Benefits..........51
                  12.3     Allocation of Duties and Responsibilities........51
                  12.4     Appointment of the Plan Administrator............51
                  12.5     Expenses.........................................52
                  12.6     Liabilities......................................52
                  12.7     Claims Procedure.................................52
                           (a)  Filing a Claim..............................52
                           (b)  Notice of Denial of Claim...................52
                           (c)  Right of Review.............................52
                           (d)  Decision on Review..........................53
                           (e)  Court Action................................53

ARTICLE XIII................................................................53
         AMENDMENT, TERMINATION AND MERGER..................................53
                  13.1     Amendments.......................................53
                  13.2     Plan Termination; Discontinuance of
                           Employer Contributions...........................53
                  13.3     Successor Employer...............................54
                  13.4     Merger, Consolidation or Transfer................54

ARTICLE XIV.................................................................54
         MISCELLANEOUS PROVISIONS...........................................54
                  14.1     Exclusive Benefit of Participants
                           and Beneficiaries................................54
                  14.2     Nonguarantee of Employment.......................55
                  14.3     Rights to Trust Assets...........................55
                  14.4     Nonalienation of Benefits........................55
                  14.5     Gender...........................................55
                  14.6     Titles and Headings..............................55
                  14.7     Compliance with Laws, Rules and Regulations......55
                  14.8     Qualified Military Service.......................56

TRUST AGREEMENT.............................................................57

ARTICLE I...................................................................57
         Accounts...........................................................57
                  1.1      Establishing Accounts............................57

ARTICLE II..................................................................58
                  2.1      Receipt of Contributions.........................58

ARTICLE III.................................................................58
         Investment Powers of the Trustee...................................58
                  3.1      Investment of Trust Assets.......................58
                  3.2      Directed Investments.............................59
                  3.3      General Investment Powers........................59
                  3.4      Other Powers of the Trustee......................59
                  3.5      General Powers...................................60
                  3.6      Employer Securities..............................60
                  3.7      Voting, Tendering and Exchanging Company Stock...61
                  3.8      Registration and Disclosure for Company Stock....62

ARTICLE IV..................................................................62
                  4.1      Distributions from a Participant's Account.......62

ARTICLE V...................................................................63
                  5.1      Reports of the Trustee and the Administrator.....63

ARTICLE VI..................................................................63
                  6.1      Trustee's Fees and Expenses of the Trust.........63

ARTICLE VII.................................................................64
         Duties of the Employer and the Administrator.......................64
                  7.1      Information and Data to be Furnished the Trustee.64
                  7.2      Limitation of Duties.............................64

ARTICLE VIII................................................................64
                  8.1      Liability of the Trust...........................64

ARTICLE IX..................................................................65
         Delegation of Powers...............................................65
                  9.1      Delegation by the Trustee........................65
                  9.2      Delegation with Employer Approval................66

ARTICLE X...................................................................66
                  10.1     Amendment........................................66

ARTICLE XI..................................................................66
                  11.1     Resignation or Removal of Trustee................66

ARTICLE XII.................................................................67
         Termination of the Trust Agreement.................................67
                  12.1     Term of the Trust Agreement......................67
                  12.2     Termination by the Trustee.......................67
                  12.3     Failure of Initial Qualification.................67

ARTICLE XIII................................................................68
         Miscellaneous......................................................68
                  13.1     No Diversion of Assets...........................68
                  13.2     Notices..........................................68
                  13.3     Multiple Trustees................................68
                  13.4     Conflict with Plan...............................68
                  13.5     Applicable Law...................................68





                                    EXHIBIT A

                            PREDECESSOR PLAN ACCOUNTS



Predecessor Plan        Date of    Employee   After-Tax  Rollover    Prior
Name/Account Name       Transfer   Pre-Tax                           Match
____________________________________________________________________________

San Marcos Telephone    07/01/93
Company, Inc.and SM
Telecorp Companies
Retirement Plan:
o   Pre-Tax                          -
o   After-Tax                                   -
o   Rollover                                                -
o   Prior Match                                                       -
____________________________________________________________________________

PacifiCorp K Plus       01/10/98
Employee Savings
Plan: 1
o   Pre-Tax                          -
o   After-Tax                                   -
o   Rollover                                                -
o   Company Match 2                                                   -

____________________________________________________________________________


--------
   1     Account Names were provided by the recordkeeper and not specifically
identified in plan document for the PacifiCorp K Plus Employee Savings Plan.

   2     A former PacifiCorp K Plus Employee Savings Plan participant's
interest in the PacifiCorp K Plus Employee Stock Ownership Plan was liquidated
and deposited to his or her Company Match Account under the plan prior to the
date of transfer to the Plan.


                                    EXHIBIT B

                        FROZEN PREDECESSOR PLAN ACCOUNTS


____________________________________________________________________________

Frozen Plan Name/       Date of    Employee   After-Tax  Rollover    Other
Account Name            Merger     Pre-Tax                          Employer
____________________________________________________________________________

Kingsley Telephone      10/01/97
Company Retirement
Savings Plan:
o   Elective Deferral*               -
o   Employer*                                                          -
____________________________________________________________________________

Lake Dallas Telephone   10/01/97
Company, Inc. 401(k)
Profit Sharing Plan:
o   Employee Deferral*               -
o   Rollover*                                               -
o   Employer Matching*                                                 -
o   Employer Discretionary*                                            -

____________________________________________________________________________

Savings Plan for         On or
Employees of the         About
National Telephone      10/01/97
Cooperative Association
and Its Member Systems:
o   Employee
    Contribution 401(k)*             -
o   Employee
    Contribution Non 401(k)*                     -
o   Rollover Contribution*                                  -
o   Employer Contribution*                                             -
____________________________________________________________________________

*Account names as recorded on prior recordkeeper's accounting.



                                    EXHIBIT C

                               INVESTMENT OPTIONS

                                 (Plan ss. 1.39)

T. Rowe Price Summit Cash Reserves Fund

PIMCO Total Return Fund

BGI Asset Allocation Fund

T. Rowe Price Equity Index 500 Fund

Janus Fund

T. Rowe Price Equity Income Fund

Janus Overseas Fund

MSDW Institutional Small Company Growth Portfolio Fund

T. Rowe Price Mid-Cap Growth Fund

BGI LifePath Income Fund

BGI LifePath 2010 Fund

BGI LifePath 2020 Fund

BGI LifePath 2030 Fund

BGI LifePath 2040 Fund

CenturyTel, Inc. Common Stock





                                                                 Exhibit 10.1(b)

                                AMENDMENTS TO THE
                        CENTURYTEL, INC. DOLLARS & SENSE
                                 PLAN AND TRUST

     CENTURYTEL,  INC.,  represented herein by its Executive  Vice-President and
Chief Financial  Officer,  R. Stewart Ewing,  Jr., as Plan Sponsor and Employer,
does hereby execute the following  amendments to the CenturyTel,  Inc. Dollars &
Sense Plan and Trust:

     1.   Preamble:

          "These   amendments  to  the  Plan  are  adopted  to  reflect  certain
     provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
     ("EGTRRA").   These  amendments  are  intended  to  constitute  good  faith
     compliance  with the  requirements  of EGTRRA  and are to be  construed  in
     accordance with EGTRRA and guidance issued thereunder.  Except as otherwise
     provided  herein,  each amendment shall be effective as of the first day of
     the first Plan Year beginning after December 31, 2001."

     2.   Article X is hereby  amended to delete  paragraph (7) thereof,  and to
     re-number paragraphs (8) and (9) as (7) and (8), respectively.

     3.   Section 5.4(d) is hereby amended to read as follows:

          "(d) Defined  Contribution  Dollar  Limitation shall mean $30,000,  as
     adjusted under Code Section  415(d).  For Limitation  Years beginning after
     December  31,  2001,  the  limitation  shall be $40,000,  as  adjusted  for
     increases in the cost-of-living under Section 415(d) of the Code."

     4.   The first  paragraph  of Section  5.4(j) is hereby  amended to read as
     follows:

          "(j)  Maximum   Permissible  Amount  shall  mean  the  maximum  Annual
     Additions that may be contributed or allocated to a  Participant's  Account
     under the Plan for any Limitation Year, not to exceed the lesser of:

     (i)  the defined contribution dollar limitation, or

     (ii) twenty-five  percent (25%) of the  Participant's  Compensation for the
          Limitation  Year.  For Plan Years  beginning  after December 31, 2001,
          this percentage shall be one hundred percent (100%)."

     5.   Insert the following as the second sentence of the second paragraph of
     Section 1.11:

          "For  Plan  Years  beginning  after  December  31,  2001,  the  annual
     Compensation  of  each  Participant   taken  into  account  in  determining
     allocations for any Plan Year beginning after December 31, 2001,  shall not
     exceed $200,000 as adjusted for Cost-of-Living Increases in accordance with
     Code Section  401(a)(17)(B).  Annual Compensation means Compensation during
     the  Plan  Year  or such  other  consecutive  12-month  period  over  which
     Compensation  is  otherwise  determined  under the Plan (the  determination
     period)."

     6.   Insert the following as the second paragraph of Section 11.2(d):

          "For Plan Years  beginning  after  December 31, 2001,  any Employee or
     former  Employee  (including any deceased  Employee) who at any time during
     the Plan Year that  includes the  determination  date was an officer of the
     Employer  having  annual  Compensation  greater than  $130,000 (as adjusted
     under Code Section  416(i)(1) for Plan Years  beginning  after December 31,
     2002),  a 5-percent  owner of the  Employer,  or a  1-percent  owner of the
     Employer  having  annual  Compensation  of more  than  $150,000.  For  this
     purpose,  annual Compensation means compensation within the meaning of Code
     Section 415(c)(3).  The determination of who is a Key Employee will be made
     in accordance  with Code Section  416(i)(1) and the applicable  regulations
     and other guidance of general applicability issued thereunder."

     7.   Insert the following as the second paragraph of Section 11.2(j)(iii):

          "For Plan Years beginning after December 31, 2001, for purposes of (i)
     and (ii),  above, the provisions of this paragraph shall apply. The present
     value of  accrued  benefits  and the  amounts  of  account  balances  of an
     Employee  as  of  the   determination   date  shall  be  increased  by  the
     distributions made with respect to the Employee under the plan and any plan
     aggregated  with the Plan under Code  Section  416(g)(2)  during the 1-year
     period ending on the determination  date. The preceding sentence shall also
     apply to  distributions  under a  terminated  plan  which,  had it not been
     terminated,  would have been  aggregated  with the Plan under Code  Section
     416(g)(2)(A)(i). In the case of a distribution made for a reason other than
     severance from  employment,  death, or disability,  this provision shall be
     applied by substituting  `5-year  period' for `1-year  period.' The accrued
     benefits and accounts of any individual who has not performed  services for
     the Employer  during the 1-year  period  ending on the  determination  date
     shall not be taken into account."

     8.   Insert the following as the second paragraph of Section 11.4(a):

          "For  Plan  Years   beginning   after  December  31,  2001,   Matching
     Contributions  shall be taken into account for purposes of  satisfying  the
     minimum  contribution  requirements of Code Section 416(c)(2) and the Plan.
     The preceding  sentence shall apply with respect to matching  contributions
     under  the Plan or,  if the Plan  provides  that the  minimum  contribution
     requirement  shall  be met in  another  plan,  such  other  plan.  Matching
     Contributions   that  are  used  to  satisfy   the   minimum   contribution
     requirements shall be treated as matching contributions for purposes of the
     actual contribution  percentage test and other requirements of Code Section
     401(m)."


     9.   Insert the following as the second paragraph of Section 7.10(b)(i):

          "For  distributions  made  after  December  31,  2001,  a portion of a
     distribution shall not fail to be an eligible rollover  distribution merely
     because the portion consists of after-tax employee  contributions which are
     not  includable in gross income.  However,  such portion may be transferred
     only to an  individual  retirement  account  or annuity  described  in Code
     Section  408(a)  or  (b),  or  to a  qualified  defined  contribution  plan
     described  in Code  Section  401(a) or  403(a)  that  agrees to  separately
     account for amounts so transferred, including separately accounting for the
     portion of such  distribution  which is  includable in gross income and the
     portion of such distribution which is not so includable."

     10.  Insert the following as the third paragraph of Section 7.10(b)(i):

          "Effective for distributions  made after December 31, 2001, any amount
     that is  distributed  on  account  of  hardship  shall  not be an  eligible
     rollover distribution and the distributee may not elect to have any portion
     of such a distribution paid directly to an eligible retirement plan."

     11.  Insert the following as the second paragraph of Section 7.10(b)(ii):

          "For   distributions   made  after  December  31,  2001,  an  eligible
     retirement  plan  shall  also mean an annuity  contract  described  in Code
     Section  403(b) and an eligible  plan under Code  Section  457(b)  which is
     maintained by a state,  political  subdivision of a state, or any agency or
     any  instrumentality  of a state or  political  subdivision  of a state and
     which agrees to separately  account for amounts  transferred into such plan
     from this Plan. The definition of eligible retirement plan shall also apply
     in the case of a  distribution  to a  surviving  spouse,  or to a spouse or
     former  spouse  who is the  alternate  payee  under  a  qualified  domestic
     relations order, as defined in Code Section 414(p)."

     12.  Insert the following as the fifth paragraph of Section 7.8:

          "The value of a Participant's  nonforfeitable account balance shall be
     determined  without  regard to that portion of the account  balance that is
     attributable to rollover  contributions  (and earnings  allocable  thereto)
     within  the  meaning  of  Code  Sections  402(c),   403(a)(4),   403(b)(8),
     408(d)(3)(A)(ii)  and  457(e)(16).   If  the  value  of  the  Participant's
     nonforfeitable account balance as so determined is $5,000 or less, the Plan
     may immediately  distribute the Participant's entire nonforfeitable account
     balance."

     13.  Insert the following as the second paragraph of Section 6.4:

          "For  distributions  made after  December 31, 2001,  if an Employee so
     elects,  a  Participant's   Elective  Deferral   Contributions,   qualified
     non-elective contributions,  qualified matching contributions, and earnings
     attributable to these  contributions shall be distributed on account of the
     Participant's severance from employment. However, such a distribution shall
     be subject to the other  provisions  of the Plan  regarding  distributions,
     other than  provisions  that require a separation  from service before such
     amounts may be distributed."

     14.  Section  1.11 is  amended  by  inserting  the  following  as the  last
     paragraph thereof:

          "For Plan Years  beginning on and after January 1, 2001,  for purposes
     of the  definition  of  Compensation  contained in this Section  1.11,  and
     Sections 1.37, 1.40, 5.4(b) and 11.3 of the Plan, Compensation paid or made
     available  during such years shall  include  elective  amounts that are not
     includible  in the gross  income of the  Employee by reason of Code Section
     132(f)(4)."

     15.  Insert the following as Section 3.7(c)(viii):

          "(viii) The multiple use test described in Treasury Regulation Section
     1.401(m)-2  and this  Section  of the Plan  shall not apply for Plan  Years
     beginning after December 31, 2001."

     16.  Delete the first  sentence of Section  3.1(c) and insert the following
     in lieu thereof:

          "(c) No Participant shall be permitted to have Elective Deferrals made
     under this Plan,  or any other  qualified  plan  maintained by the Employer
     during any taxable  year, in excess of the dollar  limitation  contained in
     Code Section  402(g) in effect for such taxable year,  except to the extent
     permitted  under Section  3.1(d) of this Plan and Code Section  414(v),  if
     applicable."

     17.  Insert the following as Section 3.1(d):

          "(d)  All  Employees  who  are  eligible  to  make  Elective  Deferral
     Contributions under this Plan and who have obtained age 50 before the close
     of the Plan  Year  shall be  eligible  to make  catch-up  contributions  in
     accordance  with, and subject to the  limitations  of, Code Section 414(v).
     Such catch-up contributions shall not be taken into account for purposes of
     the provisions of the Plan  implementing  the required  limitations of Code
     Sections  402(g)  and 415.  The Plan  shall not be  treated  as  failing to
     satisfy the provisions of the Plan  implementing  the  requirements of Code
     Sections 401(k)(3), 401(k)(11),  401(k)(12), 410(b), or 416, as applicable,
     by reason of the making of such catch-up contributions."

     18.  Delete Section 6.5(a)(ii)(2) and insert the following in lieu thereof:

          "(2) All plans  maintained by the Employer provide that the Employee's
     Elective Deferrals (and Employee  Contributions)  will be suspended for six
     months after receipt of the hardship distribution;"






     THUS DONE AND SIGNED this 31st day of  December,  2002.

                                        CENTURYTEL, INC.

                                           /s/ R. Stewart Ewing, Jr.
                                        BY:______________________________
                                              R. Stewart Ewing, Jr.
                                              Executive Vice-President and
                                               Chief Financial Officer


     THUS DONE AND SIGNED this _________ day of _____________, 200___.


                                        T. ROWE PRICE TRUST COMPANY


                                        BY:______________________________










                                                                 Exhibit 10.1(c)

                           CENTURYTEL RETIREMENT PLAN

                    As Amended and Restated February 28, 2002


         CenturyTel, Inc. (the "Company") hereby amends and restates the
CenturyTel Retiremenet Plan (the "Plan"), which has previously been established
for the exclusive benefit of eligible employees of certain subsidiaries and
affiliates of the Company, and other entities permitted to adopt the Plan by the
Company. The Plan is intended to constitute a qualified defined benefit pension
plan, as described in Code Section 401(a).

         The provisions of the Plan and Trust relating to the Trustee constitute
the trust agreement which is entered into by and between CenturyTel, Inc., the
adopting employers and Bankers Trust Company, N.A.. The Trust is intended to be
tax exempt, pursuant to Code Section 501(a).

         The Plan, as amended and restated, is intended to comply with the
qualification requirements of the Uniformed Services Employment and Reemployment
Rights Act of 1994 (USERRA), the General Agreement of Tariffs and Trade portion
of the Uruguay Round Agreements Act (GATT), the Retirement Protection Act of
1994 (RPA '94), the Small Business Job Protection Act of 1996 (SBJPA), the
Taxpayer Relief Act of 1997 (TRA '97), the Restructuring and Reform Act of 1998
(RRA '98), and the Community Renewal Tax Relief Act of 2000 (CRA), and is
intended to comply in operation therewith. To the extent that the Plan, as set
forth below, is subsequently determined to be insufficient to comply with such
requirements and any regulations issued, the Plan shall later be amended to so
comply.

         This Amendment and Restatement of the CenturyTel Retirement Plan, as
set forth in this document, is effective as of January 1, 2002, except as
otherwise indicated in specific Sections hereof.



TABLE OF CONTENTS ARTICLE I....................................................................1 EFFECTIVE DATE AND APPLICATION......................................1 1.1 Effective Date....................................1 1.2 Qualification.....................................1 1.3 Sponsoring and Adopting Employers.................1 1.4 Incorporation of Trust Agreement..................1 ARTICLE II...................................................................2 DEFINITIONS.........................................................2 2.1 Accrued Benefit...................................2 2.2 Actuarial Equivalency or Actuarial Equivalent.....2 2.3 Adopting Entity...................................2 2.4 Affiliate.........................................3 2.5 Alternative Joint and Survivor Annuity............3 2.6 Annuity Starting Date.............................3 2.7 Beneficiary.......................................4 2.8 Benefit Computation Period........................4 2.9 Board.............................................4 2.10 Break in Service..................................4 2.11 Code..............................................4 2.12 Committee.........................................4 2.13 Company...........................................4 2.14 Compensation......................................4 2.15 Computation Period................................6 2.16 Credited Service..................................6 2.17 Disability or Disabled............................6 2.18 Early Retirement Date.............................6 2.19 Eligibility Computation Period....................6 2.20 Eligible Employee.................................6 2.21 Employee..........................................6 2.22 Employer..........................................6 2.23 ERISA.............................................7 2.24 Average Annual Compensation.......................7 2.25 Hour of Service...................................7 2.26 Layoff............................................8 2.27 Leave of Absence..................................8 2.28 Monthly Compensation..............................9 2.29 Normal Form.......................................9 2.30 Normal Retirement Age.............................9 2.31 Normal Retirement Date............................9 2.32 Participant.......................................9 2.33 Plan..............................................9 2.34 Plan Administrator................................9 2.35 Plan Year.........................................9 2.36 Prior Plan........................................9 2.37 Qualified Domestic Relations Order................9 2.38 Qualified Joint and Survivor Annuity..............9 2.39 Required Beginning Date...........................9 2.40 Single Life Annuity...............................10 2.41 Social Security Covered Compensation..............10 2.42 Spouse............................................10 2.43 Trust Agreement...................................10 2.44 Trustee...........................................11 2.45 Vesting Computation Period........................11 2.46 Year of Credited Service..........................11 2.47 Year of Eligibility Service.......................11 2.48 Year of Service...................................11 2.49 Year of Vesting Service...........................11 ARTICLE III..................................................................12 ELIGIBILITY AND PARTICIPATION.......................................12 3.1 Eligible Employees................................12 3.2 Requirements for Participation....................13 3.3 Effective Time of Participation...................13 3.4 Reassignment and Reemployment.....................13 3.5 Waiver of Participation...........................13 ARTICLE IV...................................................................14 CREDITING OF SERVICE................................................14 4.1 Eligibility Service...............................14 4.2 Vesting Service...................................14 4.3 Credited Service..................................14 4.4 Reemployment after Break in Service...............15 4.5 Transition Rules and Short and Overlapping Computation Periods...................16 4.6 Special Rules for Service Under Prior Plan........17 4.7 Transfers between Company, Affiliates and Adopting Entities.................................17 ARTICLE V....................................................................19 BENEFITS ON RETIREMENT, DEATH, DISABILITY AND TERMINATION OF EMPLOYMENT.......................................19 5.1 Normal Retirement.................................19 5.2 Early Retirement..................................19 5.3 Deferred Retirement...............................19 5.4 Disability Retirement.............................19 5.5 Spouse's Benefit..................................19 5.6 Benefit on Termination of Employment..............20 5.7 Limitations on Pensions...........................22 ARTICLE VI...................................................................25 COMPUTATION OF BENEFIT AMOUNTS......................................25 6.1 Normal Retirement Benefit.........................25 6.2 Early Retirement Benefit..........................26 6.3 Deferred Retirement Benefit.......................27 6.4 Disability Retirement Benefit.....................28 6.5 Spouse's Benefit..................................28 6.6 Benefits for Terminated Vested Employees..........29 6.7 Reduction for Other Benefits......................29 6.8 Cost of Living Adjustment.........................30 ARTICLE VII..................................................................31 TIMING AND FORM OF BENEFIT PAYMENTS.................................31 7.1 Commencement of Benefits..........................31 7.2 Normal Form.......................................32 7.3 Waiver of Normal Form.............................32 7.4 Timing of Election and Spousal Consent............33 7.5 Notice Requirements...............................34 7.6 Special Rules for Death of Participant or Beneficiary.......................................34 7.7 Optional Forms of Payment.........................35 7.8 Annuity Form of Payment...........................37 7.9 Mandatory Lump Sum Distribution of Small Benefits....................................37 7.10 Minimum Distributions Required Under Code Section 401(a)(9)............................38 7.11 Early Commencement Election.......................39 7.12 Suspension of Benefits............................39 7.13 Eligible Rollover Distributions...................41 ARTICLE VIII.................................................................43 MEDICAL BENEFITS....................................................43 8.1 Eligibility.......................................43 8.2 Medical Benefits..................................43 8.3 Separate Medical Benefits Account.................43 8.4 Limitation on Contributions.......................44 8.5 Satisfaction of Liabilities.......................44 8.6 Forfeiture of Benefits............................44 ARTICLE IX...................................................................45 FUNDING.............................................................45 9.1 Plan Assets.......................................45 9.2 Trust Agreement...................................45 9.3 Insurance Arrangements............................45 9.4 Contributions.....................................45 9.5 Exclusive Benefit.................................45 9.6 Return of Contributions...........................45 9.7 Prohibition Against Assignment or Alienation of Benefits............................46 ARTICLE X....................................................................47 FIDUCIARY RESPONSIBILITIES AND PLAN ADMINISTRATION..................47 10.1 Allocation of Fiduciary Responsibilities..........47 10.2 Committee.........................................47 10.3 Committee Action by Majority Vote.................47 10.4 Plan Administrator................................47 10.5 Committee Reliance on Professional Advice.........48 10.6 Plan Administration Expenses......................48 10.7 Responsibilities of Trustee.......................48 10.8 Investment Management by Trustee..................48 10.9 Allocation of Investment Management Responsibilities..................................48 10.10 Appointment and Removal of Investment Managers....48 10.11 Ascertainment of Plan Financial Needs.............49 10.12 Delegation of Company's Duties....................49 10.13 Benefit Claim Procedure...........................49 10.14 QDRO Procedures...................................50 10.15 Service in Multiple Fiduciary Capacities..........50 ARTICLE XI...................................................................51 CO-SPONSORSHIP OF PLAN AND MERGERS WITH OTHER PLANS.................51 11.1 Co-sponsorship of Plan by Affiliates..............51 11.2 Co-sponsorship of Plan by Adopting Entities.......51 11.3 Merger with Plan of Affiliate.....................51 ARTICLE XII..................................................................53 DURATION AND AMENDMENT..............................................53 12.1 Reservation of Right to Suspend or Terminate Plan.53 12.2 Reservation of Right to Amend Plan................53 12.3 Transactions Subject to Code Section 414(l).......53 ARTICLE XIII.................................................................55 DISTRIBUTION UPON PLAN TERMINATION..................................55 13.1 Vesting on Plan Termination.......................55 13.2 Allocation of Assets on Plan Termination..........55 13.3 Provision for Benefits After Plan Termination.....56 13.4 Computation of Benefits After Plan Termination....56 13.5 Continued Employment Not Required After Plan Termination..................................56 13.6 Data in Company Records on Plan Termination.......56 13.7 Satisfaction of Liabilities on Plan Termination...56 13.8 High-25 Distribution Restrictions.................57 ARTICLE XIV..................................................................59 INTERCHANGE OF BENEFIT OBLIGATIONS..................................59 14.1 Interchange Agreement Permitted...................59 ARTICLE XV...................................................................60 GENERAL PROVISIONS..................................................60 15.1 No Employment Rights Conferred....................60 15.2 Integration Clause................................60 15.3 Incapacity of Recipient...........................60 15.4 ERISA Fiduciary Duties............................60 15.5 Compliance with State and Local Law...............60 15.6 Usage.............................................60 15.7 Titles and Headings...............................60 15.8 Severability Clause...............................60 15.9 USERRA - Military Service Credit..................61 ARTICLE XVI..................................................................62 TOP-HEAVY REQUIREMENTS..............................................62 16.1 In General........................................62 16.2 Definitions.......................................62 16.3 Determination of Top-Heavy Ratio..................63 16.4 Top-Heavy Minimum Benefits........................65 16.5 Termination of Top-Heavy Status...................66 16.6 Interpretation....................................66

ARTICLE I EFFECTIVE DATE AND APPLICATION 1.1 Effective Date. The effective date of this Amendment and Restatement of the Plan shall be January 1, 2002, except as otherwise indicated in specific Sections hereof. 1.2 Qualification. It is the intention of the Company that the Plan shall satisfy the requirements of ERISA, that the Plan shall be qualified under Section 401(a) of the Code, and that the Trust established under the Plan shall be exempt from taxation under Section 501(a) of the Code. If the Commissioner of Internal Revenue determines that the Plan as restated does not qualify under Section 401(a) of the Code, the Plan may be retroactively amended to so qualify. 1.3 Sponsoring and Adopting Employers. The Company is the adopting sponsor of the Plan. Any Affiliate or Adopting Entity approved by the Company may also adopt the Plan, by a statement in writing, signed by the Affiliate or Adopting Entity and approved by the Company. The statement shall include the effective date of adoption of the Plan by the adopting Affiliate or Adopting Entity and may include any special provisions applicable only to employees of such adopting Affiliate or Adopting Entity. 1.4 Incorporation of Trust Agreement. The Trust Agreement(s) established under the Plan shall be incorporated into, and made a part of, the Plan in accordance with Section 9.2. ARTICLE II DEFINITIONS The following terms, when used with an initial capital letter in this Plan, shall have the following meanings unless the context clearly requires a different meaning. 2.1 "Accrued Benefit" means, for any Participant as of any determination date, the amount of retirement income (whether or not vested) that would be payable to the Participant as of his Normal Retirement Date in accordance with the provisions of Section 6.1, based on the Participant's Credited Service and Final Average Compensation as of the date of determination. 2.2 "Actuarial Equivalency" or "Actuarial Equivalent" means a benefit under which the present value of the expected payments is equal to the present value of the expected benefit otherwise payable under the Plan, determined on the basis of the following mortality and interest assumptions: Mortality: UP- 1984 Morality Table Interest Rate: 8% per annum Notwithstanding the foregoing, for determinations of cash amounts, interest shall be the annual rate of interest on 30 year Treasury securities for the September preceding the year in which the cash amount is paid and mortality shall be as provided in the mortality table prescribed by the Commissioner of Internal Revenue under Section 417(e)(3)(A)(ii)(I) of the Internal Revenue Code. For valuing benefits accrued on or before December 31, 1987, the Consumer Price Index shall be assumed to increase at least two percent (2%) per annum. When the term "Actuarial Value" is used herein, it shall mean the present value of a benefit computed using the factors and assumptions provided in this Section 2.2. If the actuarial factors for determining equivalent benefits are changed by Plan amendment, the benefit actually paid in any form shall not be less than the amount determined for the same form by applying the prior factors to the Participant's Accrued Benefits as of the date the change is adopted or is effective, whichever is later. 2.3 "Adopting Entity" means an entity which, with approval of the Company, adopts this Plan for the benefit of its eligible employees. 2.4 "Affiliate" means: (a) any corporation that is a member of a controlled group of corporations (as defined in Section 1563(a) of the Code, without regard to Sections 1563(a)(4) and 1563(e)(3)(C) of the Code) with the Company; (b) any unincorporated business under common control with the Company, as determined under Section 414(c) of the Code and, to the extent not inconsistent therewith, under such rules as may be adopted by the Board; (c) a member of any affiliated service group that includes the Company, as determined under Section 414(m) of the Code; or (d) except to the extent otherwise provided in Treasury Regulations, a leasing organization with respect to the periods of service performed by any individual who is a leased employee (within the meaning of Section 414(n) of the Code) with respect to an Affiliate (determined without regard to this paragraph (e)) or any related person (within the meaning of Section 144(a)(3) of the Code). A corporation, unincorporated business, or other organization shall qualify as an Affiliate only with respect to the period during which it satisfies one or more of the applicable descriptions in paragraphs (a) through (d), above. Except as otherwise specifically provided in the Plan, the employment of an individual with an Affiliate for purposes of the Plan shall not include any period with respect to which the corporation, unincorporated business, or other organization constituting the Affiliate fails to satisfy one or more of the applicable descriptions in paragraphs (a) through (d), above, and an individual's employment with an Affiliate shall be considered terminated for purposes of the Plan no later than the date on which the corporation, unincorporated business, or other organization constituting the Affiliate ceases to satisfy any of the applicable descriptions in paragraphs (a) through (d), above. Paragraphs (c) and (d), above, shall apply solely for purposes of determining an individual's Eligibility Service and Vesting Service, and shall not apply for any other purpose under the Plan, including, without limitation, for purposes of determining his Credited Service. 2.5 "Alternative Joint and Survivor Annuity" means an optional form of benefit payment provided under Section 7.7(a), which may be elected by a Participant (with Spousal consent) pursuant to Section 7.3. 2.6 "Annuity Starting Date" has the same meaning as in Code Section 417(f), i.e., the first day of the first period for which an amount is payable as an annuity or, in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the Participant to payment of such benefit. 2.7 "Beneficiary" means any individual designated or deemed designated by a Participant or former Participant to receive a benefit under the Plan after the death of the Participant or former Participant. 2.8 "Benefit Computation Period" means the period determined under Section 4.3(a). 2.9 "Board" means the Board of Directors of the Company, the executive committee of the Board, and any other committee of the Board authorized to act on its behalf. 2.10 "Break in Service" means a Computation Period in which an Employee fails to complete more than five hundred (500) Hours of Service with the Employer. 2.11 "Code" means the Internal Revenue Code of 1986, as amended. 2.12 "Committee" means the committee appointed by the Board to administer the Plan pursuant to Article IX. 2.13 "Company" means CenturyTel, Inc. 2.14 "Compensation" means the sum of (a) and (b), as adjusted under (c), (d),and (e) and after applying the provisions of (f), (g) and (h): (a) All nondeferred compensation reportable on Form W-2 except the following: (1) Overtime or premium pay. (2) Imputed income from expense reimbursements or fringe benefits. (3) Prizes and awards (such as employee recognition awards and safety awards). (4) Payment for termination of employment (such as retirement bonuses, disability benefits and severance pay). (5) Long-term incentive compensation. (b) Salary reduction amounts elected by the Participant under a qualified cash or deferred arrangement or a cafeteria plan. (c) During periods of reduced compensation because of such causes as illness, disability or leave of absence, compensation shall be figured at the last regular rate before the start of the period. (d) The maximum amount of annual compensation taken into account for any year for a Participant shall be $150,000 plus any cost-of-living adjustment authorized for the year by applicable regulations. For the Plan Years beginning before January 1, 1997, for purposes of this limit, the following shall apply to any Participant who is a highly compensated employee (as defined in Internal Revenue Code Section 414(q) and related Treasury Regulations) and is either a five percent owner or one of the 10 highest paid employees: (1) The Participant's compensation shall be aggregated with any compensation paid by the Employer to the Participant's spouse and to the Participant's lineal descendants under age 19. (2) If the $150,000 limit is exceeded in the aggregate, pay counted for each aggregated employee shall be reduced pro rata to stay within the limit. (e) The reduction in the maximum compensation counted under (d) to $150,000 shall be made providing a Participant with the greater of the following (formula with extended wear-away): (1) The Participant's benefit accrued under the Plan as of December 31, 1993 based on compensation up to the maximum permitted amount of compensation in each earlier year, plus the benefit accrued on the basis of service after that date and on compensation at the reduced level. (2) The Participant's benefit accrued on the basis of service before and after December 31, 1993 and on compensation at the reduced level. (f) A bonus earned in one calendar year and paid in the following calendar year, including any bonus paid in the year following employment termination, shall be treated as received in the year in which the bonus is paid or, if earlier, the year in which employment terminates. (g) A lump sum payment in lieu of an increase in base salary shall not be treated as a bonus and shall be counted as salary received one-twelfth in each calendar month of employment in the year in which the lump sum amount is paid. (h) For the month in which a Participant terminates employment, Compensation shall be pro-rated based on a fraction, the numerator of which is the number of days worked by the Participant in the month and the denominator is thirty (30). 2.15 "Computation Period" means an Eligibility Computation Period, Vesting Computation Period or Benefit Computation Period, as is appropriate in the context in which used. Years of Service and Breaks in Service will be measured on the same Computation Period (Eligibility, Vesting or Benefit, as applicable) 2.16 "Credited Service" means the number of Years of Credited Service credited to a Participant for benefit accrual purposes pursuant to Section 4.3. 2.17 "Disability" or "Disabled" means the total disability of an Employee as evidenced by the Employee's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of at least twelve (12) months. An Employee shall only be considered disabled after proof of such disability satisfactory to the Employer is furnished (which proof shall include a determination of approval for Social Security disability benefits or, if such is not available, a written statement of a licensed physician appointed or approved by the Employer). 2.18 "Early Retirement Date" means any date prior to his Normal Retirement Date on which an Employee actually retires or is retired pursuant to Section 5.2. 2.19 "Eligibility Computation Period" means the period determined under Section 4.1(a). 2.20 "Eligible Employee" means an Employee described in Section 3.1. 2.21 "Employee" means any person regularly employed by the Employer, including employees of any other employer required to be aggregated with the Employer under Section 414(b), (c), (m) or (o) of the Code. The term Employee shall not include any leased employee deemed to be an employee of the Employer as provided in Sections 414(n) or (o) of the Code, or any owner-employee, as defined in Code Section 401(c)(3), or self-employed individual, as defined in Code Section 401(c)(1). The term Employee shall not include an individual who is retained by the Employer pursuant to a contract or agreement that specifies that the individual is not eligible to participate in the Plan, an individual whose basic compensation for services rendered is not paid by or on behalf of the Employer, or an individual who is not classified as a common-law employee by the Employer, regardless of any subsequent reclassification of such individual as a "common-law employee" of the Employer by the Employer, any governmental agency, or any court. 2.22 "Employer" means the Company, any Affiliate which has adopted this Plan, and any Adopting Entity. This Plan is a single plan maintained by multiple employers in which all of the Plan assets are available to pay benefits for all Participants in the Plan. 2.23 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.24 "Final Average Compensation" means the Participant's average Monthly Compensation over the sixty (60) consecutive calendar months of highest Monthly Compensation in the last one hundred twenty (120) months of employment with the Employer. Months separated by a period when the Employee is not in such employment shall be treated as consecutive. If an Employee has fewer than sixty (60) months of compensation, all months shall be used. For purposes of computing Final Average Compensation, Compensation for Employees of CenturyTel, Inc., any Affiliate or any Adopting Entity (not including former employees of Pacific Telecom, Inc. who became employees of CenturyTel, Inc. or an Affiliate thereof as of the date of acquisition of Pacific Telecom, Inc. by CenturyTel, Inc. or an Affiliate thereof) shall only be counted beginning with the 1999 Plan Year. 2.25 "Hour of Service" means: (a) Each hour for which an Employee is compensated by the Employer, or is entitled to be so compensated, for service rendered by him to the Employer. These hours will be credited to the Employee for the computation period in which the duties are performed. (b) Each hour for which an Employee is compensated by the Employer, or is entitled to be so compensated, on account of a period of time during which no services are rendered by him to the Employer (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than five hundred and one (501) Hours of Service shall be credited pursuant to this subparagraph (b) on account of any single continuous period during which an Employee renders no services to the Employer (whether or not such period occurs in a single computation period). Hours under this paragraph will be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference. (c) Each hour for which back pay, without regard to mitigation of damages, has been awarded or agreed to by the Employer. The same Hours of Service shall not be credited both under subparagraph (a) or subparagraph (b), whichever shall be applicable, and also under this subparagraph (c). The hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the payment is made. An Employee whose compensation is not determined on an hourly basis or for whom hourly employment records are not maintained shall be credited with forty-five (45) Hours of Service per week. Hours of Service will be credited for eligibility, participation and vesting purposes for employment with other members of an affiliated service group (under Section 414(m) of the Code), a controlled group of corporations (under Section 414(b) of the Code), or a group of trades or businesses under common control (under Section 414(c) of the Code), of which the Employer is a member, and any other entity required to be aggregated with the Employer pursuant to Section 414(o) of the Code and the regulations thereunder. Hours of Service for purposes of determining Years of Credited Service shall only include Hours of Service with the Employer. Hours of Service will be credited for eligibility, participation and vesting purposes for periods during which an Eligible Employee is on Layoff or a Leave of Absence. Hours of Service will also be credited for any individual considered an Employee under Section 414(n) or (o) of the Code, and regulations thereunder. Solely for purposes of determining whether a Break in Service for participation and vesting purposes has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, eight (8) Hours of Service per day of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (i) by reason of the pregnancy of the individual, (ii) by reason of a birth of a child of the individual, (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (iv) for purpose of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this paragraph shall be credited only (i) in the computation period in which the absence begins if the crediting is necessary to prevent a Break in Service in that period, or (ii) in all other cases, in the following computation period. 2.26 "Layoff" means the termination of employment due to the reduction of the Employer's work force. An Employee shall continue as laid off until (i) the Employee retires, dies or resumes employment at the request of the Employer, (ii) the Employer notifies the Employee that employment has been terminated, (iii) the Employee elects to terminate employment, or the employee fails to return to work when recalled, or (iv) twelve (12) months have elapsed since the date of the Layoff. Termination of a Layoff under (ii), (iii) or (iv) above, shall be effective as of the date of the Layoff. 2.27 "Leave of Absence" means (i) a leave authorized by the Employer if the Employee returns within the time prescribed by the Employer and otherwise fulfills all the conditions of the leave imposed by the Employer, (ii) absence because of Disability, or (iii) periods of military service if the Employee returns with employment rights protected by law. If a person on Leave of Absence fails to meet the conditions of the leave or fails to return to work when required, employment shall terminate and termination of the Leave of Absence shall be effective as of the date the leave began unless the failure is due to death or retirement. In authorizing Leaves of Absence, the Employer shall treat all Employees similarly situated alike as much as possible. 2.28 "Monthly Compensation" shall mean a Participant's Compensation determined under Section 2.14 for a Plan Year, divided by twelve (12). 2.29 "Normal Form" means the form of benefit payable to a Participant pursuant to Section 7.2 of this Plan. 2.30 "Normal Retirement Age" means age sixty-five (65). 2.31 "Normal Retirement Date" means the first day of the calendar month coinciding with or following the date the Participant attains Normal Retirement Age. 2.32 "Participant" means an Employee participating in the Plan in accordance with the provisions of Article III. 2.33 "Plan" means the provisions of this CenturyTel Retirement Plan, as set forth herein and as may be amended from time to time. 2.34 "Plan Administrator" means the Committee. 2.35 "Plan Year" means the calendar year, except that the first plan year with respect to each Employer shall mean the period from the Effective Date with respect to such Employer to December 31 of such year. 2.36 "Prior Plan" means the Pacific Telecom Retirement Plan. 2.37 "Qualified Domestic Relations Order" means a "qualified domestic relations order" within the meaning of ERISA Section 206(d). 2.38 "Qualified Joint and Survivor Annuity" means, for any Participant who has a Spouse at his retirement date, an annuity payable monthly for the lifetime of the Participant and a survivor annuity payable monthly to the Spouse (if living) upon the Participant's death which is fifty-percent (50%) of the amount of the annuity payable during the lifetime of the Participant. 2.39 "Required Beginning Date" means (1) General Rule. The required beginning date of a Participant is the later of the April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 or retires except that benefit distributions to a 5-percent owner must commence by the April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 . (2) Deferral or Cessation of Distributions. (A) Any Participant attaining age 70 1/2 in years after 1995 may elect by April 1 of the calendar year following the year in which the Participant attained age 70 1/2 (or by December 31, 1997 in the case of a Participant attaining age 70 1/2 in 1996) to defer distributions until the calendar year following the calendar year in which the Participant retires. If no such election is made the Participant will begin receiving distributions by the April 1 of the calendar year following the year in which the Participant attained age 70 1/2 (or by December 31, 1997 in the case of a Participant attaining age 70 1/2 in 1996). (B) Any Participant attaining age 70 1/2 in years prior to 1997 may elect to stop distributions and recommence by the April 1 of the calendar year following the year in which the Participant retires. There will be a new annuity starting date upon recommencement. (3) 5-Percent Owner. A Participant is treated as a 5-percent owner for purposes of this Section if such Participant is a 5-percent owner as defined in Section 416 of the Code at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2 . (4) Distributions Begun. Once distributions have begun to a 5-percent owner under this Section, they must continue to be distributed, even if the Participant ceases to be a 5-percent owner in a subsequent year. 2.40 "Single Life Annuity" means an annuity payable monthly in equal installments for the life of a Participant, which terminates upon the death of the Participant and does not provide any survivor benefits. 2.41 "Social Security Covered Compensation"" means the covered compensation amount for a person with the Participant's Social Security retirement age, as determined in accordance with applicable regulations. The Committee may, in its discretion, use a table of Social Security Covered Compensation published by the Internal Revenue Service with rounded amounts. 2.42 "Spouse" means any individual who is legally married to a Participant as of any applicable date, provided that a former spouse shall be treated as the spouse of a Participant to the extent provided under a Qualified Domestic Relations Order. 2.43 "Trust Agreement" means the Trust Agreement between CenturyTel, Inc. and Bankers Trust Company, as from time to time amended and in effect, and any other or additional trust agreement under the Plan, so designated for such purpose by the Board, between the Company, any adopting Affiliate, or Adopting Entity, and any Trustee at any time acting thereunder. 2.44 "Trustee" means the trustee under a Trust Agreement. 2.45 "Vesting Computation Period" means the period determined under Section 4.2(a). 2.46 "Year of Credited Service" means a Benefit Computation Period in which an Employee meets the requirements of Section 4.3(b) and is credited with a Year of Credited Service thereunder. 2.47 "Year of Eligibility Service" means an Eligibility Computation Period in which an Employee meets the requirements of Section 4.1(b) and is credited with a Year of Eligibility Service thereunder. 2.48 "Year of Service" means a Plan Year in which an Employee completes one thousand (1000) or more Hours of Service (whether or not continuous) with the Company, a participating Affiliate, or an Adopting Entity. 2.49 "Year of Vesting Service means a Vesting Computation Period in which an Employee meets the requirements of Section 4.2(b) and is credited with a Year of Vesting Service thereunder. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligible Employees. Any Employee of an Employer shall be eligible to participate in the Plan, except for the following: (a) Any Employee covered by a collective bargaining agreement that does not provide for participation in this Plan. (b) A leased employee treated as an employee for pension purposes solely because of Code Section 414(n). (c) A "casual employee" as categorized in the Employer's personnel policies, generally including workers who are on call, have no regular established work week and no fixed days or hours of work. (d) A temporary employee hired specifically to fill temporary or occasional needs. (e) An employee of CenturyTel, Inc. or an Affiliate who was on disability under the CenturyTel, Inc. Long Term Disability Plan as of January 1, 1999, until such time as the employee returns to active employment. (f) An employee of an Affiliate or other entity which is not an adopting Affiliate or an Adopting Entity. (g) Employees of the following Affiliates: (i) Century Business Communications, LLC; (ii) CenturyTel Interactive Company; (iii) CenturyTel Security Systems, Inc.; (iv) CenturyTel of Northwest Arkansas, LLC; (v) CenturyTel of Central Arkansas, LLC; (vi) CenturyTel of Central Wisconsin, LLC; (vii) Telephone USA of Wisconsin, LLC; (viii) Spectra Communications Group, LLC; (ix) CenturyTel Holdings, Inc; (x) CenturyTel Investments of Texas, Inc.; (xi) CentruyTel of Alabama, LLC; and (xii) CenturyTel of Missouri, LLC. Effective January 1, 1999, the Company became the sponsor of this Plan, and Employees of the Company, any adopting Affiliate, and any Adopting Entity became eligible to participate in this Plan effective January 1, 1999. 3.2 Requirements for Participation. To be eligible to participate in the Plan, an Employee must: (a) Be an Eligible Employee under Section 3.1; (b) Complete one (1) Year of Eligibility Service, as determined under Section 4.1; and (c) Attain age twenty-one (21). 3.3 Effective Time of Participation. An Eligible Employee who meets the requirements of Section 3.2 shall be a Participant in the Plan as of the first day of the Eligibility Computation Period in which the Employee meets such requirements. 3.4 Reassignment and Reemployment. In the event an Employee who is not a member of the eligible class of Employees becomes a member of the eligible class, such Employee shall be eligible to participate immediately. In the event a Participant is no longer a member of the eligible class of Employees and becomes ineligible to participate, such Employee shall be eligible to participate immediately upon returning to the eligible class of Employees. A former Participant shall become a Participant immediately upon returning to the employ of the Employer if such former Participant is a member of the eligible class of Employees when re-employed. 3.5 Waiver of Participation. The Employer may grant a waiver of participation to any Employee who so requests. Whether or not such waiver shall be granted, and the terms and conditions (including duration) thereof, shall be made in accordance with written and objective rules and shall be applied in a uniform and nondiscriminatory manner. ARTICLE IV CREDITING OF SERVICE 4.1 Eligibility Service. (a) A Year of Eligibility Service for purposes of satisfying Section 3.2(b) shall be measured on an employment year, which is the twelve (12) month period starting on the date the Employee first performs an Hour of Service for the Employer, or an anniversary of such date (Eligibility Computation Period). (b) An Employee shall be credited with a Year of Eligibility Service for each Eligibility Computation Period in which the Employee completes at least one thousand (1000) Hours of Service. (c) For purposes of computing Years of Eligibility Service, an Employee's service shall also include service credited under Sections 4.6 and 4.7. 4.2 Vesting Service. (a) For Plan Years ending prior to January 1, 1999, a Year of Vesting Service shall be measured on an employment year, which is the twelve (12) month period starting on the date the Employee first performs an Hour of Service for the Employer, or an anniversary of such date. For Plan Years commencing on or after January 1, 1999, a Year of Vesting Service shall be measured on a Plan Year (Vesting Computation Period). (b) Subject to the provisions of Section 4.5(d), an Employee shall be credited with a Year of Vesting Service for each Plan Year in which the Employee completes at least one thousand (1000) Hours of Service. (c) For purposes of computing Years of Vesting Service, an Employee's service shall include service credited under Section 4.6. In the case of an Employee who was enrolled in and met the eligibility and disability requirements of the CenturyTel, Inc. Long-Term Disability Plan (the "LTD Plan") and who has not retired and become eligible for a disability benefit under this Plan, service shall also include the period of time (i) commencing with the beginning of the disability covered by the LTD Plan and (ii) ending when eligibility for benefits under the LTD Plan ceases. 4.3 Credited Service. (a) For Plan Years ending prior to January 1, 1999, a Year of Credited Service shall be measured on an employment year, which is the twelve (12) month period starting on the date the Participant first performs an Hour of Service for the Employer, or an anniversary of such date. For Plan Years commencing on or after January1, 1999, service for purposes of determining an Employee's Years of Credited Service shall be measured on a Plan Year (Benefit Computation Period). (b) Subject to the provisions of Section 4.5(a), below, an Employee shall be credited with a full Year of Credited Service for any Plan Year in which he has been credited, for service with the Employer, with at least one thousand (1000) Hours of Service. (c) In the case of an Employee who was eligible to the participate in the Plan and who was enrolled in and met the eligibility and disability requirements of the CenturyTel, Inc. Long-Term Disability Plan (the "LTD Plan"), who has not retired and become eligible for a disability benefit under this Plan, and who has completed ten (10) Years of Service, service for purposes of determining an Employee's Years of Credited Service shall also include the period of time (i) commencing with the beginning of the disability covered by the LTD Plan and (ii) ending when eligibility for benefits under the LTD Plan ceases, with his rate of compensation immediately prior to his Disability being deemed to continue during such period for the purpose of computing Final Average Compensation. (d) Subject to the provisions of Section 4.6, service of Employees of CenturyTel, Inc., any adopting Affiliate, and any Adopting Entity (other than former employees of Pacific Telecom, Inc. who became employees of CenturyTel, Inc. or an Affiliate thereof as of the date of acquisition of Pacific Telecom, Inc. by CenturyTel, Inc, or an Affiliate thereof) shall begin to be counted for purposes for computing Years of Credited Service effective January 1, 1999. Such Employees shall not be credited with Years of Credited Service for years beginning before January 1, 1999. (e) Notwithstanding the foregoing provisions of this Section 4.3, Credited Service shall not include any period of an individual's employment during which the individual is not classified by the Company, an Affiliate or an Adopting Entity as a common-law employee of the Company, an Affiliate, or an Adopting Entity regardless of any subsequent reclassification of such individual as a "common-law" employee of the Company, an Affiliate or an Adopting Entity by the Company, an Affiliate, an Adopting Entity, any governmental agency, or any court. 4.4 Reemployment after Break in Service. (a) When an Employee who has a vested interest in his or her benefit under Section 5.6(b) incurs a Break in Service, and thereafter is reemployed by the Employer and the number of Years of Service before the Break in Service is greater than the number of consecutive Breaks in Service, then the break in the Employee's employment shall be bridged, and there shall be added to the service that has accumulated since his reemployment the aggregate of all previous periods of service that the Employee had prior to the break, provided that the Employee had at least one (1) Year of Service preceding the Break in Service. (b) Upon retirement or separation from service following the bridging of a Break in Service hereunder, the Employee's benefits under this Plan shall be based on his Final Average Compensation and Years of Credited Service both before and after the Break in Service. (c) Notwithstanding the foregoing, if the application of the bridging of service provisions contained in this Section 4.4 would result in a lower or reduced benefit for a Participant, then the provisions of this Section 4.4 shall not apply to such Participant. 4.5 Transition Rules and Short and Overlapping Computation Periods (a) For each Computation Period commencing prior to 1999, if a Participant was credited in a Plan Year with less than 2080 of Hours of Service, the Participant will be credited for such Computation Period with a fraction of a Year of Credited Service (not in excess of one (1)), where the numerator of the fraction is the number of Hours of Service credited to the Participant during such Computation Period and the denominator is 2080. For Plan Years commencing in 1999 and thereafter, a Participant shall be credited with one (1) full Year of Credited Service if the Participant completes one thousand (1000) Hours of Service during such Plan Year. For the 1998 Plan Year, each Participant's Year of Credited Service shall be determined pursuant to (c)(iii) below. (b) If the compensation (if any) used to determine a Participant's accrued benefit under any benefit formula in the Plan is so defined as to cause application of the preceding subsection (a) otherwise to violate the prohibition against double proration in 29 C.F.R. ss.2530.204-2(d), then the Participant's compensation under such definition for any Plan Year during which the Participant is credite