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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2005
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number: 333-102395

Dex Media East LLC

(Exact name of registrant as specified in its charter)


Delaware		42-1554575
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1001 Winstead Drive

Cary, North Carolina 27513

(Address of principal executive offices)

(919) 297-1600

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes þ No o

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 þ No o

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. þ

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

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The registrant is a wholly-owned subsidiary of Dex Media East, Inc. As of June 30, 2005, there were no shares of voting or non-voting common equity held by non-affiliates of the registrant.

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

PART I.

Cautionary Note Regarding Forward-Looking Statements

This annual report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to Dex Media East’s expectations as to future events and its future financial performance, In some cases, you can identify these forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “assumption” or the negative of these terms or other comparable words. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks described in this annual report. These factors may cause Dex Media East’s actual results to differ materially from any of Dex Media East’s forward-looking statements.

These risks and uncertainties are described in detail in Item 1A — “Risk Factors.” In summary, these risks and uncertainties include, without limitation: (i) our substantial indebtedness, which could impair our ability to operate our business; (ii) the fact that we may incur more debt; (iii) the significant competition that we face, which could reduce our market share and harm our financial performance; (iv) the loss of any of our key agreements with Qwest; (v) adverse outcomes resulting from bankruptcy proceedings against Qwest; (vi) possible future changes in Qwest’s directory publishing obligations, which may increase our costs; (vii) declining usage of printed yellow page directories; (viii) our inability to renew customer advertising contracts; (ix) risks related to the start-up of new print or Internet directories and media services; (x) our reliance on, and extension of credit to, small and medium-sized enterprises; (xi) our dependence on third-party providers of printing, distribution and delivery services; (xii) the impact of fluctuations in the price or availability of paper; (xiii) the impact of turnover among sales representatives or the loss of key personnel; (xiv) the fact that our sales of advertising to national accounts is coordinated by third parties that we do not control; (xv) the occurrence of strikes or work stoppages; (xvi) general economic factors and business conditions; (xvii) disruption resulting from the merger of our indirect parent, Dex Media, Inc., with R.H. Donnelley Corporation, making it more difficult to maintain relationships with customers, employees or suppliers; and (xviii) uncertainties regarding Donnelley’s ability to successful integrate Dex Media East’s business. For additional information, see Item 1A — “Risk Factors.”

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. These forward-looking statements are made as of the date of this annual report and, except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission (the “SEC”), we assume no obligation to update or revise them or to provide reasons why actual results may differ.

We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this annual report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this annual report.

We utilize the deferral and amortization accounting method, under which revenue and expenses are recognized over the lives of the directories. See Item 7 — “Management’s Narrative Analysis of Results of Operations.” A few of our competitors may utilize the point of publication accounting method of recognizing revenue and expenses, under which revenue and expenses are recognized when a directory is published. As a result, while we believe that the information presented herein with respect to ourselves and our competitors is comparable, comparisons made beyond the scope of those made in this annual report may be affected by these differing accounting methods.

The following trademarks referred to in this annual report are registered trademarks of Dex Media, Inc.: “DEX^®,” “DexOnline.com^®” and “Dex Knows^®.” The following trademarks referred to in this annual report

are registered trademarks of Qwest Communications International Inc. and are used by us under license: “QWEST DEX^®” and “QWEST DEX ADVANTAGE^®.”

Certain Definitions

As used in this annual report, the following terms shall have the following respective meanings, unless the context requires otherwise:


	•	“We,” “our” and “us” refers to Dex Media East, LLC, an indirect wholly owned subsidiary of Dex Media (as defined below) and its predecessors;

	•	“Dex Media” refers to Dex Media, Inc., the indirect parent of Dex Media East and a wholly owned subsidiary of Donnelley (as defined below), together with its predecessors;

	•	“Donnelley” refers to R.H. Donnelley Corporation;

	•	“Dex East States” refers collectively to Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota and South Dakota;

	•	“Dex Media West” refers to Dex Media West LLC, an indirect wholly-owned subsidiary of Dex Media;

	•	“Dex West States” refers collectively to Arizona, Idaho, Montana, Oregon, Utah, Washington and Wyoming;

	•	“Dex States” refers collectively to the Dex East States and Dex West States;

	•	“Qwest” refers to Qwest Communications International Inc. and its subsidiaries, including Qwest Corporation, the local exchange carrier subsidiary of Qwest Communication International Inc.;

	•	“Qwest Dex” refers collectively to Qwest Dex, Inc. and its parent, Qwest Dex Holdings, Inc.; and

	•	“Dex Media IPO” refers to the initial public offering of common stock of Dex Media, which was consummated on July 22, 2004.


ITEM 1.	*BUSINESS*

Recent Development

On January 31, 2006, our indirect parent, Dex Media, merged with and into Forward Acquisition Corporation (“FAC”), a wholly owned subsidiary of Donnelley. In the merger, each share of Dex Media common stock was converted into the right to receive $12.30 in cash and 0.24154 of a share of Donnelley common stock. Donnelley also assumed all Dex Media’s indebtedness on January 31, 2006 with a fair value of $5.7 billion (including all our indebtedness on January 31, 2006 with a fair value of $1.6 billion). In connection with the consummation of the merger, the name of FAC was changed to Dex Media, Inc. As a result of the merger, Dex Media became a wholly owned subsidiary of Donnelley and we became an indirect wholly owned subsidiary of Donnelley.

The Company

We are the exclusive publisher of the “official” yellow pages and white pages directories for Qwest in the following states where Qwest is the primary incumbent local exchange carrier: Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota and South Dakota. We have been publishing directories for over 100 years. Our contractual agreements with Qwest grant us the right to be the exclusive incumbent publisher of the “official” yellow pages and white pages directories for Qwest in the Dex East States until November 2052 and prevent Qwest from competing with us in the directory products business in the Dex East States until November 2042.

We are the largest directory publisher in the Dex East States and, together with our ultimate parent and our affiliates, are the third largest directory publisher in the United States. In 2005 and 2004, we published 160 and 149 directories, respectively, and printed approximately 22.3 and 19.4 million copies of these directories, respectively, for distribution to virtually all business and residential consumers throughout the Dex East States. In addition, our Internet-based directory, DexOnline.com, further extends the distribution of our advertisers’ content. DexOnline.com, which is offered both bundled with our print directories and on a stand-alone basis, includes approximately 20 million business listings and 124 million residential listings from across the United States. Our other products and services include the sale of direct marketing lists and the sale of Dex directories and other publishers’ directories outside the normal delivery schedule.

We seek to bring buyers together with our advertising customers through a cost-effective, bundled advertising solution that includes print, Internet-based and CD-ROM directories. The majority of our advertising customers are local small and medium-sized enterprises (“SMEs”) and national businesses with a local presence. We believe that our advertising customers value: (i) our ability to provide consumers with an authoritative and diverse reference source to search for products and services across multiple platforms; (ii) our broad distribution to potential buyers of our advertisers’ products and services; (iii) our lower cost per usage compared with most other directories and a higher return on investment than other forms of local advertising; and (iv) the quality of our client service and support.

For the year ended December 31, 2005, we generated approximately 97% of our total revenue from the sale of bundled print and Internet directory advertising. Our other products and services accounted for the remaining 3% of our total revenue. For the years ended December 31, 2005 and 2004, we generated $716.5 million and $723.0 million in revenue, respectively. For complete information concerning our financial performance, see Item 8 — “Financial Statements and Supplementary Data.”

Our History

On August 19, 2002, Dex Holdings, LLC (“Dex Holdings”), the former parent of Dex Media, entered into two purchase agreements with Qwest to acquire the directory business of Qwest Dex, the directory services subsidiary of Qwest, in two separate phases, for an aggregate consideration of approximately $7.1 billion (excluding fees and expenses). In connection with the first phase, Dex Holdings assigned its right to purchase the directory business in the Dex East States to its indirect subsidiary, Dex Media East. Dex Media East consummated the first phase of the acquisition on November 8, 2002 (the “Acquisition”) and currently

operates the acquired directory business in the Dex East States. In connection with the second phase, Dex Holdings assigned its right to purchase the directory business in the Dex West States to its indirect subsidiary, Dex Media West. Dex Media West consummated the second phase of the acquisition on September 9, 2003 and currently operates the acquired directory business in the Dex West States. The acquisitions of Dex Media East and Dex Media West are collectively referred to herein as the “Acquisitions.” Dex Holdings was dissolved effective January 1, 2005.

In connection with the Acquisitions, we, Dex Media West and Dex Media entered into a number of contractual agreements with Qwest. For a summary of the principal terms of certain of such agreements, see “Agreements Between Us, Dex Media West and/or Dex Media and Qwest” in this Item 1.

On October 3, 2005, our indirect parent, Dex Media, entered into an Agreement and Plan of Merger with Donnelley and FAC pursuant to which each issued and outstanding share of Dex Media common stock was to be converted into $12.30 in cash and 0.24154 of a share of Donnelley common stock. On January 31, 2006, that merger was completed and Dex Media merged with an into FAC, a wholly owned subsidiary of Donnelley. Donnelley also assumed all Dex Media’s outstanding indebtedness on January 31, 2006 with a fair value of $5.7 billion (including all of our indebtedness on January 31, 2006 with a fair value of $1.6 billion). In connection with the consummation of the merger, the name of FAC was changed to Dex Media, Inc. As a result of the merger, Dex Media became a wholly owned subsidiary of Donnelley and we became an indirect wholly owned subsidiary of Donnelley.

Markets

In 2005, we published 160 directories and printed approximately 22.3 million copies of these directories for distribution to virtually all business and residential consumers in the metropolitan areas and local communities in the Dex East States. Our directories are generally well established in their communities and cover contiguous geographic areas to create a strong local market presence and achieve selling efficiencies.

We derive a significant portion of our directory services revenue from the sale of directory advertising to businesses in large metropolitan areas. For the year ended December 31, 2005, approximately 60% and 71% of our directory services revenue was derived from the sale of directory advertising in our 5 and 10 largest geographic markets, respectively.

Products and Services

We deliver a portfolio of advertising products focused on bringing buyers and sellers together, distributing relevant information across multiple platforms to assist in the buying decision. Our bundled print and Internet directory services generated approximately 97% of our total revenue for the year ended December 31, 2005.

Print Directories

In almost every market that we serve, we publish both a white pages section and a yellow pages section in our print directory products. In 2005, we published 160 print directories, including directories that contained both white and yellow pages, directories that contained only yellow pages and directories that contained only white pages. Whenever practicable, we combine the two sections into one directory. In large markets where it is impractical to combine the two sections into one volume, separate stand-alone white and yellow pages directories are normally published at the same time.

Our print directories are designed to meet the advertising needs of local and national businesses and the informational needs of local consumers. The diversity of advertising options available enables us to create customized advertising programs that are responsive to specific customer needs and financial resources. Our yellow pages and white pages directories are also efficient sources of information for consumers, featuring a comprehensive list of businesses in the local market that are conveniently organized under thousands of directory headings.

We serve a diverse group of communities in our 7-state region, many of which have a number of consumers for whom English is not their primary language. In order to better serve our diverse base of

consumers and further extend the reach of our advertisers, during 2005 we published Spanish language Yellow Pages in 11 markets. We expect to continue evaluating the needs of our multi-lingual communities and develop targeted segment products that best serve those communities.

We have two primary types of printed directories: core directories and community directories. Core directories generally cover large population or regional areas, whereas community directories typically focus on a sub-section of the areas addressed by a corresponding core directory. Most core directories contain yellow pages, white pages and specialty sections. Our print directory advertising products can be broken down into three basic categories: Yellow Pages, White Pages and Awareness Products.

Yellow Pages Directories. We offer all businesses a basic listing at no charge in the relevant edition of our yellow pages directories. This listing includes the name, address and telephone number of the business and is included in alphabetical order in the relevant classification. In addition, we offer a range of paid advertising options in our yellow pages directories, as set forth below:


	•	Listing Options. An advertiser may enhance its complimentary listing in several ways. It may pay to have its listing highlighted or printed in bold or super bold text, which increases the visibility of the listing. An advertiser may also purchase extra lines of text to convey information such as hours of operation or a more detailed description of its business.

	•	In-column Advertising Options. For greater prominence on a page, an advertiser may expand its basic alphabetical listing by purchasing advertising space in the column in which the listing appears. The cost of in-column advertising depends on the size and type of the advertisement purchased and the heading under which it will be placed. In-column advertisements may include such features as bolding, special fonts, color and graphics.

	•	Display Advertising Options. A display advertisement allows businesses to include a wide range of information, illustrations, photographs and logos. The cost of display advertisements depends on the size and type of advertisement purchased and the heading under which it will be placed. Display advertisements are usually placed at the front of a heading, and are prioritized first by size and then by advertiser seniority. This process of prioritizing provides a strong incentive to advertisers to increase the size of their advertisements and renew their advertising purchases from year to year to ensure that their advertisements receive priority placement. Display advertisements range in size from a quarter column to as large as two pages (a “double truck” advertisement) and three pages (a “triple truck” advertisement). Various levels of color sophistication, including spot-four color, enhanced color, process photo and hi-impact are available for display products.

White Pages Directories. State public utilities commissions require Qwest, as the local exchange carrier in its local service area, to have white pages directories published to serve its local service areas. Qwest has contracted with us to publish these directories until November 7, 2052. By virtue of this agreement, we provide a white pages listing to every residence and business in a given area that sets forth the name, address and phone number of each residence or business, unless they have requested to be non-listed.

Advertising options include bolding and highlighting for added visibility, extra lines for the inclusion of supplemental information and in-column and display advertisements.

Awareness Products. Our line of “awareness products” allows businesses to advertise in a variety of highly visible locations on or in a directory. Each directory has a limited inventory of awareness products, which provide high value to advertisers and are priced at a premium to in-column and display advertisements. Our awareness products include:


	•	Covers — Premium location advertisements that are available on the front cover, inside front and back cover and the outside back cover of a directory.

	•	Spines — Premium location advertisements that are available on the spine of yellow and white pages directories.


	•	Tabs — A full-page, double-sided, hard stock, full-color insert that is bound inside and that separates key sections of the directory. These inserts enable advertisers to achieve prominence and increase the amount of information displayed to directory users.

	•	Tip-Ons — Removable paper or magnet coupons that are placed on the front cover of a directory.

	•	Banners — Advertisements sold at the top margin of any page in the Community or Government section of the directory.

	•	Delivery Bags — Premium awareness space located on the bags used in the delivery of most print directories, with between one and three advertisers per bag.

	•	Ride-alongs — Premium insert programs through which businesses deliver messages and promotional offers to customers in conjunction with directories delivered right to the mailbox or doorstep. Advertisers can choose between total market coverage inserts that “ride-along” with the new edition of directories as they are delivered to users, or new mover delivery inserts reaching the lucrative market of new movers within a few days of their new phone service connection.

Online Products

During 2003, we began to bundle our print and Internet display advertisements, providing advertisers with an effective means to extend their messages through DexOnline.com for one unified price. With this bundling strategy, we were able to collect and digitize our print directory advertising, making a proprietary structured database of content available to consumers searching for local products and services through DexOnline.com.

We have entered into content agreements and distribution agreements with various search engines, portals and local community destination web sites. These agreements are intended to provide additional distribution of our advertising, thereby enhancing the value proposition offered to advertisers.

DexOnline.com. DexOnline.com incorporates free-text (“multi-dimensional”) search capability with a single search box similar in design and functionality to many popular search engines. In addition, DexOnline.com provides a search option based on popular business headings or categories with dynamically generated preferences, providing users the ability to refine their searches using criteria that include such things as specific product and brand names, hours of operation, payment options and locations.

DexOnline.com has grown to include fully searchable content from more than 475,000 Dex Media Yellow Pages advertisements. In addition, we purchase information from other national databases to supply out-of-region listings (although these out-of-region listings are not as rich as our in-region information). DexOnline.com includes approximately 20 million business listings and more than 124 million residential listings from across the United States. DexOnline.com has been the number one local search site within Dex Media’s 14-state region for the past eight quarters, as measured by comScore, a market research firm.

Arrangements with Search Engines and Other Third Parties. During 2005, our proprietary database of advertising content was made available to a number of popular Internet search engines and portals These arrangements made our advertisers’ marketing messages available to the users of those search engines and portals. In addition, we have entered into distribution agreements with various local community web sites throughout the Dex East States to make our structured database of content available to users of those local web sites. These agreements provide us with access to important channels as we enhance our distribution network on behalf of our advertisers. We believe this enhanced distribution will lead to increased usage among consumers and greater utility to our advertisers.

Dex Web Clicks^tm. In February 2005, we introduced Dex Web Clicks throughout the Dex East States. Designed as an affordable solution for SMEs, Dex Web Clicks allows advertisers to begin participating in auction-based, paid search Internet advertising across multiple search engines and portals at fixed monthly prices. Dex Web Clicks provides advertisers with a guaranteed number of references, or “clicks,” to their web site over the contract term for a fixed monthly price. In addition, Dex Web Clicks offers web site design and hosting services to advertisers, in case they do not already have a web site. The guaranteed references are provided by a network of search engines and portals.

Other Services

We sell direct marketing lists of residents and businesses in the Dex East States that allow our customers to purchase accurate lists for their direct mail and telemarketing activities. We also have an extensive New Mover list that provides businesses access to the most current new business and/or residence lists in the Dex East States. The lists we sell comply with do-not-call and do-not-mail requirements for the industry. In addition, these lists do not include any private, non-published or non-listed information.

We also have insert programs through which we help businesses deliver messages and promotional offers to users of our directories. Advertisers can choose between Total Market Coverage directory inserts, which go to households and businesses within the Dex East States, and New Mover Delivery inserts, which reach the lucrative market of new movers within a few days of their new phone service connection.

Business cycle overview

Our directories usually have a 12-month directory cycle period. A publication process generally takes 15 to 20 months from the beginning of the sales cycle to the end of a directory’s life and the sales stage closes approximately 70 days prior to publication.

Sales

We believe that we have one of the most experienced sales forces in the U.S. directory advertising industry. Our sales activities are conducted through a local sales channel and a national sales channel.

Local Sales Channel

Dex Media’s local sales force is comprised of approximately 1,000 quota-bearing sales representatives, who average approximately seven years of employment with us. For the year ended December 31, 2005, approximately 81% of our directory services revenue came through the local sales channel.

We assign our customers among premise representatives and telephone representatives based on a careful assessment of a customer’s expected advertising expenditures. This practice allows us to deploy our local sales force in an effective manner. Our local sales force is decentralized and locally based, operating throughout the Dex East States in their local service areas. We believe that our locally based sales force facilitates the establishment of personal, long-term relationships with local advertisers that are necessary to maintain a high rate of customer renewal.

The local sales channel is divided into three sales sub-channels: premise sales, telephone sales and centralized sales.


	•	Premise sales representatives — conduct sales calls face-to-face at customers’ business locations and typically handle higher dollar and more complex accounts.

	•	Telephone sales representatives — handle lower dollar value accounts and typically interact with customers over the telephone.

	•	Centralized sales — includes multiple types of sales efforts, including centralized sales representatives, prospector sales representatives and a letter renewal effort. These sales mechanisms are used to contact very low dollar value customers that in many cases have renewed their account for the same product for several years. Some of these centralized efforts are also focused on customer win-back initiatives.

We believe that formal training is important to maintaining a highly productive sales channel. Our sales personnel undergo ongoing training, with new sales representatives receiving approximately eight weeks of training in their first year, including classroom training on sales techniques, our product portfolio, customer care and administration, and standards and ethics. Following classroom training, they are accompanied on sales calls by experienced sales personnel for further training. Ongoing training and our commitment to developing the best sales practices are intended to ensure that sales representatives are able to give advertisers high-quality service and advice on appropriate advertising products and services.

National Sales Channel

In addition to our locally based sales personnel, Dex Media East utilizes a separate sales channel to serve its national advertisers. For the year ended December 31, 2005, approximately 14% of our directory services revenue came through the national sales channel. National advertisers are typically national or large regional chains such as rental car companies, insurance companies and pizza businesses that purchase advertisements in many yellow pages directories in multiple geographic regions. In order to sell to national advertisers, we contract with third party Certified Marketing Representatives (“CMRs”). CMRs design and create advertisements for national companies and place those advertisements in relevant yellow pages directories nationwide. Some CMRs are departments of general advertising agencies, while others are specialized agencies that focus solely on directory advertising. The national advertiser pays the CMR, which then pays us after deducting its commission. We accept orders from approximately 155 CMRs and employ seven national account managers to manage our selling efforts to national customers. We rely particularly on one of its CMRs, TMP Worldwide Inc. (“TMP”), whose billings were approximately 26% (excluding Qwest) of Dex Media East’s national revenue for the year ended December 31, 2005.

Marketing

Our sales and marketing processes are closely related and managed in an integrated manner. We believe that a bifurcated marketing process, composed of both centralized and decentralized strategies and responsibilities, best suits our needs.

Our marketing process includes the functions of market management, product development and management, marketing research, pricing, advertising and public relations. The market management function is decentralized and coordinates with local sales management to develop market plans and products that address the needs of individual local markets. The other marketing functions are centralized and provide support to all markets as needed. Advertising programs are targeted to advertisers and consumers and are determined by specific market and include television, radio, newspaper and outdoor ad placements.

Publishing and information services

Pre-press publishing activities include canvass and assignment preparation, sales order processing, graphics and ad composition, contract processing, white and yellow pages processing, database management and pagination. We provide comprehensive tools and information to effectively conduct sales and marketing planning, sales management, sales compensation and customer service activities. Once an individual sales campaign is complete and final advertisements have been produced, white and yellow pages are paginated, proofed and prepared for printing. Most of these functions are accomplished through an Amdocs^® publishing system, a leading industry system considered to be the standard. Dex Media’s information technology is managed from facilities in Omaha, Nebraska and Englewood, Colorado, with production and graphics activities located in Aurora, Colorado and six other locations throughout the Dex States.

Printing and Distribution

All our directories are printed by either R.R. Donnelley & Sons Company (“RRD”) or Quebecor World Directory Sales Corporation (“Quebecor”). In general, RRD prints our larger, higher-circulation directories and Quebecor prints those directories that are smaller and have a more limited circulation. Dex Media’s agreements with RRD and Quebecor do not contain any volume guarantees and prices are adjusted annually based on changes to the consumer price index. Dex Media’s contracts with RRD and Quebecor expire on December 31, 2011 and December 31, 2014, respectively. No common ownership or other business affiliation exists between RRD and Donnelley.

Nearly all copies of our directories are distributed by Product Development Corporation (“PDC”). Although prices under Dex Media’s agreement with PDC are fixed, they may be renegotiated under some circumstances, such as new service specifications or to match more favorable prices offered by PDC to other customers. The contract with PDC expires on May 31, 2009. We rely on Matson Integrated Logistics

(“Matson”) to manage the logistics of transporting our printed directories from our printers’ locations to PDC. The contract with Matson expires on December 31, 2008.

Raw Materials

Paper is our principal raw material. Substantially all the paper that we use (other than for covers) is supplied by Nippon Paper Industries USA, Co., Ltd. (“Nippon”) and Catalyst Paper Corporation (“Catalyst”), formerly Norske Skog Canada (USA), Inc. Prices under these two agreements are negotiated each year based on prevailing market rates, which have been declining consistent with general U.S. market trends for directory paper over the last three years. Since the second half of 2004, pulp prices have been increasing at rates higher than the general inflation rate. This has resulted in upward pressure on our paper prices. The effect of such upward price pressure has been moderated due to the fact that prices under both Dex Media’s paper agreements are subject to certain price escalation limits. Furthermore, Dex Media purchases paper used for the covers of our directories from Spruce Falls, Inc. (“Spruce Falls”). Pursuant to an agreement between Spruce Falls and Dex Media, Spruce Falls is obligated to provide 100% of our annual cover stock paper requirements. Prices under this agreement are negotiated each year. If, in a particular year, Spruce Falls and Dex Media are unable to agree on repricing, either party may terminate this agreement. This agreement expires on December 31, 2006.

Fuel is an indirect and minor part of our cost structure. However, rising fuel prices could impact the transportation and distribution of our print directories at the current service and cost levels. Our existing transportation contract caps the diesel fuel surcharge well below the spot market diesel fuel surcharges. Although there is no current impact on our service levels and transportation/distribution costs, rising fuel costs could have a negative impact on us.

Credit Collections and Bad Debt Expense

Because most directories are published on 12-month cycles and most of our advertising customers are billed over the course of that 12-month period, we effectively extend credit to our customers. Many of these customers are SMEs with default rates that usually exceed those of larger businesses. Our policies toward the extension of credit and collection activities are market-specific and designed to manage the expected level of bad debt while accommodating reasonable sales growth.

Local advertising customers spending above identified levels as determined appropriate by management for a particular market may be subject to a credit review that includes, among other criteria, evaluation of credit or payment history with us, third party credit scoring, credit checks with other vendors along with consideration of credit risks associated with particular headings. Where appropriate, advance payments (in whole or in part) and/or personal guarantees from business owners may be required. Beyond efforts to assess credit risk prior to extending credit to advertising customers, we employ well-developed collection strategies utilizing an integrated system of internal, external and automated means to engage customers concerning payment obligations. In some markets, we charge back commissions to sales representatives when advertisers do not pay their local advertising charges.

Fees for national advertisers are typically billed upon issue of each directory in which advertising is placed by CMRs. Because we do not usually enter into contracts with our national advertisers directly, we are subject to the credit risk of CMRs on sales to those advertisers, to the extent we do not receive fees in advance. Dex has historically achieved favorable credit experience with CMRs.

For the year ended December 31, 2005, bad debt expense for all of our customers amounted to approximately 3.6% of revenue.

Agreements Between Us, Dex Media West and/or Dex Media and Qwest

In connection with the Acquisitions, we, Dex Media West and Dex Media entered into a number of contractual agreements with Qwest. Certain of these agreements are summarized below.


	•	Publishing Agreement. Pursuant to a publishing agreement, Qwest granted us the right to be the exclusive official directory publisher of listings and classified advertisements of Qwest’s telephone customers in the geographic areas in the Dex East States in which Qwest provides local telephone service. This agreement granted us the right to identify ourselves (including on our web sites) as Qwest’s exclusive official directory publisher for its legally required directories, as well as certain other directories in Qwest’s service areas in the Dex East States. This agreement will remain in effect for 50 years from November 8, 2002 and will automatically renew for additional one year terms unless either Qwest or we provide 12 months’ notice of termination.

	•	Non-Competition and Non-Solicitation Agreement. Under a non-competition and non-solicitation agreement, Qwest agreed, for a period of 40 years after November 8, 2002, not to sell directory products consisting principally of listings and classified advertisements for subscribers in the geographic areas in the Dex East States in which Qwest provides local telephone service directed primarily at customers in those geographic areas. The non-solicitation provisions contained in this agreement have expired.

	•	Billing and Collection Services Agreement. Pursuant to a billing and collection services agreement (which was renewed effective November 1, 2004), Qwest will continue until December 31, 2008 to bill and collect, on our behalf, amounts owed with respect to our directory services by our accounts that are also Qwest local telephone customers. In 2005, Qwest billed approximately 28% of our local revenue on our behalf, and we billed the remaining 72% directly. Qwest bills the account on the same billing statement on which it bills the customer for local telephone service. We have developed and continue to maintain the ability to transition from the Qwest billing and collection system to our own billing and collection system, for those accounts billed by Qwest, within approximately two weeks should we choose to do so.

	•	Advertising Agreement. Pursuant to an advertising agreement, Qwest agreed to purchase an aggregate of $20 million of advertising per year through 2017 from Dex Media East and/or Dex Media West. In the event that Qwest purchases more than $20 million of advertising from Dex Media East and/or Dex Media West in any one year, up to $5 million of the excess will be carried over to the subsequent year’s minimum advertising purchase requirement. The pricing will be on terms at least as favorable as those offered to similar large customers.

	•	Master Telecommunications Commitment Agreement. Under a master telecommunications commitment agreement, we must purchase from Qwest and its affiliates, on an exclusive basis, those telecommunications services and products that we use from time to time. Our obligation to purchase such telecommunications services from Qwest is subject to Qwest’s ability to offer pricing and service terms that are not, in the aggregate, materially less favorable than the terms generally available in the market to us from other telecommunications services providers that are nationally or regionally recognized as being highly reputable. Furthermore, Qwest is required to offer the telecommunications services to us on terms and conditions that are no less favorable than the terms and conditions that Qwest provides similar services, at similar volumes and for similar time periods, to other customers in the applicable service area. The term of the master telecommunications commitment agreement extends until November 8, 2017.

Additional agreements with Qwest related to intellectual property are described below in “Intellectual Property” in this Item 1.

Competition

The competitive dynamics in the vast majority of our markets are stable. Most markets have two to three existing publishers. Incumbent publishers benefit from pricing and efficiencies.

We face competition from other yellow pages publishers and from other types of media, including broadcasting, newspaper, radio and emerging technologies (e.g., Internet yellow pages). However, we believe that the preference for directory advertising is due to its relatively low cost, broad demographic and geographic

distribution, directional and permission-based nature and high consumer usage rates. Directory advertising is attractive because consumers view directories as a free, comprehensive, non-intrusive single source of locally relevant information. Also, while overall advertising tends to track a local economy’s business cycle, directory advertising tends to be more stable and does not fluctuate as widely with economic cycles due to this preference by SMEs. Given the mature state of the directory advertising industry and our position in most of its markets, independent competitors are typically focused on aggressive pricing to gain market share.

The Internet has also emerged as a medium for advertisers. Although advertising on the Internet still represents only a small part of the total U.S. advertising market, as the Internet grows and high-speed Internet access becomes more mainstream, it has increasingly become important as an advertising medium. Most major yellow pages publishers operate an Internet-based directory business. From 1997 to 2000, overall references to print yellow pages directories in the U.S. declined; however, overall references to print yellow pages directories remained relatively stable from 2000 through 2005. We believe the past decline was primarily a result of demographic shifts among consumers, particularly the increase of households in which English was not the primary language spoken. We also believe that the past decline was attributable to increased usage of Internet-based directory products, particularly in business-to-business and retail categories, as well as the proliferation of very large retail stores for which consumers and businesses may not reference the yellow pages.

Directory publishers, including us, have increasingly bundled online advertising with their traditional print offerings in order to enhance total usage and advertiser value. In this regard, we compete through our Internet site, DexOnline.com. Through DexOnline.com, we compete with the Internet yellow pages directories of independent and other incumbent directory publishers, and with other Internet sites, including those available through wireless applications, that provide classified directory information, such as Switchboard.com, Citysearch.com and Zagat.com, and with search engines and portals, such as Yahoo!^®, Google^®, MSN^® and others, some of which have entered into affiliate agreements with other major directory publishers. We compete with all of these online competitors based on value, local relevance and features.

The yellow pages directory advertising business is subject to changes arising from developments in technology, including information distribution methods and users preferences. The use of the Internet and wireless devices by consumers as a means to transact commerce may result in new technologies being developed and services being provided that could compete with our traditional products and services. National search companies such as Google and Yahoo are focusing and placing large priorities on local commercial search initiatives. Our growth and future financial performance may depend on our ability to develop and market new products and services and create new distribution channels, while enhancing existing products, services and distribution channels, to incorporate the latest technological advances and accommodate changing user preferences, including the use of the Internet and wireless devices.

Intellectual Property

Dex Media owns and licenses a number of patents, copyrights and trademarks in the United States. The only trademarks we consider material to our operations are the DEX, DexOnline.com and Dex Knows trademarks, which are owned by Dex Media and are used by Dex Media, Dex Media West and us. We do not consider any individual patent or other trademark to be material to our operations.

Pursuant to an intellectual property contribution agreement, Qwest assigned, in certain cases, and licensed, in other cases, to Dex Media the Qwest intellectual property used in the Qwest directory services business. Dex Media currently owns all of Qwest’s former right, title and interest in certain Dex trademarks, including DEX and DexOnline.com. Dex Media also owns specific patents and other intellectual property of Qwest Dex previously owned by Qwest and used in the directory services business, as well as all of Qwest’s former right, title and interest in registered copyrights for printed directories in the Qwest service areas in the Dex States and certain non-public data created by Qwest Dex regarding advertising customers in the Dex States.

Pursuant to a trademark license agreement, Qwest licensed to us the right to use the QWEST DEX and QWEST DEX ADVANTAGE marks until November 2007 in connection with directory products and related marketing materials in the Dex East States. Qwest also licensed to us the right to use these marks in

connection with DexOnline.com. Each of these licenses is generally exclusive for a period of time with respect to the sale of directory products consisting principally of listings and classified advertisements directed primarily at customers in the geographic areas in the Dex East States in which Qwest provides local telephone service. We may terminate this agreement upon 30 days notice and Qwest may terminate this agreement in the event of an uncured material breach by us. In addition, this agreement may terminate if we cease using the licensed trademarks for a substantial period of time, or if the publishing agreement terminates before the expiration of the five-year term of this agreement.

Under a license agreement for the use of directory publisher lists and directory delivery lists, Qwest granted to us a non-exclusive, non-transferable restricted license of listing and delivery information for persons and businesses that order and/or receive local exchange telephone services at prices set forth in the agreement. We may use the listing information solely for publishing directories and the delivery information solely for delivering directories. The initial term of this agreement expired in November 2005, at which time it was automatically renewed for an additional 18-month term. The agreement is subject to automatic renewal for additional 18-month periods until either Qwest or we terminate the agreement by providing 18 months prior notice. Our publishing agreement with Qwest, however, requires Qwest to continue to license the listing and delivery information to us for as long as the publishing agreement remains in effect. Pursuant to a license agreement for the expanded use of subscriber lists, Qwest granted to us a non-exclusive, non-transferable restricted license of listing information for persons and businesses that order and/or receive local exchange telephone services at prices set forth in such agreement. We may use this information for the sole purpose of reselling the information to third party entities solely for direct marketing activities, database marketing, telemarketing, market analysis purposes and internal marketing purposes, and for our use in direct marketing activities undertaken on behalf of third parties. Such agreement will remain in effect until November 2007, subject to automatic renewal for additional one-year terms until Qwest or we terminate such agreement by providing six months prior notice.

Employees

As of December 31, 2005, Dex Media employed approximately 2,400 employees, of which approximately 66% were represented by labor unions covered by two collective bargaining agreements. Our collective bargaining agreement with the International Brotherhood of Electrical Workers (the “IBEW”), which covered approximately 33% of our unionized workforce as of December 31, 2005, expires in May 2006. Our collective bargaining agreement with the Communications Workers of America (the “CWA”), which covered approximately 67% of our unionized workforce as of December 31, 2005, expires in October 2006. Dex Media Service LLC, a bankruptcy-remote entity owned 49% by Dex Media East, Inc., 49% by Dex Media West, Inc. and 2% by Dex Media, employs all of our non-senior management employees and makes them available to Dex Media East and Dex Media West. Dex Media Service LLC was formed as a bankruptcy-remote entity pursuant to the terms of Dex Media West’s credit facilities and Dex Media East’s credit facilities in order to mitigate the risk of not having available to Dex Media West or Dex Media East the services of our non-management employees if the other entity merges, is acquired or files for bankruptcy. Effective January 1, 2005, all non-senior management employees in the state of Washington became employees of Dex Media West.

Web Site Access

You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports at our investor relations web site, www.dexmedia.com/investors/overview.html, under the heading “SEC Filings — Dex Media East.” These reports are available on our investor relations web site as soon as reasonably practicable after we electronically file them with the SEC. Our filings can also be obtained from the SEC web site, www.sec.gov. The information on our website or the SEC web site is not a part of this annual report and is not incorporated by reference herein.


ITEM 1A.	*RISK FACTORS*

You should carefully consider the risks described below as well as the other information contained in this annual report. Any of the following risks could materially adversely affect our business, financial condition or results of operations.

Risks Related to Our Business

The loss of any of our key agreements with Qwest could have a material adverse effect on our business.

We, Dex Media West and Dex Media are party to several agreements with Qwest, including a publishing agreement, a non-competition agreement and billing and collection services agreements. Dex Media also has a hosting agreement with Qwest. The Qwest non-competition agreement prohibits Qwest from selling directory products consisting principally of listings and classified advertisements for subscribers in the geographic areas in the Dex East States in which Qwest provides local telephone service that are directed primarily at customers in those geographic areas. However, under state and federal law, a covenant not to compete is only enforceable:


	•	to the extent it is necessary to protect a legitimate business interest of the party seeking enforcement;

	•	if it does not unreasonably restrain the party against whom enforcement is sought; and

	•	if it is not contrary to the public interest.

Enforceability of a non-competition covenant is determined by a court based on all of the facts and circumstances of the specific case at the time enforcement is sought. For this reason, it is not possible for us to predict whether, or to what extent, a court would enforce Qwest’s covenants not to compete against us during the term of the non-competition agreement. If a court were to determine that the non-competition agreement is unenforceable, Qwest could compete directly against us in the previously restricted markets. Our inability to enforce the non-competition agreement with Qwest could have a material adverse effect on our financial condition or results of operations.

Under the Qwest publishing agreement, we are the exclusive official publisher of directories for Qwest in the Dex East States until November 7, 2052. Under the billing and collection services agreements, as amended, Qwest has agreed until December 31, 2008 to continue to bill and collect, on behalf of Dex Media East, amounts owed by our accounts, which are also Qwest local telephone customers, for our directory services. In 2005, Qwest billed approximately 28% of our local revenue on our behalf as part of Qwest’s telephone bill and held these collections in joint accounts with Qwest’s own collections. Under the hosting agreement, Qwest has agreed until October 1, 2009 to provide dedicated hosting services, including backup and recovery of data hosted on our servers in Qwest’s data centers. The termination of any of these agreements or the failure by Qwest to satisfy its obligations under these agreements could have a material adverse effect on our business.

Adverse outcomes resulting from bankruptcy proceedings against Qwest could adversely affect our financial results.

Qwest is currently highly leveraged and has a significant amount of debt service obligations over the near term and thereafter. In addition, Qwest has faced and may continue to face significant liquidity issues as well as issues relating to its compliance with certain covenants contained in the agreements governing its indebtedness. Based on Qwest’s public filings and announcements, Qwest has taken measures to improve its near-term liquidity and covenant compliance. However, Qwest still has a substantial amount of indebtedness outstanding and substantial debt service requirements. Consequently, it may be unable to meet its debt service obligations without obtaining additional financing or improving operating cash flow. Accordingly, we cannot assure you that Qwest will not ultimately seek protection under U.S. bankruptcy laws. In any such proceeding, our agreements with Qwest, and Qwest’s ability to provide the services under those agreements, could be adversely impacted. For example:


	•	Qwest, or a trustee acting on its behalf, could seek to reject our agreements with Qwest as “executory” contracts under U.S. bankruptcy law, thus allowing Qwest to avoid its obligations under such contracts.


		Loss of substantial rights under these agreements could effectively require us to operate our business as an independent directory business, which could have a material adverse effect on our business.


	•	Qwest could seek to sell certain of its assets, including the assets relating to Qwest’s local telephone business, to third parties pursuant to the approval of the bankruptcy court. In such case, the purchaser of any such assets might be able to avoid, among other things, our publishing agreement and non-competition agreement with Qwest.

	•	We may have difficulties obtaining the funds collected by Qwest on our behalf pursuant to the billing and collection service agreements at the time such proceeding is instituted, although pursuant to such agreements, Qwest prepares settlement statements 10 times per month for each state in the Dex East States summarizing the amounts due to us and purchases our accounts receivable billed by it within approximately nine business days following such settlement date. Further, if Qwest continued to bill our customers pursuant to the billing and collection services agreement following any such bankruptcy filing, customers of Qwest may be less likely to pay on time, or at all, bills received, including the amount owed to us. Qwest has completed the preparation of its billing and collection system so that we will be able to transition from the Qwest billing and collection system to our own billing and collection system within approximately two weeks should we choose to do so. See “Agreements between Us, Dex Media West and/or Dex Media and Qwest — Billing and Collection Services Agreements” in this Item 1.

We may experience difficulties integrating with Donnelley.

Dex Media’s merger with and into a wholly owned subsidiary of Donnelley was consummated on January 31, 2006. Combining the operations, technologies and personnel of Dex Media (including Dex Media East) and Donnelley, coordinating and integrating our two sales organizations and distribution channels, and implementing appropriate standards, internal controls, processes, procedures, policies and information systems will be time consuming and expensive. Disruption of, or loss of momentum in, the activities of our business or loss of key personnel caused by the integration process, diversion of management’s attention from our daily operations and any delays or difficulties encountered in connection with the merger and our integration with Donnelley could have an adverse effect on our business, results of operations or financial condition. In addition, during the integration process it is possible that some of our assets may be disposed of and a reduction in our workforce may occur, thereby resulting in restructuring charges that could adversely affect our financial results.

Achieving the expected benefits from our merger with Donnelley will depend in large part on successful integration of our operations with Donnelley’s operations. Failure to realize these benefits could have an adverse effect on our business, results of operations or financial condition.

We face significant competition that may reduce our market share and harm our financial performance.

The U.S. directory advertising industry is highly competitive. Approximately 80% of total U.S. directory advertising sales are attributable to the regional bell operating companies and other incumbent directory publishers, collectively referred to as the incumbent publishers, that typically publish directories where they (or their licensors or affiliates) offer local phone service. In addition, more than 240 independent yellow pages directory publishers operating in the United States compete with those incumbent publishers and represent the remaining market share.

In nearly all markets, we compete with one or more yellow pages directory publishers, which are predominantly independent publishers, such as the U.S. business of Yell Group Ltd. and Phone Directories Company. In some markets, we also compete with other incumbent publishers in overlapping and adjacent markets. Some of these independent publishers and other incumbent publishers with which we compete are larger than us and have greater financial resources than we have. We may not be able to compete effectively with these other publishers for advertising sales or acquisitions in the future.

We also compete for advertising sales with other traditional media, including newspapers, magazines, radio, direct mail, telemarketing, billboards and television. Many of these other traditional media competitors are larger than us and have greater financial resources than we have. We may not be able to compete effectively with these companies for advertising sales or acquisitions in the future.

The Internet has emerged as a medium for advertisers. Advances in technology have brought and likely will continue to bring new participants, new products and new channels to the industry, including increasing use of electronic delivery of traditional directory information and electronic search engines/services. The yellow pages directory advertising business is subject to changes arising from developments in technology, including information distribution methods and users’ preferences. The use of the Internet and wireless devices by consumers as a means to transact commerce may result in new technologies being developed and services being provided that could compete with our traditional products and services. National search companies such as Google and Yahoo! are focusing and placing large priorities on local commercial search initiatives. Our growth and future financial performance may depend on our ability to develop and market new products and services and create new distribution channels, while enhancing existing products, services and distribution channels, to incorporate the latest technological advances and accommodate changing user preferences, including the use of the Internet and wireless devices. We may not be able to respond successfully to any such developments.

Directory publishers, including Dex Media East, have increasingly bundled online advertising with their traditional print offerings in order to enhance total usage and advertiser value. We compete through our Internet site, DexOnline.com with the Internet yellow pages directories of independent and other incumbent directory publishers, and with other Internet sites, including those available through wireless applications, that provide classified directory information, such as Switchboard.com, Citysearch.com and Zagat.com, and with search engines and portals, such as Yahoo!, Google, MSN and others, some of which have entered into affiliate agreements with other major directory publishers. We may not be able to compete effectively with these other companies, some of which may have greater resources than we do, such as private equity firms, for advertising sales or acquisitions in the future.

In addition, the market position of telephone utilities, including those with which we have relationships, may be adversely impacted by the Telecommunications Act of 1996, which effectively opened local telephone markets to increased competition. In addition, Federal Communication Commission rules regarding local number portability, advances in communications technology (such as wireless devices and voice over Internet protocol) and demographic factors (such as potential shifts in younger generations away from wireline telephone communications towards wireless or other communications technologies) may further erode the market position of telephone utilities, including Qwest. As a result, it is possible that Qwest will not remain the primary local telephone service provider in its local service areas. If Qwest were no longer the primary local telephone service provider in any particular local service area, our license to be the exclusive publisher in that market and to use the Qwest brand name on our directories in that market may not be as valuable as we presently anticipate, and we may not realize some of the existing benefits under our commercial arrangement with Qwest.

We could be materially adversely affected by declining usage of printed yellow pages directories.

From 1997 to 2000, overall references to print yellow pages directories in the United States declined; however, overall references to print yellow pages directories remained relatively stable from 2000 through 2005. We believe the past decline was primarily a result of demographic shifts among consumers, particularly the increase of households in which English was not the primary language spoken. We also believe that the past decline was attributable to increased usage of Internet-based directory products, particularly in business-to-business and retail categories, as well as the proliferation of very large retail stores for which consumers and businesses may not reference the yellow pages. We believe that over the next several years, references to print yellow pages directories may gradually decline as users may increasingly turn to digital and interactive media delivery devices for local commercial search information.

Any decline in usage could:


	•	impair our ability to maintain or increase our advertising prices;

	•	cause businesses that purchase advertising in our yellow pages directories to reduce or discontinue those purchases; and

	•	discourage businesses that do not purchase advertising in our yellow pages directories from doing so.

Although we believe that any decline in the usage of our printed directories may be offset in part by an increase in usage of our Internet-based directory, we cannot assure you that such increase in usage will result in additional revenue. Any of the factors that may contribute to a decline in usage of our print directories, or a combination of them, could impair our revenues and have a material adverse effect on our business.

The directory advertising industry is subject to changes arising from developments in technology, including information distribution methods and users’ technological preferences. The use of the Internet and wireless devices by consumers as a means to transact commerce may result in new technologies being developed and services being provided that could compete with our products and services. As a result of these factors, our growth and future financial performance may depend on our ability to develop and market new products and services and create new distribution channels, while enhancing existing products, services and distribution channels, to incorporate the latest technological advances and accommodate changing user preferences, including the use of the Internet. We may not be able to provide services over the Internet successfully or compete successfully with other Internet-based directory services. In addition, if we fail to anticipate or respond adequately to changes in technology and user preferences or are unable to finance the capital expenditures necessary to respond to such changes, our results of operations or financial condition could be materially adversely affected.

General economic factors could adversely affect our results of operations and financial condition.

Our business results could be adversely affected by a prolonged national or regional economic recession. We derive substantially all of our net revenue from the sale of advertising in directories. Typically, our advertising revenues, as well as those of yellow pages publishers in general, do not fluctuate widely with economic cycles. However, a prolonged national or regional economic recession could have a material adverse effect on our business, operating results or financial condition. As a result, we may experience lower than expected revenues for our business in the future.

In addition, any residual economic effects of, and uncertainties regarding the following could adversely affect our business:


	•	the general possibility, express threat or future occurrence of terrorist or other related disruptive events; or

	•	the United States’ continuing or expanded involvement in war, especially with respect to the major markets in which we operate that depend heavily upon travel, tourism or the military.

Our dependence on third-party providers of printing, delivery and transportation services could materially adversely affect us.

We depend on third parties for the printing and distribution of our directories. Dex Media has contracts with two companies, RRD and Quebecor, for the printing of our directories, which expire on December 31, 2011 and December 31, 2014, respectively. Because of the large print volume and specialized binding of directories, there are only a small number of companies in the printing industry that could service our needs. Accordingly, the inability or unwillingness of RRD or Quebecor to provide printing services to us on acceptable terms or at all could have a material adverse effect on our business.

Dex Media has a contract with a single company, PDC, for the delivery of nearly all our directories. Although this contract expires on May 31, 2009, PDC may terminate the contract upon 120 days prior written notice. Only a limited number of companies are capable of serving our delivery needs. Dex Media has a

The principal raw material that we use is paper. All of the paper that we use is supplied by two companies: Nippon and Catalyst. Pursuant to Dex Media’s agreements with Nippon and Catalyst, they are obligated to provide up to 60% and 40% of our annual paper requirements, respectively. Prices under the two agreements are set each year based on prevailing market rates. If, in a particular year, the parties to either of the agreements are unable to agree on repricing, either party may terminate the agreement. The contract with Nippon expires on December 31, 2009 and the contract with Catalyst expires on December 31, 2008. Furthermore, Dex Media purchases paper used for the covers of our directories from Spruce Falls. Pursuant to an agreement between Spruce Falls and Dex Media, Spruce Falls is obligated to provide 100% of our annual cover stock paper requirements. Prices under this agreement are negotiated each year. If, in a particular year, Spruce Falls and we are unable to agree on repricing, either party may terminate this agreement. This agreement expires on December 31, 2006.

The success of our business is dependent on the leadership of our key personnel. Non-management personnel providing services to us are currently employed by Dex Media Services, LLC (a bankruptcy-remote entity owned 49% by Dex Media East, Inc., and 49% by Dex Media West, Inc. and 2% by Dex Media) and are made available to us and Dex Media West. The loss of a significant number of experienced sales representatives could adversely affect our results of operations, financial condition and liquidity, as well as our ability to service our debt. Our success will also depend on our ability to identify, hire, train and retain qualified sales personnel. We currently expend significant resources and management time in identifying and training its sales representatives and sales managers. Our ability to attract and retain qualified sales personnel will depend, however, on numerous factors, including factors outside the combined company’s control, such as conditions in the local employment markets in which the combined company will operate.

Approximately 14% of our revenue for the year ended December 31, 2005 was derived from the sale of advertising to national or large regional chains, such as rental car companies, insurance companies and pizza delivery businesses, that purchase advertising in several of the directories that we publish. Substantially all of the revenue derived from national accounts is serviced through the CMRs with whom we contract. CMRs are independent third parties that act as agents for national companies and design their advertisements, arrange for the placement of those advertisements in directories and provide billing services. As a result, our relationships with these national advertisers depend significantly on the performance of these third party CMRs that we do not control. In particular, we rely on one CMR, TMP, whose billings were approximately 26% (excluding Qwest) of our national revenue for the year ended December 31, 2005. Although we believe that our respective relationships with these CMRs have been mutually beneficial, if some or all of the CMRs with whom we have established relationships were unable or unwilling to do business with us on acceptable terms or at all, such inability or unwillingness could materially adversely affect our business. In addition, any decline in the performance of TMP or the other CMRs with whom we contract could harm our ability to generate revenue from our national accounts and could materially adversely affect our business. We are also subject to credit risk with CMRs with whom we contract.

As of December 31, 2005, approximately 66% of our workforce was represented by labor unions covered by two collective bargaining agreements. Our collective bargaining agreement with the International Brotherhood of Electrical Workers, or IBEW, which covered approximately 33% of our unionized workforce as of December 31, 2005, expires in May 2006. Our collective bargaining agreement with the Communications Workers of America, or CWA, which covered approximately 67% of our unionized workforce as of December 31, 2005, expires in October 2006. If our unionized workers were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations and an increase in our operating costs, which could have a material adverse effect on us. We cannot assure you that the collective bargaining agreements with the IBEW and CWA will be renewed on satisfactory terms or at all and upon expiration of such agreements we cannot assure you that a strike or other work stoppage may not ensue. In addition, if a greater percentage of our work force becomes unionized, our business and financial results could be materially adversely affected.

Pursuant to our publishing agreement with Qwest, we are required to discharge Qwest’s regulatory obligation to publish white pages directories covering each service territory in the Dex East States where it provides local telephone service as the incumbent service provider. If the staff of a state public utility commission in a Dex East State were to impose additional or changed legal requirements with respect to Qwest’s obligation, we would be obligated to comply with these requirements on behalf of Qwest, even if such compliance were to increase our publishing costs. Pursuant to the publishing agreement, Qwest will only be obligated to reimburse us for one half of any material net increase in our costs of publishing directories that satisfy Qwest’s publishing obligations (less the amount of any previous reimbursements) resulting from new governmental legal requirements, and this obligation will expire on November 7, 2009. Our competitive position relative to competing directory publishers could be adversely affected if we are not able to recover

Some trademarks, such as “DEX,” “DexOnline.com,” “Dex Knows” and other intellectual property rights are important to our business. We rely upon a combination of copyright and trademark laws as well as contractual arrangements to establish and protect our intellectual property rights. We are required from time to time to bring lawsuits against third parties to protect our intellectual property rights. Similarly, from time to time, we may be party to proceedings whereby third parties challenge our rights. We cannot be sure that any lawsuits or other actions brought by us will be successful or that we will not be found to infringe the intellectual property rights of third parties. Although we are not aware of any material infringements of any trademark rights that are significant to our business, any lawsuits, regardless of their outcome, could result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition or results of operations. Furthermore, the loss of important intellectual property rights such as trademarks could have a material adverse effect upon our business, financial condition and results of operations.

A breach of any of these restrictive covenants or our inability to comply with the required financial ratios could result in a default under the agreements governing our credit facility. If a default occurs, the lenders under our credit facility may elect to declare all borrowings outstanding, together with accrued interest and other fees, to be immediately due and payable or prevent us from making payments on our 97/8% senior notes and 121/8% senior subordinated notes, either of which could result in an event of default under such indebtedness. The lenders will also have the right in these circumstances to terminate any commitments they have to provide further borrowings. If we are unable to repay outstanding borrowings when due, the lenders under our credit facility will also have the right to proceed against the collateral, including our available cash, granted to them to secure the indebtedness. If the indebtedness under our credit facility, our 97/8% senior notes and 121/8% senior subordinated notes were to be accelerated, we can make no assurances that our assets would be sufficient to repay in full that indebtedness and our other indebtedness.

Our historical consolidated financial statements included in this annual report have been prepared on the basis of the deferral and amortization method of accounting, under which revenue and cost of revenue related to the publication of directories are initially deferred and then recognized ratably over the life of each directory, commencing in the month of delivery. From time to time, we have determined that the publication dates of certain directories will be extended. These publication date changes are made to more efficiently manage work and customer flow. The lives of the affected directories are expected to be 12 months following the new publication date. Generally, we are able to bill and collect additional revenue for periods related to directory extensions and under the deferral and amortization method of accounting, our related unamortized cost of revenue is amortized over the extended estimated useful life of the directory. As a result, the extensions made through December 31, 2005 did not have a significant impact on our results of operations for the years ended December 31, 2005 or 2004, and are not expected to have a material effect on revenue or cost of revenue in future periods. Certain prior period amounts have been reclassified to conform to the 2005 presentation.

We derive approximately 97% of our revenue from the sale of advertising in our printed directories, which we refer to as directory services revenue. The sale of advertising in our printed directories also includes the replication of listings and display advertisements in DexOnline.com, our Internet-based directory. We also provide related services, including other Internet-related products, direct marketing lists and the sale of Dex directories and other publishers’ directories outside of the normal delivery schedule, which we refer to collectively as other revenue. Directory services revenue is affected by several factors, including changes in the quantity and size of advertisements sold, defectors and new advertisers as well as the proportion of premium advertisements sold, changes in the pricing of advertising, changes in the quantity and mix of advertising purchased per account and the introduction of additional products which generate incremental revenue. Directory services revenue may also increase through the publication of new print directories. Revenue recognized on sales under our Advertising Commitment Agreement with Qwest consists primarily of directory services revenue.

Year ended December 31, 2005 compared to the year ended December 31, 2004


	Year Ended December 31,
	2005			2004
	(Dollars in thousands)

Revenue:
Local directory services	$	581,950		$	589,986
National directory services		103,228			102,378
Qwest advertising		9,657			14,640
Other revenue		21,644			16,014

Total revenue		716,479			723,018
Cost of revenue, excluding depreciation and amortization expense		218,737			220,075

Gross profit, excluding depreciation and amortization expense	$	497,742		$	502,943
Gross margin, excluding depreciation and amortization expense		69.5	%		69.6	%
General and administrative expense, including bad debt expense and termination of annual advisory fees	$	113,263		$	112,449

Revenue

Total revenue decreased by $6.5 million, or 0.9%, to $716.5 million for the year ended December 31, 2005 from $723.0 million for the year ended December 31, 2004. The decrease in total revenue was primarily due to decreases in local directory services revenue and Qwest advertising revenue, and was partially offset by an increase in other revenue.

Local and national directory services revenue is affected by a variety of volume and pricing factors. Volume related factors include quantity of advertisements sold, the change in mix of advertisements among our product families, the proportion of advertisements sold with premium features, the volume of promotional services obtained from our advertisers in exchange for our publication of their advertisements in our directories, the number of local advertisers’ disconnects and the number of new advertisers obtained during a period. Pricing factors include price increases related to our standard rates that may be made from time to time in varying markets for varying categories, offset by discount programs that may be initiated in local markets for certain advertiser headings. Such factors generally affect the dollar volume of orders initiated in a period which are recognized as revenue over the life of a given directory, beginning in the month of delivery. Fluctuations in product mix and pricing are among the multiple factors that contributed to the change in local and national directory services revenue.

Local directory services revenue decreased $8.0 million, or 1.4%, to $582.0 million for the year ended December 31, 2005 compared to $590.0 million for the year ended December 31, 2004. Local directory services revenue accounted for 81.2% and 81.6% for the year ended December 31, 2005 and the year ended December 31, 2004, respectively.

Revenue from national advertisers increased $0.9 million, or 0.8%, to $103.2 million for the year ended December 31, 2005 compared to $102.4 million for the year ended December 31, 2004. National directory services revenue accounted for 14.4% and 14.2% for the year ended December 31, 2005 and the year ended December 31, 2004, respectively.

Revenue from Qwest advertising decreased $5.0 million, or 34.0% to $9.7 million for the year ended December 31, 2005 from $14.6 million for the year ended December 31, 2004. The decrease in Qwest advertising revenue was a result of timing of Qwest’s purchases under its Advertising Commitment Agreement with us. Under the Advertising Commitment Agreement, Qwest is obligated to purchase $20.0 million collectively in advertising from us and Dex Media West. However, if in any given year Qwest exceeds $20.0 million of advertising purchases, up to $5.0 million of the excess will be credited to the following year’s purchase commitments. As a result of purchases in excess of the $20.0 million for the year ended

December 31, 2003, Qwest purchased less than $20.0 million of Dex advertising in 2004, of which a portion is deferred and recognized over the life of the related directory in 2005.

Other revenue increased by $5.6 million, or 35.2%, to $21.6 million for the year ended December 31, 2005 from $16.0 million for the year ended December 31, 2004. The increase in other revenue was primarily due to an increase in Internet revenue and an increase in the fees the Company collects from customers who pay their accounts late, and was partially offset by a decrease in direct marketing revenue.

Cost of Revenue

Cost of revenue recognized was $218.7 million for the year ended December 31, 2005 compared to $220.1 million for the year ended December 31, 2004. Cost of revenue recognized represented 30.5% of revenue for the year ended December 31, 2005, compared to 30.4% of revenue for the year ended December 31, 2004.

For the years ended December 31, 2005 and 2004, we incurred costs subject to deferral and amortization of $215.5 million and $224.6 million, respectively. As described below, the decrease in incurred costs primarily resulted from decreased employee costs and direct costs of publishing offset by an increase in contracting and professional fees.

Employee costs incurred decreased by $9.1 million, or 9.2%, to $89.6 million for the year ended December 31, 2005 from $98.7 million for the year ended December 31, 2004. The decrease primarily resulted from a reduction in the number of employees, which related primarily to planned workforce reductions.

Direct costs of publishing incurred, which primarily included paper, printing and distribution, decreased $5.7 million, or 7.5%, to $70.7 million for the year ended December 31, 2005 from $76.4 million for the year ended December 31, 2004. The decrease was primarily a result of declining printing costs in 2005 due to the implementation of a new printing agreement with one of our two outside providers of printing services, and was partially offset by an increase in the number of directories we published in 2005.

Contracting and professional fees incurred increased $6.2 million, or 46.6%, to $19.5 million for the year ended December 31, 2005 from $13.3 million for the year ended December 31, 2004. The increase is primarily due to costs related to supporting our new production system, which we began to occur in the second quarter of 2004, and incremental costs paid to vendors related to the fulfillment of Dex Web Clicks^tm, which launched in early 2005.

National commissions incurred increased $2.2 million, or 10.1%, to $23.9 million for the year ended December 31, 2005 from $21.7 million for the year ended December 31, 2004.

Other cost of revenue incurred, which primarily includes systems expense, national commissions and office and facilities expense were $11.8 million and $14.5 million for the year ended December 31, 2005 and 2004, respectively.

Gross Profit

Our gross profit was $497.7 million for the year ended December 31, 2005 compared to $502.9 million for the year ended December 31, 2004. Gross margin was 69.5% for the year ended December 31, 2005 compared to 69.6% for the year ended December 31, 2004.

General and Administrative Expense

General and administrative expense, including bad debt expense, increased $0.8 million, or 0.7%, to $113.3 million from $112.4 million for the year ended December 31, 2004. The increase was primarily a result of increases in employee costs, contracting and professional fees and bad debt expense offset by a decrease due to the termination fee paid in 2004 to end the annual advisory fee paid to Carlyle and WCAS.

Employee costs increased $6.2 million, or 22.6%, to $33.6 million from $27.4 million for the years ended December 31, 2005 and 2004, respectively. Employee costs include salaries and wages, benefits, including

pension expense and employee stock compensation, and other employee costs. Salaries and wages were $14.9 million and $15.5 million for the years ended December 31, 2005 and 2004, respectively. Benefits were $13.5 million and $7.5 million for the years ended December 31, 2005 and 2004, respectively. The increase in benefits is due primarily to a one-time stock-based compensation change of $5.0 million related to the modification of certain stock option terms and a pension settlement loss of $1.4 million as a result of lump sum payments to participants in excess of the sum of service cost plus the interest component of the periodic pension costs for the year. Other employee costs were $5.2 million and $4.4 million for the years ended December 31, 2005 and 2004, respectively.

Advertising expense decreased $1.7 million, or 9.2%, to $16.8 million for the year ended December 31, 2005 from $18.5 million for the year ended December 31, 2004. Advertising as a percent of revenue, decreased to 2.3% for the year ended December 31, 2005 from 2.6%, for the year ended December 31, 2004.

Contracting and professional fees increased $4.1 million, or 21.1%, to $23.5 million for the year ended December 31, 2005 from $19.4 million for the year ended December 31, 2004. The increase was primarily a result of financial advisory, accounting and legal fees incurred in 2005 in connection with our merger with Donnelley. This increase was partially offset by the elimination in 2004 of the $2.0 million annual advisory fee payable to each of Carlyle and WCAS to eliminate our contractual obligation to pay such annual advisory fee.

Bad debt expense increased $4.6 million, or 21.7%, to $25.8 million for the year ended December 31, 2005 from $21.2 million for the year ended December 31, 2004. Bad debt expense as a percent of total revenue was 3.6% for the year end December 31, 2005 compared to 2.9% for the year ended December 31, 2004. The increase in bad debt expense reflects the Company’s decision to accept higher levels of credit risk.

In connection with the Dex Media IPO, we paid $5.0 million to each of Carlyle and WCAS to eliminate the $2.0 million aggregate annual advisory fee payable under their management consulting agreements. This non-recurring termination fee was not incurred in 2005. The annual advisory fee paid in prior periods is included in contracting and professional fees.

All other general and administrative expense, decreased $2.3 million, or 14.5%, to $13.6 million for the year ended December 31, 2005 from $15.9 million for the year ended December 31, 2004.

Amortization of Intangibles

For the years ended December 31, 2005 and 2004, we recognized $153.7 million and $181.1 million, respectively, in amortization expense related to our identifiable intangible assets. The decrease in amortization from the prior year was the result of a declining method used to amortize the value of acquired customers in proportion with their estimated retention lives.

Interest Expense

We recognized interest expense of $146.2 million and $199.7 million for the years ended December 31, 2005 and 2004, respectively. The decrease in interest expense is primarily a result of debt repayments including the redemption of $183.8 million of the senior subordinated debt paid in conjunction with the Dex Media IPO. Interest expense for the year ended December 31, 2005 and 2004 included $15.5 million and $28.9 million, respectively, of amortization of deferred financing costs.

Income Taxes

SFAS No. 109 requires that we recognize deferred income tax assets on net operating losses to the extent realization of these assets is more likely than not. As of December 31, 2005 we have recorded $23.0 million of net deferred income tax assets, of which $0 relates to estimated net operating loss carryforwards. As of December 31, 2004 we recorded $46.5 million of net deferred income tax assets, of which $28.3 million resulted from estimated net operating loss carryforwards of $66.7 million. The net operating loss carryforwards do not begin to expire until 2022. Based upon current projections of income and expenses, we have determined that it is more likely than not that we will utilize these deferred tax assets before the expiration of the net operating loss carryforward periods. Accordingly, no valuation allowance has been recorded.

MATERIAL TRENDS, KNOWN FACTS AND UNCERTAINTIES

Directory Services Revenue

For the year ended December 31, 2005, approximately 97% of our revenue came from directory services, our bundled advertising solution that includes print, Internet-based directories and CD-ROMs. Our ability to increase directory services revenue is dependent on our ability to attract and retain advertisers or increase revenue per advertiser account through a change in advertising volume, rates and/or new product offerings.

Competition

The U.S. directory advertising industry is highly competitive. In nearly all markets, we compete with one or more yellow pages directory publishers, which are predominantly independent publishers, such as the U.S. business of Yell Group Ltd and Phone Directories Company. In some markets, we also compete with other incumbent publishers in overlapping and adjacent markets. Competition from other yellow pages publishers affects our ability to attract and retain advertisers and to increase advertising rates.

The Internet has emerged as a medium for advertisers. We compete through our Internet site, DexOnline.com with the Internet yellow pages directories of independent and other incumbent directory publishers, and with other Internet sites, including those available through wireless applications, that provide classified directory information, such as Switchboard.com, Citysearch.com and Zagat.com, and with search engines and portals, such as Yahoo!, Google, MSN and others, some of which have entered into affiliate agreements with other major directory publishers. We may not be able to compete effectively with these other companies, some of which may have greater resources than we do, for advertising sales or acquisitions in the future. We also compete for advertising sales with other traditional media, including newspapers, magazines, radio, direct mail, telemarketing, billboards and television. We may not be able to compete effectively with these other companies, some of which may have greater resources than we do, for advertising sales or acquisitions in the future.

Internet

We believe that our Internet-based directory, DexOnline.com, is an extension of our printed directories. We believe that any decline in the usage of our printed directories could be offset in part by an increase in usage of our Internet-based directory, DexOnline.com. Additionally, the full roll-out of Dex Web Clicks will serve to provide our advertisers with a simplified solution to their participation in the complex area of auction-based internet advertising and could provide us with incremental revenue growth. However, if we are unsuccessful in monetizing increased usage from our Internet-based directory or are not able to effectively deliver Dex Web Clicks, our business could be negatively impacted.

Paper Prices

Paper is our principal raw material. Substantially all of the paper that we use (other than for covers) is supplied by two companies: Nippon and Catalyst. Prices under these two agreements are negotiated each year based on prevailing market rates, which have been declining consistent with general U.S. market trends for directory paper over the last three years. Since the second half of 2004, pulp prices have been increasing at rates higher than the general inflation rate. This has resulted in upward pressure on our paper prices. The effect of such upward price pressure has been moderated due to the fact that prices under both our paper agreements are subject to certain price escalation limits.

Fuel Prices

Fuel is an indirect and minor part of our cost structure. However, rising fuel prices could impact the transportation and distribution of our print directories at current service and cost levels. Our existing transportation agreement caps the diesel fuel surcharge well below the spot market diesel fuel surcharges. Although there is no current impact on our service levels and transportation/distribution costs, rising fuel costs could have a negative impact on us.

Income Taxes

The Company is subject to income taxes in the United States. The Company recently completed, subject to the Area Director’s approval, an audit by the IRS for the tax years ending November 30, 2002 and 2003. In connection with the audit, the Company and the IRS have agreed that approximately $46 million of costs incurred to consummate the Dex East Acquisition and Dex West Acquisition should be capitalized to the cost of the assets acquired and amortized over 15 years. This settlement is not material to our financial position, results of operations or cash flows.

New Accounting Standards

In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 151 “Inventory Costs — an amendment of ARB No. 43, Chapter 4”. This statement amends the guidance in ARB No. 43, Chapter 4 “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling cost and wasted material. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the adoption of SFAS No. 151 to have a material impact on our financial statements.

In December 2004, the FASB issued SFAS No. 123R “Share-Based Payment” and has subsequently issued various related FASB Staff Positions (FSPs”). This statement and FSPs establish standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, focusing primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This statement and FSPs are effective for public companies for new awards granted and outstanding awards modified, repurchased or cancelled for periods beginning after the effective date. The statement and FSPs also require that for outstanding options accounted for under APB No. 25 or SFAS No. 123, stock-based compensation expense be recognized in earnings for periods beginning after the effective date for the portion of those awards for which the requisite service has not yet been rendered, based upon the grant date fair value of such awards calculated under SFAS 123. The adoption of SFAS No. 123R and FSPs will not have a material impact on the Company’s financial statements.

On March 29, 2005, the SEC released SAB No. 107, which provides an interpretation of SFAS No. 123R and its interaction with certain SEC rules and regulations and provides the SEC’s views regarding the valuation of share-based payment arrangements for public companies. SAB No. 107 provides guidance with regard to share-based payment transactions with non-employees, the transition from nonpublic to public entity status, valuation methods (including assumptions such as expected volatility and expected term), the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures, first-time adoption of SFAS No. 123R, the modification of employee share options prior to adoptions of SFAS No. 123R and disclosures in Management’s Discussion and Analysis subsequent to the adoption of SFAS No. 123R. The adoption of SFAS No. 123R will not have a material impact on the Company’s financial statements.

On April 14, 2005, the SEC announced the adoption of a new rule that amends the compliance dates for SFAS No. 123R. Under SFAS No. 123R, registrants would have been required to implement the standard as of the beginning of the first interim or annual period that begins after June 15, 2005. The SEC’s new rule requires companies to implement SFAS No. 123R at the beginning of their next fiscal year beginning on or after June 15, 2005, instead of the first reporting period that begins after June 15, 2005. As a result, the financial statements of the Company must comply with SFAS No. 123R beginning with the interim financial statements for the first quarter of 2006. The SEC’s new rule does not change the accounting required by SFAS No. 123R; it changes only the dates for compliance with the standard.

During May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — a Replacement of APB Opinion No. 20 and FASB Statement No. 3.” This statement applies to all voluntary changes in accounting principle and requires retrospective application of the new accounting principle to prior accounting periods as if that principle had always been used. In addition, this statement requires that a change

in depreciation method be accounted for as a change in estimate. The requirements are effective for changes made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a material impact on the Company’s financial statements.

Other Items

In its final review of the Company’s financial statements included in this annual report on Form 10-K, management identified and corrected a misclassification that appeared in our press release dated February 22, 2006, which was filed as Exhibit 99.1 to our Current Report on form 8-K furnished to the SEC on February 22, 2006. The misclassification involved outstanding accounts receivable balances that were improperly classified as cash. The result of correcting this misclassification is a decrease in cash and cash provided by operating activities of $0.2 million (to $0 and $255.0 million, respectively) as of and for the year ended December 31, 2005, and an increase in accounts receivable and accounts payable of $1.0 million and $0.8 million, respectively (to $70.4 million and $40.5 million, respectively) as of December 31, 2005.


ITEM 7A.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

Long-Term Debt

As of December 31, 2005, we had a total outstanding debt balance of $1,563.7 million, comprised of: (i) $772.5 million of variable rate debt drawn under the secured credit facilities; (ii) $450.0 million of unsecured senior notes; and (iii) $341.3 million of unsecured senior subordinated notes. The credit facilities were made up of $322.0 million of a Tranche A term loan maturing in November 2008, $433.5 million of a Tranche B term loan maturing in May 2009 and $17.0 million borrowing on a revolving loan. Due to the variable rate characteristics of the credit facilities, the carrying amounts of the Tranche A term loan and Tranche B term loan approximated fair values.

Dex Media East’s $450.0 million unsecured senior notes bear a fixed interest rate of 9.875% and mature in November 2009. Due to changes in interest rates and market conditions since the issuance of these fixed rate notes, the fair value of such notes was $487.1 million at December 31, 2005.

Dex Media East’s $341.3 million unsecured senior subordinated notes bear a fixed interest rate of 12.125% and mature in November 2012. Due to changes in interest rates and market conditions since the issuance of these fixed rate notes, the fair value of such notes was $399.7 million at December 31, 2005. Please refer to Note 6 in the accompanying consolidated financial statements for details on the required annual principal payments on long-term debt.

Interest Rate Risk

As of December 31, 2005, we had $17.0 million of debt outstanding under our revolving credit facility (with an approximate additional $1.1 million committed under two stand-by letters of credit), $322.0 million of debt outstanding under our Tranche A term loan facility and $433.5 million of debt outstanding under our Tranche B term loan facility. Our revolving credit facility and each of our term loan facilities are subject to variable rates. Accordingly, our earnings and cash flow are affected by changes in interest rates. We have hedged a portion of our interest rate risk. The interest rate swap agreements became effective May 8, 2003. Currently, we have two interest rate swap agreements: an interest rate swap with a notional amount of $50.0 million and an applicable fixed rate of 3.638% that will expire in November 2007, and an interest rate swap with a notional amount of $75.0 million and an applicable fixed rate of 4.085% that will expire in May 2008. Assuming we had incurred this level of borrowings and interest rate swap agreements on January 1, 2005 with interest payable at variable rates and assuming a one percentage point increase in the average interest rate under these borrowings and interest rate swap agreements, our interest expense for the year ended December 31, 2005 would have increased by $6.6 million. We do not intend to use any financial derivative instruments for speculative purposes.

Report of Independent Registered Public Accounting Firm

The Board of Directors

Dex Media, Inc.:

We have audited the accompanying consolidated balance sheets of Dex Media East LLC (an indirect wholly owned subsidiary of Dex Media, Inc.) and subsidiaries as of December 31, 2005 and 2004, and the consolidated statements of operations, cash flows, and changes in owner’s equity and comprehensive income (loss) for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 Dex Media East LLC and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

KPMG LLP

Denver, Colorado

March 15, 2006

F-2

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Consolidated Balance Sheets


	As of December 31,
	2005			2004
	(Dollars in thousands)

ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—
Accounts receivable, net		70,437			56,123
Deferred directory costs		139,389			135,417
Current deferred income taxes		7,629			8,189
Other current assets		4,130			5,181

Total current assets		221,585			204,910
Property, plant and equipment, net		53,909			50,750
Goodwill		890,731			890,731
Intangible assets, net		1,209,992			1,363,673
Deferred income taxes		15,395			38,297
Deferred financing costs		37,032			50,924
Other assets		1,568			1,180

Total Assets	$	2,430,212		$	2,600,465


LIABILITIES AND OWNER’S EQUITY
Current liabilities:
Accounts payable	$	40,488		$	38,997
Amounts due to affiliate		4,665			6,311
Deferred revenue and customer deposits		107,790			96,587
Accrued interest payable		17,533			14,463
Current portion of long-term debt		129,290			105,232
Other accrued liabilities		13,554			10,134

Total current liabilities		313,320			271,724
Long-term debt		1,434,458			1,655,302
Amounts due to affiliate related to post-retirement and other post-employment obligations		44,173			38,843
Other liabilities		1,292			1,028

Total Liabilities		1,793,243			1,966,897

Commitments and contingencies (Note 12)
Owner’s interest		665,037			705,906
Accumulated deficit		(29,381	)		(71,550	)
Accumulated other comprehensive income (loss)		1,313			(788	)

Total Owner’s Equity		636,969			633,568

Total Liabilities and Owner’s Equity	$	2,430,212		$	2,600,465

See accompanying notes to consolidated financial statements.

F-3

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Consolidated Statements of Operations


	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)

Revenue	$	716,479		$	723,018		$	668,940
Operating Expenses:
Cost of revenue		218,737			220,075			201,672
General and administrative expense		87,502			81,280			77,482
Bad debt expense		25,761			21,169			23,682
Termination of annual advisory fees		—			10,000			—
Depreciation and amortization expense		13,093			12,155			10,367
Amortization of intangibles		153,681			181,127			214,360

Total operating expenses		498,774			525,806			527,563

Operating income		217,705			197,212			141,377
Other (income) expense:
Interest income		(226	)		(404	)		(530	)
Interest expense		146,244			199,703			198,265
Other (income) expense, net		(274	)		43			12,057

Income (loss) before income taxes		71,961			(2,130	)		(68,415	)
Income tax provision (benefit)		29,792			(482	)		(26,617	)

Net income (loss)	$	42,169		$	(1,648	)	$	(41,798	)

See accompanying notes to consolidated financial statements.

F-4

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Consolidated Statements of Cash Flows


	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)

Operating activities:
Net income (loss)	$	42,169		$	(1,648	)	$	(41,798	)
Adjustments to net income (loss):
Bad debt expense		25,761			21,169			23,682
Depreciation and amortization expense		13,093			12,155			10,367
Amortization of intangibles		153,681			181,127			214,360
Realized gain on foreign currency derivative instrument		—			—			(3,875	)
Realized loss on translation of foreign currency debt		—			—			3,908
Amortization of deferred financing costs		15,547			28,899			18,166
Stock-based compensation expense		5,847			550			—
Loss on disposition of assets		95			—			—
Deferred tax benefit		22,124			(482	)		(26,617	)
Changes in operating assets and liabilities:
Accounts receivable		(37,433	)		(14,562	)		(18,464	)
Deferred directory costs		(3,971	)		(7,084	)		(16,961	)
Amounts due from affiliates		—			—			(19,584	)
Other current assets		2,087			724			(2,426	)
Other long-term assets		652			583			(1,119	)
Amounts due from affiliate related to post-retirement and other post-employment benefits		—			—			(1,741	)
Accounts payable and other liabilities		2,020			(9,499	)		35,076
Accrued interest		3,070			(4,396	)		(5,867	)
Deferred revenue and customer deposits		11,203			(7,863	)		37,002
Amounts due to affiliates		(7,342	)		2,082			—
Other long-term liabilities		1,071			(315	)		—
Amounts due to affiliate related to post-retirement and other post-employment benefits		5,330			4,981			—
Employee benefit plan obligations and other, net		—			—			5,352

Cash provided by operating activities		255,004			206,421			209,461

Investing activities:
Expenditures for property, plant and equipment		(4,151	)		(6,636	)		(7,691	)
Capitalized software development costs		(12,196	)		(16,602	)		(22,468	)
Acquisition of Dex East		—			—			(778	)
Proceeds from disposition of investment		—			—			17,190
Escrow deposits		—			—			(2,000	)
Escrow funds released		—			—			4,000

Cash used for investing activities		(16,347	)		(23,238	)		(11,747	)

Financing activities:
Proceeds from borrowings on revolving credit facility		170,500			38,000			9,000
Repayments of borrowings on revolving credit facility		(153,500	)		(38,000	)		(9,000	)
Proceeds from issuance of long-term debt		—			—			160,000
Payments on long-term debt		(213,786	)		(380,332	)		(230,135	)
Payment of refinancing costs		—			(941	)		—
Contributions from owner		—			212,280			50,000
Distributions to owner		(40,216	)		(16,948	)		(214,139	)
Payment of deferred financing costs		(1,655	)		—			(2,846	)
Cash received on foreign currency swap settlement		—			—			4,538

Cash used for financing activities		(238,657	)		(185,941	)		(232,582	)

Cash and cash equivalents:
Increase (decrease)		—			(2,758	)		(34,868	)
Beginning balance		—			2,758			37,626

Ending balance	$	—		$	—		$	2,758

Supplemental cash flow disclosures:
Interest paid	$	127,627		$	176,168		$	185,108
Non-cash investing and financing activities:
Distribution payable to owner	$	(5,696	)	$	—		$	(112	)
Distribution to owner		(1,045	)		(4,374	)		—
Contributions received from owner		—			—			23,536

See accompanying notes to consolidated financial statements.

F-5

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Consolidated Statements of Changes in Owner’s Equity And Comprehensive Income (Loss)


							Accumulated
							Other			Total
	Owner’s			Accumulated			Comprehensive			Owner’s			Comprehensive
	Interest			Deficit			Income (Loss)			Equity			Income (Loss)
	(Dollars in thousands)

Balance, December 31, 2002	$	655,000			(28,104	)		(3,517	)		623,379
Net loss					(41,798	)					(41,798	)	$	(41,798	)
Other comprehensive loss								(509	)		(509	)		(509	)

Comprehensive loss													$	(42,307	)

Contributions from Owner		73,536									73,536
Distributions to Owner		(214,250	)								(214,250	)

Balance, December 31, 2003		514,286			(69,902	)		(4,026	)		440,358
Net loss					(1,648	)					(1,648	)	$	(1,648	)
Other comprehensive income								3,238			3,238			3,238

Comprehensive income													$	1,590

Stock-based compensation expense		550									550
Contributions from Owner		212,280									212,280
Distributions to Owner		(21,210	)								(21,210	)

Balance, December 31, 2004		705,906			(71,550	)		(788	)		633,568
Net income					42,169						42,169		$	42,169
Other comprehensive income								2,101			2,101			2,101

Comprehensive income													$	44,270

Stock-based compensation expense		5,847									5,847
Tax impact of common stock option exercises		241									241
Distributions to Owner		(46,957	)								(46,957	)

Balance, December 31, 2005	$	665,037		$	(29,381	)	$	1,313		$	636,969

See accompanying notes to consolidated financial statements.

F-6

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements


1.	Description of Business

(a) The Company

Dex Media East LLC (“Dex Media East” or the “Company”) is a subsidiary of Dex Media East, Inc. and an indirect wholly-owned subsidiary of Dex Media, Inc. (“Dex Media”). Dex Media East is the exclusive official directory publisher for Qwest Corporation, the local exchange carrier of Qwest Communications International, Inc. (“Qwest”) in Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota and South Dakota (collectively the “Dex East States”).

Dex Media’s directory business was acquired from Qwest Dex, Inc. (“Qwest Dex”) in a two phase purchase between Dex Holdings LLC (“Dex Holdings”), the former parent of Dex Media, and Qwest Dex. Dex Holdings and Dex Media were formed by two private equity firms: The Carlyle Group (“Carlyle”) and Welsh, Carson, Anderson & Stowe (“WCAS”). In the first phase of the purchase, consummated on November 8, 2002, Dex Holdings assigned its right to purchase the directory business of Qwest Dex in the Dex East States (“Dex East” or the “Predecessor”) to the Company (the “Acquisition”). In the second phase of the purchase, which was consummated on September 9, 2003, Dex Holdings assigned to Dex Media West LLC (“Dex Media West”), another indirect wholly-owned subsidiary of Dex Media, its right to purchase the directory business of Qwest Dex in Arizona, Idaho, Montana, Oregon, Utah, Washington and Wyoming. Dex Holdings was dissolved effective January 1, 2005.

On January 31, 2006, our indirect parent, Dex Media, merged with and into Forward Acquisition Corporation (“FAC”), a wholly owned subsidiary of R.H. Donnelley Corporation (“Donnelley”). In the merger, each share of Dex Media’s common stock was converted into the right to receive $12.30 in cash and 0.24154 of a share of Donnelley common stock. In connection with the consummation of the merger (the “Donnelley Merger”), the name FAC was changed to Dex Media, Inc. As a result of the merger, Dex Media became a wholly owned subsidiary of Donnelley and we became an indirect wholly owned subsidiary of Donnelley.

(b) Operations

The Company is the largest telephone directory publisher of white and yellow pages directories to businesses and residents in the Dex East States. The Company provides directory, Internet and direct marketing solutions to local and national advertisers. Virtually all of the Company’s revenue is derived from the sale of advertising in its various directories. Published directories are distributed to residents and businesses in the Dex East States through third-party vendors. The Company operates as a single segment.

(c) Dex Media Initial Public Offering

Effective on July 21, 2004, Dex Media consummated its initial public offering of common stock (“the Dex Media IPO”). Immediately prior to the Dex Media IPO, Dex Media effected a 10-for-1 split of all authorized shares of common stock. Share and per share data for all periods subsequent to November 8, 2002 have been restated to reflect the stock split. Part of the proceeds related to the Dex Media IPO were used to redeem $183.8 million of the Company’s senior subordinated notes on August 26, 2004 at a redemption price of 112.125% along with the accrued and unpaid interest. In connection with the Dex Media IPO, the Company paid $5.0 million to each of Carlyle and WCAS to eliminate the $2.0 million annual advisory fee payable under its management consulting agreements.

F-7

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)


2.	Basis of Presentation

(a) General

The accompanying consolidated balance sheets as of December 31, 2005 and 2004, and the consolidated statements of operations, cash flows and changes in owner’s equity for the years ended December 31, 2005, 2004 and 2003 reflect the consolidated financial position, results of operations and cash flows of the Company from the date of acquisition and include all material adjustments required under purchase accounting.

(b) Reclassifications

Certain prior period amounts have been reclassified to conform to the 2005 presentation. During the year ended December 31, 2005, the Company reclassified amounts for late fees received from its customers from interest income to revenue. Late fees received for the years ended December 31, 2005, 2004 and 2003 totaling $1.2 million, $0.3 million and $0.2 million, respectively, were recorded in revenue in the accompanying consolidated statements of operations.


3.	Summary of Significant Accounting Policies

(a) Principles of Consolidation

The consolidated financial statements of the Company include the results of operations, financial position and cash flows of Dex Media East and its two wholly-owned subsidiaries, Dex Media East Finance Co. and Dex Media International Inc. All intercompany balances and transactions have been eliminated in the consolidation.

(b) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts and disclosures reported in these consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates.

(c) Revenue Recognition

The sale of advertising in printed directories published by the Company is the primary source of revenue. The Company recognizes revenue ratably over the life of each directory using the deferral and amortization method of accounting, with revenue recognition commencing in the month of delivery. The Company recognizes revenue for advertising on its Internet-based directory, DexOnline.com, ratably over the period the advertisement appears on the site. Other products and services are recognized as delivered or provided.

The Company publishes white and yellow pages directories with primarily 12-month lives. From time to time, the Company may choose to change the publication dates of certain directories in order to more efficiently manage work and customer flow. The lives of the affected directories are expected to be 12 months thereafter. Such publication date changes do not have a significant impact on the Company’s recognized revenue as the Company’s sales contracts generally allow for the billing of additional monthly charges in the case of directories with extended lives. For the years ended December 31, 2005, 2004 and 2003, the Company published 160, 149 and 147 directories, respectively.

The Company enters into transactions such as exclusivity arrangements, sponsorships, and other media access transactions where the Company’s products and services are promoted by a third party and, in exchange, the Company carries that party’s advertisement. The Company accounts for these transactions in accordance with Emerging Issues Task Force (“EITF”) Issue No. 99-17 “Accounting for Advertising Barter

F-8

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

Transactions”. Revenue and expense related to such transactions are classified in the consolidated statements of operations consistently with similar items sold or purchased for cash. Such transactions were not significant to the Company’s operations for the years ended December 31, 2005, 2004 and 2003.

In certain cases, the Company enters into agreements with customers that involve the delivery of more than one product or service. Revenue for such arrangements is allocated in accordance with EITF Issue No. 00-21 “Revenue Arrangements with Multiple Deliverables.”

(d) Cost of Revenue

The Company accounts for cost of revenue under the deferral and amortization method of accounting. Accordingly, the Company’s cost of revenue recognized in a reporting period consists of: (i) costs incurred in that period and recognized in that period, principally sales salaries and wages; (ii) costs incurred in a prior period, a portion of which are amortized and recognized in the current period; and (iii) costs incurred in the current period, a portion of which are amortized and recognized in that period and the balance of which are deferred until future periods. Consequently, there will be a difference between the cost of revenue recognized in any given period and the costs incurred in the given period. Such difference may be significant.

Costs incurred in the current period and subject to deferral include direct costs associated with the publication of directories, including sales commissions, paper, printing, transportation, distribution and pre-press production and employee and systems support costs relating to each of the foregoing. Sales commissions include commissions paid to employees for sales to local advertisers and to third-party certified marketing representatives, which act as the Company’s channel to national advertisers. All deferred costs related to the sale and production of directories are recognized ratably over the life of each directory under the deferral and amortization method of accounting, with cost recognition commencing in the month of delivery. From time to time the Company has changed the publication dates of certain directories to more effectively manage work and customer flow. In such cases, the estimated life of the related unamortized deferred cost of revenue is revised to amortize such costs over the new remaining estimated life. Changes in directory publication dates typically do not result in any additional direct incurred costs.

(e) Deferred Revenue

Deferred revenue represents amounts billed and advance payments received from customers that have not yet been recognized as revenue.

(f) Deferred Directory Costs

Deferred directory costs represent costs incurred in the production of directories prior to publication and incurred costs for directories that have been delivered that have not yet been recognized as cost of revenue. Deferred directory costs are amortized ratably to cost of revenue over the life of each directory beginning in the month of delivery.

(g) Advertising Costs

Costs related to advertising are expensed as incurred. Advertising expenses of $16.8 million, $18.5 million and $11.7 million are included in general and administrative expense in the Company’s consolidated statement of operations for the years ended December 31, 2005, 2004 and 2003.

(h) Cash and Cash Equivalents

The Company considers cash on hand, deposits in banks and investments purchased with original maturities of three months or less to be cash and cash equivalents.

F-9

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

(i) Accounts Receivable

The Company has a billing and collection agreement with Qwest. Under that agreement, certain receivables are billed and collected by Qwest on behalf of the Company for customers common between the Company and Qwest within the Dex East States. Qwest purchases these accounts receivable from the Company on a full recourse basis, and as such, the Company continues to include its portion of any related bad debt reserves in its consolidated balance sheets.

The Company reports its accounts receivable at the outstanding principal net of the allowance for doubtful accounts. The allowance for doubtful accounts for Company billed local trade receivables is estimated based upon a combination of historical experience of actual sales write-offs and an analysis of amounts past due more than 75 days, as determined by the contractual term of each sale. The allowance for doubtful accounts for national trade receivables includes specifically identified uncollectible accounts. Receivables are charged against the allowance for doubtful accounts when deemed uncollectible by collection managers and any recoveries of previous charges are recorded as a reduction of the allowance for doubtful accounts.

For accounts receivable purchased by Qwest, the Company uses a rolling 12-month average of write-offs compared to the prior 12 months of billings to estimate the necessary allowance for doubtful accounts. When a receivable is deemed to be uncollectible, the Company reduces its receivable against the allowance for doubtful accounts. Any recoveries of amounts previously charged against the allowance for doubtful accounts are recorded as a reduction of the allowance for doubtful accounts.

The Company charges a percentage finance charge on certain past due trade receivables. The Company does not recognize finance charges until the cash is collected from the customer.

The following table presents a breakdown of accounts receivable balances as of December 31 (in thousands):


	2005			2004

Trade accounts receivable	$	81,408		$	61,566
Amounts due from Qwest related to purchased receivables		995			6,098
Other accounts receivable		—			1,132
Less: allowance for doubtful accounts		(11,966	)		(12,673	)

Accounts receivable, net	$	70,437		$	56,123


	Balance at
	Beginning		Costs and					Balance at
	of Period		Expenses		Deductions(1)			End of Period

Year ended December 31, 2003	$	8,013	$	23,682	$	(22,065	)	$	9,630
Year ended December 31, 2004		9,630		21,169		(18,126	)		12,673
Year ended December 31, 2005		12,673		25,761		(26,468	)		11,966


(1)		Represents uncollectible accounts charged against the allowance for doubtful accounts.

(j) Property, Plant and Equipment

Assets acquired as part of the Acquisition were recorded at fair value as of the acquisition date and are amortized over their remaining useful life using the straight-line method. For assets purchased after the Acquisition, property, plant and equipment is carried at cost and is depreciated using the straight-line method over the estimated useful lives of the assets except that leasehold improvements are depreciated over the

F-10

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

shorter of the estimated useful life or remaining life of the lease. The following table presents the estimated useful lives of each asset type:


		Estimated lives

Computers and equipment		3-7 years
Leasehold improvements		5 years
Capitalized software		9 months-7 years
Furniture and fixtures		7 years

The cost of additions and improvements are capitalized and expenditures for repairs and maintenance are expensed as incurred. When property, plant and equipment is sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in other (income) expense.

(k) Computer Software

Internally used software, whether purchased or internally developed, is capitalized and amortized using the straight-line method over an estimated useful life of 18 months to seven years. In accordance with Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” certain costs associated with internally developed software such as payroll costs of employees devoting time to the projects and external direct costs for materials and services are capitalized. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that those modifications enable the software to perform tasks that it was previously incapable of performing. Software maintenance and training costs are expensed in the period in which they are incurred. Gross computer software costs of $62.0 million, $47.7 million and $13.6 million at December 31, 2005, 2004 and 2003, respectively, are included in property, plant and equipment. Amortization of capitalized computer software costs totaled $8.6 million, $7.4 million and $6.1 million for the years ended December 31, 2005, 2004 and 2003, respectively.

During 2005, the Company shortened the estimated useful life of certain software projects. The Company accounts for such changes in estimate prospectively from the date of the change.

(l) Deferred Financing Costs

Costs incurred in connection with financing activities are deferred and amortized using the effective interest method over the terms of the related debt agreements ranging from six to ten years. Amortization of these costs and a proportionate amount of unamortized costs related to debt prepayments are charged to interest expense in the accompanying consolidated statements of operations. The carrying values of deferred financing costs in the accompanying consolidated balance sheets at December 31, 2005 and 2004 were $37.0 million and $50.9 million, respectively.

(m) Long-Lived Assets

The impairment of long-lived assets is assessed whenever events or changes in circumstances indicate that their carrying value may not be recoverable through expected future undiscounted cash flows. If the total expected future undiscounted cash flows are less than the carrying value of the asset, the asset is written down to its estimated fair value. Cash flow projections, although subject to a degree of uncertainty, are based on trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions.

F-11

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

(n) Goodwill and Intangible Assets

Goodwill represents the excess purchase price paid by the Company over the fair value of the tangible and identifiable intangible assets and liabilities acquired from Qwest Dex on November 8, 2002, the date of the Acquisition. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimated useful lives be amortized over their respective estimated useful lives to their residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.”

Intangible assets acquired include trademarks, customer relationships, non-compete/publishing agreements and an advertising agreement. The acquired Dex trademark is a perpetual asset and not subject to amortization. Annual amortization for customer relationships is calculated using a declining method in relation to the estimated retention periods of the acquired customers. Other intangible assets are amortized on a straight-line basis over the estimated lives of the assets ranging from five to forty years.

The Company’s policy is to evaluate the carrying value of goodwill and identified intangibles not subject to amortization at the end of the third quarter of each fiscal year. Under SFAS No. 142, impairment of goodwill may exist if the carrying value of the reporting unit to which it is allocated exceeds the fair value of the reporting unit. The Company has one reporting unit and therefore compares the carrying value of the Company to its fair value. Fair value of the Company is estimated using a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”). Under SFAS No. 142, indefinite-lived intangible assets are impaired if the fair value of the asset exceeds its carrying amount.

In accordance with SFAS No. 144, the Company assesses its intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company evaluates at least annually the assumptions utilized by the independent specialist at the time of the Acquisition to determine the initial value and useful life of the intangible assets to determine if any events or changes in circumstances have occurred that might have caused the intangible assets to be impaired.

If a triggering event has occurred, the Company assesses the ongoing recoverability of its intangible assets subject to amortization by determining whether the intangible balance can be recovered over the remaining amortization period through projected undiscounted future cash flows. If projected undiscounted future cash flows indicate that the unamortized intangible asset balances will not be recovered, an adjustment is made to reduce the net intangible asset to an amount consistent with projected future cash flows discounted at the Company’s incremental borrowing rate. Cash flow projections, although subject to a degree of uncertainty, are based on trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions.

As of December 31, 2005, the Company does not believe any impairment of goodwill or other identified intangible assets has occurred.

(o) Stock-Based Compensation

The Company accounts for the Stock Option Plan of Dex Media, Inc., (the “2002 Plan”) and the Dex Media, Inc. 2004 Incentive Award Plan (the “2004 Plan”) as more fully discussed in Note 9(b), under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. The Company recognizes compensation expense for its awards with pro rata vesting on a straight-line basis. Had the Company accounted for employee stock option grants under the minimum value method for options issued prior to Dex Media becoming a publicly

F-12

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

traded company and the fair value method after Dex Media became a publicly traded company, both of which are prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation,” the pro forma results of the Company for the years ended December 31, 2005, 2004 and 2003 would have been as follows (dollars in thousands):


	For the Years Ended December 31,
	2005			2004			2003

Net income (loss):
As reported	$	42,169		$	(1,648	)	$	(41,798	)
Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects		3,373			336			—
Deduct: Stock-based employee compensation expense determined under minimum value or fair value based method, as applicable, for all awards, net of related tax effects		(850	)		(700	)		(180	)

Pro forma	$	44,692		$	(2,012	)	$	(41,978	)

(p) Derivative Instruments and Hedging Activities

The Company follows the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Certain Hedging Activities,” SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS 133,” and SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS Nos. 133, 138 and 149 require that all derivative instruments be recorded on the balance sheet at their respective fair values.

On the date a derivative contract is executed, the Company may designate the derivative as a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability or forecasted transaction (cash-flow hedge). For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed, and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in accumulated other comprehensive income to the extent that the derivative is effective as a hedge, until earnings are affected by the variability in cash flows of the designated hedged item. The ineffective portion of the change in fair value of a derivative instrument that qualifies as a cash-flow hedge is reported in earnings.

The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative or hedged item is expired, sold, terminated, or exercised, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. In situations in which hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings.

For derivative instruments that are not designated or do not qualify as hedged transactions, the initial fair value, if any, and any subsequent changes in the fair value are reported in earnings as a component of interest expense.

F-13

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

(q) Comprehensive Income (Loss)

The Company follows the provisions of SFAS No. 130, “Reporting Comprehensive Income,” which establishes standards for reporting and disclosure of comprehensive income (loss) and its components. In addition to net income (loss), comprehensive income (loss) includes all changes in net assets during a period, except those resulting from equity contributions and distributions.

(r) Income Tax Provision

The Company is included in the consolidated Federal income tax return and combined or consolidated state income tax returns, where permitted, for Dex Media, the Company’s indirect parent. Although the Company is a single member limited liability company and is disregarded as a taxable entity for income tax purposes, the Company calculates and records income taxes as if it filed a tax return on a stand-alone basis at the direct parent level.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recorded to reflect the future tax consequences of temporary differences between the financial reporting bases of assets and liabilities and their tax bases at each year end. Deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted for future income tax rate changes in the year the changes are enacted. Deferred tax assets are recognized for operating loss and tax credit carryforwards if management believes, based upon existing evidence, that it is more likely than not that the carryforwards will be utilized. All deferred tax assets are reviewed for realizability and valuation allowances are recorded if it is more likely than not that the deferred tax assets will not be realized.

(s) Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term borrowings. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of their short-term nature. The carrying value of the Company’s variable-rate long-term debt approximates fair value because the related interest rates reset to current market rates on a short-term basis. The fair value of the Company’s fixed-rate long-term debt is estimated by the current market price as provided by a third party investment bank as of December 31, 2005.

(t) New Accounting Standards

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151 “Inventory Costs — an amendment of ARB No. 43, Chapter 4”. This statement amends the guidance in ARB No. 43, Chapter 4 “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling cost and wasted material. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the adoption of SFAS No. 151 to have a material impact on our financial statements.

In December 2004, the FASB issued SFAS No. 123R “Share-Based Payment” and has subsequently issued various related FASB Staff Positions (“FSPs”). This statement and FSPs establish standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, focusing primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This statement and FSPs are effective for public companies for new awards granted and outstanding awards modified, repurchased or cancelled for periods beginning after the

F-14

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

effective date. The statement and FSPs also require that for outstanding options accounted for under APB No. 25 or SFAS No. 123, stock-based compensation expense be recognized in earnings for periods beginning after the effective date for the portion of those awards for which the requisite service has not yet been rendered, based upon the grant date fair value of such awards calculated under SFAS 123. The adoption of SFAS No. 123R and FSPs will not have a material impact on the Company’s financial statements.

On March 29, 2005, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin (“SAB”) No. 107, “Share-based Payment.” SAB No. 107 provides an interpretation of SFAS No. 123R, “Share-based Payment” and its interaction with certain SEC rules and regulations and provides the SEC’s views regarding the valuation of share-based payment arrangements for public companies. SAB No. 107 provides guidance with regard to share-based payment transactions with non-employees, the transition from nonpublic to public entity status, valuation methods (including assumptions such as expected volatility and expected term), the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures, first-time adoption of SFAS No. 123R, the modification of employee share options prior to adoptions of SFAS No. 123R and disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations subsequent to the adoption of SFAS No. 123R. The adoption of SFAS No. 123R will not have a material impact on the Company’s financial statements.

On April 14, 2005, the SEC announced the adoption of a new rule that amends the compliance dates for SFAS No. 123R. Originally, registrants would have been required to implement the standard as of the beginning of the first interim or annual period beginning after June 15, 2005. The SEC’s new rule requires companies to implement SFAS No. 123R at the beginning of their first fiscal year beginning on or after June 15, 2005, instead of the first reporting period that begins after June 15, 2005. As a result, the financial statements of the Company must comply with SFAS No. 123R beginning with the interim financial statements for the first quarter of 2006. The SEC’s new rule does not change the accounting required by SFAS No. 123R; it changes only the dates for compliance with the standard.

During May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, “Accounting Changes and Error Corrections — a Replacement of ABP Opinion No. 20 and FASB Statement No. 3.” This statement applies to all voluntary changes in accounting principle and requires retrospective application of the new accounting principle to prior accounting periods as if that principle had always been used. In addition, this statement requires that a change in depreciation method be accounted for as a change in estimate. The requirements are effective for changes made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a material impact on the Company’s financial statements.

F-15

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)


4.	Property, Plant and Equipment

The following table presents the composition of property, plant and equipment as of December 31 (dollars in thousands):


	2005			2004

Computers and equipment	$	15,531		$	14,023
Leasehold improvements		5,548			5,189
Capitalized software		61,975			47,733
Furniture and fixtures		1,767			1,382
Construction in progress		4,241			5,748

Gross property, plant and equipment		89,062			74,075
Less: accumulated depreciation and amortization		(35,153	)		(23,325	)

Net property, plant and equipment	$	53,909		$	50,750

Included in computers and equipment above are $0.2 million net book value of equipment obtained under capital lease agreements. The following are the future minimum lease payments required under these capital leases (in thousands):


2006	$	167
2007		52
2008		41
2009		25

Total lease obligation		285
Less: interest		(32	)
Less: executory costs		(96	)

Capital lease obligation		157
Less: current portion		(63	)

Long term capital lease obligation	$	94


5.	Goodwill and Intangible Assets

The excess purchase price paid by the Company over its estimate of the fair value of the tangible assets and liabilities of Dex East related to the Acquisition was approximately $2,681.7 million ($890.7 million of goodwill and $1,791.0 million of identifiable intangible assets).

During the year ended December 31, 2005 goodwill was not impaired or otherwise adjusted.

The Company evaluates the carrying value of goodwill and indefinite-lived intangible assets at the end of the third quarter of each fiscal year. Based upon the evaluation performed as of September 30, 2005, goodwill was determined not to be impaired at September 30, 2005. No events have occurred since the date of the Company’s evaluation that would indicate the Company’s goodwill and indefinite-lived intangible assets may be impaired as of December 31, 2005.

F-16

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

Intangible assets (other than goodwill), net of amortization, totaled $1,210.0 million and $1,363.7 million at December 31, 2005 and 2004, respectively. The gross carrying amount and accumulated amortization of identifiable intangible assets and their estimated useful lives are as follows (dollars in thousands):


	As of December 31, 2005
	Gross
	Carrying		Accumulated			Net Book
	Value		Amortization			Value		Life

Intangible Assets
Customer relationships — local	$	897,000	$	(423,620	)	$	473,380		20 years⁽¹⁾
Customer relationships — national		241,000		(90,058	)		150,942		25 years⁽¹⁾
Non-compete/publishing agreements		251,000		(19,750	)		231,250		40 years
Dex Trademark		311,000		—			311,000		Indefinite
Qwest Dex Trademark agreement		68,000		(42,770	)		25,230		5 years
Advertising agreement		23,000		(4,810	)		18,190		15 years

Totals	$	1,791,000	$	581,008		$	1,209,992


	As of December 31, 2004
	Gross
	Carrying		Accumulated			Net Book
	Value		Amortization			Value		Life

Intangible Assets
Customer relationships — local	$	897,000	$	(315,787	)	$	581,213		20 years⁽¹⁾
Customer relationships — national		241,000		(65,620	)		175,380		25 years⁽¹⁾
Non-compete/publishing agreements		251,000		(13,470	)		237,530		40 years
Dex Trademark		311,000		—			311,000		Indefinite
Qwest Dex Trademark agreement		68,000		(29,170	)		38,830		5 years
Advertising agreement		23,000		(3,280	)		19,720		15 years

Totals	$	1,791,000	$	(427,327	)	$	1,363,673


⁽¹⁾		Amortization expense is calculated using a declining method in relation to estimated retention lives of acquired customers.

Amortization expense for amortizing intangible assets for the years ended December 31, 2005, 2004 and 2003 were $153.7 million, $181.1 million and $214.4 million, respectively. Estimated amortization expense for the next five years and thereafter is (in thousands):


2006	$	130,945
2007		110,135
2008		83,029
2009		70,228
2010		59,692
Thereafter		444,963

	$	898,992

F-17

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)


6.	Long-Term Debt

Long-term debt is comprised of the following (in thousands):


	December 31,
	2005			2004

Notes Payable to Banks: (equal right of payment)
Notes payable to banks, Tranche A term loan, bearing interest at adjusted London Interbank Offering Rate (“LIBOR”) plus 1.25% (weighted average rate of 5.51% at December 31, 2005), interest payable at various intervals based on interest rate periods, and principal payable quarterly, maturing in November 2008. The notes are secured by substantially all of the Company’s assets. Due to the repricing characteristics of the debt, the carrying amount of the debt approximates fair value	$	321,981		$	474,654
Notes payable to banks, Tranche B term loan, bearing interest at adjusted LIBOR plus 1.75% (weighted average rate of 5.99% at December 31, 2005), interest payable at various intervals based on interest rate periods, and principal payable quarterly, maturing in May 2009. The notes are secured by substantially all of theCompany’s assets. Due to the repricing characteristics of the debt, the carrying amount of the debt approximates fair value		433,517			494,630
Revolving loan bearing interest at Alternative Base Rate (“ABR”) plus the current applicable interest spread of 0.25% or at adjusted LIBOR plus the current applicable interest spread of 1.25% (weighted average interest rate of 6.19% at December 31, 2005) The revolving loan is secured by substantially all of the Company’s assets		17,000			—
Unsecured Notes Payable: (in descending order of right of payment)
Unsecured senior notes payable, bearing interest at 9.875% , interest payable semi-annually (May and November), principal due in November 2009. At December 31, 2005, the fair value of the notes was approximately $487.1 million		450,000			450,000
Unsecured senior subordinated notes payable, bearing interest at 12.125% , interest payable semi-annually (May and November), principal due in November 2012. At December 31, 2005, the fair value of the notes was approximately $399.7 million		341,250			341,250

		1,563,748			1,760,534
Less: current portion of long-term debt		(129,290	)		(105,232	)

	$	1,434,458		$	1,655,302

F-18

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

At December 31, 2005 the aggregate amounts of required principal payments on long-term debt are as follows (in thousands):


2006	$	129,290
2007		117,001
2008		320,856
2009		655,351
2010		—
Thereafter		341,250

	$	1,563,748

In connection with the Acquisition, the Company entered into a syndicated credit facility consisting of (i) a $100.0 million six year revolving credit facility, (ii) a $530.0 million six year term loan (Tranche A), (iii) a $660.7 million six and a half year term loan (Tranche B), and (iv) a $39.0 million six and a half year term loan payable in Euros (Tranche B-Euros). The entire proceeds from the Tranche A, Tranche B, and Tranche B-Euros term loans, along with $50.0 million of the revolving credit facility were used to consummate the Acquisition. In conjunction with the consummation of the acquisition of Dex West on September 9, 2003, the Company borrowed $160.0 million under the delayed draw provision of its Tranche A term loan. During the years ended December 31, 2005, 2004 and 2003 the Company repaid $213.8 million, $380.3 million and $230.1 million, respectively, on Tranche A term loan, Tranche B term loan and senior subordinated notes. As of December 31, 2005, we had $81.9 million available for additional borrowing under our revolving credit facility. During the year ended December 31, 2005, the Company borrowed $170.5 million and repaid $153.5 million on the revolving credit facility. During the years ended December 31, 2004 and 2003 the Company borrowed and repaid $38.0 million, and $9.0 million, respectively on the revolving credit facility. The $50.0 million draw on the revolving credit facility related to the Acquisition was repaid in December 2002.

On June 16, 2005, the Company amended its credit agreement, as amended and restated, to, among other things (i) permit the Company to engage in accounts receivable securitization transactions not exceeding $168.0 million in the aggregate at any time; (ii) increase the restricted payment basket for cash dividends by Dex Media East from $29.4 million to $42.0 million annually; and (iii) reduce the applicable margins for Tranche A term loans and revolving loans made under such credit agreement.

On November 24, 2004 the Company amended its credit facilities to, among other things, allow for the repricing of the Tranche B term loans on more favorable terms to the Company.

In connection with the amendment and restatement of the Company’s credit agreement effective July 2004, the applicable margins on the revolving credit facility, Tranche A term loan and Tranche B term loan were reduced further. The commitment fee on the unused portion of the revolving credit facility has been reduced to 0.375% from 0.5%. The price reductions have been effective since June 11, 2004. Effective October 31, 2003, the Company amended and restated its credit agreement for the Tranche A, Tranche B, and Tranche B-Euros term loans. In connection with the amendment, the Tranche B and Tranche B-Euros term loans were refinanced on November 10, 2003 with proceeds of a new Tranche B term loan. A one-percent prepayment fee totaling $6.2 million was paid in conjunction with the refinancing and is included in interest expense for the year ended December 31, 2003. The applicable margins on the revolving credit facility, Tranche A term loan and Tranche B term loan were reduced.

Interest rate periods under the bank facilities can, at the option of the Company, be for various maturities, ranging from overnight up to six months, and are subject to interest rate options. The Company may request nine or 12 month maturities if, at the time of the borrowing, lenders agree to make such duration available.

F-19

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

Interest rate periods greater than three months require quarterly cash interest payments. The interest rate options allow the Company to choose, each time floating interest rates are reset, a LIBOR-based rate or an ABR which shall be the higher of the prime rate or Federal Funds plus 50 basis points. The current applicable interest rate spreads added to LIBOR-based borrowings is 1.25% for Tranche A term loans and revolving credit facility and 1.75% for Tranche B term loans and revolving credit facility. The corresponding spreads on ABR borrowings are 0.25% for Tranche A and 0.75% for Tranche B term loans. The Company is required to pay an annual revolving facility commitment fee of 0.375%, payable quarterly, on the unused portion of the revolving credit facility, and during the years ended December 31, 2005, 2004 and 2003, the Company paid commitment fees of $0.3 million, $0.4 million and $1.1 million, respectively. The Company uses the revolving credit facility for general corporate purposes. As of December 31, 2005, there were $17.0 million of borrowings under the revolving credit facility (with an additional approximate $1.1 million committed under two standby letters of credit). The interest rates on the Tranche A term loan and the revolving credit facility may be reduced depending on certain Company financial ratios. The Company paid interest and fees on the bank facility, senior notes, senior subordinated notes and settlements on the interest rate swap (as more fully discussed in Note 7) of $126.4 million, $174.4 million and $182.9 million for the years ended December 31, 2005, 2004 and 2003, respectively.

The Company entered into interest rate swaps, an interest rate cap and a foreign currency hedging transaction to mitigate the interest rate and foreign currency exchange rate risk related to the credit facilities mentioned above. Refer to Note 7 for disclosure on these transactions.

The credit agreement related to the Company’s revolving credit facility and term loan facilities and the indentures related to the Company’s senior notes and senior subordinated notes contain various provisions that limit additional borrowings, capital expenditures, dividend payments and require the maintenance of certain financial covenants. As of December 31, 2005, the Company was in compliance with these covenants.

The obligations under the Company’s revolving credit facility and term loan facilities are guaranteed jointly and severally by Dex Media East, Inc., Dex Media Finance Co. and Dex Media International, Inc. (“Credit Guarantors”). The Company and these entities are all under the common control of Dex Media. The Credit Guarantors shall be responsible for repaying these obligations in the event that the Company fails to perform under these facilities, although the credit guarantors had no assets or operations as of December 31, 2005.

As discussed in Note 1(c), the Company’s indirect parent, Dex Media, consummated the Dex Media IPO effective July 21, 2004. Part of the proceeds related to the Dex Media IPO was used to redeem $183.8 million of the Company’s senior subordinated notes at a redemption price of 112.125% along with accrued and unpaid interest.

The obligations under the Company’s senior notes and senior subordinated notes are guaranteed by Dex Media International, Inc. The Company has a principal obligation of $791.3 million for these notes, for which Dex Media International, Inc. shall be responsible for repaying in the event that the Company and Dex Media East Finance Co., co-issuer of the senior notes and senior subordinated notes, fail to perform under these notes, although the co-issuer and Dex Media International, Inc. had no independent assets or operations as of December 31, 2005.

The Company registered its 97/8% senior notes and 121/8% subordinated senior notes with the SEC through an exchange offer completed on May 6, 2003.

F-20

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)


7.	Derivative Instruments and Hedging Activities

The Company utilizes a combination of fixed-rate and variable-rate debt to finance its operations. The variable-rate debt exposes the Company to variability in interest payments due to changes in interest rates. Management believes that it is prudent to mitigate the interest rate risk on a portion of its variable-rate borrowings. To meet this objective, the Company entered into four fixed interest rate swap agreements and an interest rate cap agreement to manage fluctuations in cash flows resulting from adverse changes in interest rates on variable rate debt. The fixed interest rate swaps effectively change the variable-rate cash flow exposure on the debt obligations, to the extent of the notional amount of the swaps, to fixed cash flows. Under the terms of the fixed interest rate swaps, the Company receives fluctuating interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate interest payments. The purpose of the interest rate cap agreement is to limit interest payments resulting from materially adverse changes in interest rates made to the extent of the notional amount of the cap agreement.

By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the possible failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The Company minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties.

Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

The Company assesses interest rate cash flow risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows. The Company maintains a risk management model to monitor interest rate cash flow risk attributable to both the Company’s outstanding debt obligations as well as the Company’s offsetting hedge positions. The risk management model involves the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the Company’s future cash flows.

During November 2002, the Company entered into four interest rate swap agreements to hedge against the effects of increases in the interest rates associated with floating rate debt on its term loan facilities. As of December 31, 2005, there were two interest rate swap agreements, an interest rate swap agreement with a notional amount of $50.0 million, and an applicable fixed rate of 3.638% that will expire in November 2007, and an interest rate swap agreement with a notional amount of $75.0 million and an applicable fixed rate of 4.085% that will expire in May 2008.

Changes in the fair value of interest rate swaps designated as hedging instruments that effectively offset the variability of cash flows associated with variable-rate term loan obligations are reported in accumulated other comprehensive income, net of tax (“AOCI”). These amounts subsequently are reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest payments affect earnings. During the years ended December 31, 2005, 2004 and 2003, the Company reclassified hedging losses of $1.0 million, $6.2 million and $4.6 million, respectively, into earnings. For the years ended December 31, 2005 and 2004 the Company had $2.1 million and $3.2 million of unrealized gains, net of tax, included in other comprehensive income. For the year ended December 31, 2003, the Company had $0.5 million of unrealized losses, net of tax, included in other comprehensive loss. The Company had $1.3 million of unrealized gains and $0.8 million of unrealized losses, net of tax, included in AOCI as of December 31, 2005 and 2004, respectively.

F-21

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

As of December 31, 2005, $0.6 million of deferred gains, net of tax, on derivative instruments recorded in other comprehensive income are expected to be reclassified to earnings during the next 12 months. Transactions and events are expected to occur over the next 12 months that will necessitate reclassifying these derivative gains to earnings.

During November 2002, the Company entered into a foreign currency swap agreement to hedge against the effects of foreign currency fluctuations between the U.S. Dollar and the Euro on its Tranche B-Euros. The foreign currency swap agreement did not qualify for hedge accounting treatment and, therefore, all gains and losses resulting from the change in fair value of the foreign currency swap were reported directly in earnings. In conjunction with the refinancing of Tranche B-Euros in November 2003 as more fully discussed in Note 6, the foreign currency swap agreement was settled resulting in a gain of $3.9 million reported in earnings for the year ended December 31, 2003.

During November 2002, the Company entered into an interest rate cap agreement. The Company has not designated the interest rate cap as a hedging instrument and therefore reports all gains and losses in the change in fair value of the interest rate cap directly in earnings. No losses were reported in earnings for the year ended December 31, 2005. The losses reported in earnings in the years ended December 31, 2004 and 2003 amounted to less than $0.1 million, $0.6 million, respectively. The interest rate cap had a notional amount of $200.0 million and expired in May 2005.


8.	Comprehensive Income (Loss)

Components of comprehensive income (loss) are changes in equity other than those resulting from contributions by owners and distributions to owners. For the Company, the component of comprehensive income (loss) other than net income (loss) is the change in fair value on derivatives designated as hedging instruments, net of tax. For the years ended December 31, 2005, 2004 and 2003, the Company recognized income tax benefit of $0.4 million, $2.4 million and $1.6 million related to hedging losses. For the years ended December 31, 2005, 2004 and 2003, the Company recognized income tax expense of $1.7 million, $4.5 million and $1.3 million related to changes in fair value of derivatives. The aggregate amounts of such changes to equity that have not yet been recognized in net income are reported in the equity portion of the consolidated balance sheets as accumulated other comprehensive income (loss).

For the years ended December 31, 2005, 2004 and 2003, comprehensive income (loss) included the following components (in thousands):


	Year Ended December 31,
	2005			2004			2003

Net (loss) income	$	42,169		$	(1,648	)	$	(41,798	)
Hedging losses reclassified, net of tax		(586	)		(3,752	)		(3,018	)
Changes in fair value of derivatives, net of tax		2,687			6,990			2,509

Comprehensive income (loss)	$	44,270		$	1,590		$	(42,307	)


9.	Owner’s Equity

(a) Owner contributions and distributions

During 2005 and 2004, the Company paid dividends of $40.2 million and $16.9 million, respectively, to Dex Media to fund Dex Media’s operations, debt interest payments and common stock dividends. In addition, as mentioned in Note 1(c), Dex Media completed the Dex Media IPO effective July 21, 2004 under which it issued 19,736,842 shares of common stock. As more fully discussed in Note 1(c), in conjunction with the Dex Media IPO, the Company received a contribution from Dex Media for its portion of the proceeds to fund the

F-22

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

redemption of $183.8 million of its senior subordinated notes and the related premium and accrued interest. Also in 2005 and 2004 the Company recorded a $1.0 million and $4.4 million, respectively, of non-cash distribution to its owner related to the annual settlement with Dex Media West of allocated amounts under the Advertising Commitment Agreement among the Company, Dex Media West and Qwest.

The indentures relating to our senior notes and senior subordinated notes prohibit us from distributing funds to Dex Media if the amount of such distribution, together with all other restricted payments made by Dex Media East since November 8, 2002, would exceed the sum of: (i) 50% of the adjusted consolidated net income accrued by Dex Media East since January 1, 2003; (ii) the aggregate net proceeds from the sale of capital stock of Dex Media East; (iii) the amount of debt issued after the date of the indenture relating to the senior notes or senior subordinated notes that is subsequently converted into capital stock; and (iv) certain payments received or credited to Dex Media East by its unrestricted subsidiaries. In addition, in order to make any such distributions of funds to Dex Media, Dex Media East must meet the leverage tests relating to the issuance of indebtedness under the indentures relating to its senior notes and senior subordinated notes.

The Company’s indirect parent, Dex Media, contributed $655.0 million to owner’s equity in connection with the acquisition of Dex East on November 8, 2002. On September 9, 2003 the Company distributed to its indirect parent the $160.0 million of funds issued from the delayed draw on its Tranche A term loan facility and the fees related thereto and the $50.0 million of owner contributions received. On September 9, 2003 the Company received non-cash contributions from its parent of $5.6 million and $18.0 million related to the acquisition of employee liabilities and the settlement of accrued commitment fees, respectively. In November 2003, the Company declared a distribution to its parent of $4.3 million of which $4.1 million was paid prior to December 31, 2003. The remainder was paid in January 2004.

(b) Stock-Based Awards

On November 8, 2002, Dex Media adopted the Stock Option Plan of Dex Media, Inc. (the “2002 Plan”) that permits the grant of nonqualified and incentive stock options to its employees, consultants and independent directors or those of its wholly owned subsidiaries. Effective May 2004, Dex Media adopted the Dex Media, Inc. 2004 Incentive Award Plan (the “2004 Plan”). The 2004 Plan provides for a variety of stock-based awards, including non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, deferred stock awards, dividend equivalents, performance-based awards and other stock-based awards. Effective with the adoption of the 2004 Plan, the Company discontinued grants under the 2002 Plan while the options outstanding under the 2002 Plan remain outstanding pursuant to the terms of that plan. Upon adoption of the 2004 Plan, 210,110 shares available for issuance under the 2002 Plan became available for issuance under the 2004 Plan. As of December 31, 2005, 5,868,572 shares of common stock were available for grant under the 2004 Plan and 2002 Plan. As of December 31, 2004, 6,251,650 shares of common stock were available for grant under the 2004 Plan and 2002 Plan.

The Compensation Committee of Dex Media determines the exercise price for each option. Outstanding options issued pursuant to the 2002 Plan vest in two segments. Subject to the optionee’s continued employment with the Company: (i) 25% of the options granted will vest in equal annual installments of 5% each on each December 31 beginning in the year of grant or the following year, depending upon when during the calendar year the options are granted, and ending five years after and (ii) 75% of the options granted will vest in full on the eighth anniversary of the grant date; however, an installment equal to 15% of the options granted shall become vested following each of the fiscal years beginning in the year of grant or the following year, depending upon when during the calendar year the options are granted, and ending five years after if certain EBITDA targets are met with respect to each year. Options outstanding issued pursuant to the 2004 Plan vest in equal annual installments over four years.

F-23

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

On October 5, 2005, Dex Media entered into a Retirement and General Release Agreement with Robert M. Neumeister, Jr. (the Company’s then-Executive Vice President and Chief Financial Officer) and on October 2, 2005, Dex Media entered into a Letter Agreement with Marilyn Neal, (the Company’s then-Executive Vice President and Chief Operating Officer). These agreements, among other things, modified the terms of the stock options issued to these officers under the 2002 Plan. These modifications included accelerating the vesting and extending the life of certain options upon these officers’ termination. As a result of these modifications, the Company recorded stock-based employee compensation expense of $5.0 million during the year ended December 31, 2005 under the guidance of APB 25 and related interpretations. On October 5, 2005, Dex Media entered into Letter Agreements with its officers which, among other things, included terms to accelerate the vesting of certain stock options upon consummation of the Donnelley merger. There was no impact to the company’s financial statements for the year ended December 31, 2005 as a result of these modifications.

On November 10, 2003, Dex Media declared and paid a distribution to its parent of $750.2 million. As a result of the distribution and as provided under the 2002 Plan, Dex Media adjusted the exercise price of all outstanding options to $6.00, effective November 2003. On January 28, 2004, Dex Media declared another distribution to its parent of $250.5 million, which was paid February 17, 2004. As a result of the distribution and as provided under the 2002 Plan, Dex Media adjusted the exercise price of outstanding options to $4.64 and increased the number of outstanding options by 9.3587%, effective March 2004. The effect of these changes has been included in the SFAS No. 123 pro forma net income (loss) below.

During the year ended December 31, 2005, 93,500 shares of restricted stock were granted with a weighted average grant date fair value of $23.34.

Summarized below is information regarding options granted, exercised or forfeited during the years ended December 31, 2005, 2004 and 2003.


						Weighted		Weighted
				Number of		Average		Average
	Number of			Shares		Exercise		Grant Date
	Options			Exercisable		Price		Fair Value

Options outstanding at December 31, 2002		1,587,440			—	$	4.64
Options:
Granted below market price		224,480					4.64	$	0.68
Granted at market price		3,179,540					4.64		1.37

Options outstanding at December 31, 2003		4,991,460					4.64
Options exercisable at December 31, 2003					953,350		4.64
Options:
Granted below market price		1,115,990					4.64		8.41
Granted at market price		137,300					24.36		6.26
Exercised		(953,350	)				4.64
Forfeited		(298,598	)				4.64

Options outstanding at December 31, 2004		4,992,802					5.19
Options exercisable at December 31, 2004					1,194,522		4.64
Options:
Granted at market price		43,918					22.86		5.35
Exercised		(314,578	)				4.64
Forfeited		(96,682	)				5.71

Options outstanding at December 31, 2005		4,625,460					5.38

Options exercisable at December 31, 2005					2,341,773		4.93

F-24

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

Summarized below is information regarding options outstanding under the 2004 Plan and 2002 Plan collectively at December 31, 2005:


					Weighted Average
					Remaining
	Weighted Average				Contractual Life				Weighted Average
	Exercise Price of		Options		(Years) of Options		Options		Exercise Price of
Range	Options Outstanding		Outstanding		Outstanding		Exercisable		Options Exercisable

$ 4.64	$	4.64		4,449,492		7.51		2,307,448	$	4.64
$21.43 - 26.10	$	23.99		175,968		9.06		34,325	$	24.36

				4,625,460				2,341,773

Had Dex Media accounted for the 2004 Plan and 2002 Plan under the minimum value method for options issued prior to Dex Media becoming a publicly traded company and the fair value method after Dex media became a publicly traded company, both of which are prescribed by SFAS No. 123, compensation cost would have been allocated to the Company as described in Note 13. The pro forma results of the Company for years ended December 31, 2005, 2004, and 2003 would have been as follows (in thousands):


	2005			2004			2003

Net income (loss):
As reported	$	42,169		$	(1,648	)	$	(41,798	)
Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects		3,373			336			—
Deduct: Stock-based employee compensation expense determined under minimum value or fair value based method, as applicable, for all awards, net of related tax effects		(850	)		(700	)		(180	)

Pro forma	$	44,692		$	(2,012	)	$	(41,978	)

Following are the weighted-average assumptions used to estimate the fair value of options granted under the 2004 Plan and the 2002 Plan during the years ended December 31, 2005, 2004 and 2003. The assumptions for the year ended December 31, 2004 have been segregated between grants under the minimum value method of APB No. 25 prior to the Dex Media IPO and grants valued utilizing SFAS No. 123 after the Dex Media IPO.


				7/22/04-			1/1/04-
	2005			12/31/04			7/21/04			2003

Risk-free interest rate		3.93	%		3.53	%		3.21	%		3.19	%
Expected dividend yield		1.50	%		1.50	%		0	%		0	%
Expected option life (years)		5.0			5.0			5.0			5.0
Expected stock price volatility		22.68	%		25.28	%		0	%		0	%

F-25

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)


10.	Income Taxes

The composition of the income tax provision (benefit) follows (in thousands):


	Year Ended December 31,
	2005			2004			2003

Federal:
Current	$	6,358		$	—		$	—
Deferred		17,425			(578	)		(22,322	)
Long-term valuation allowance		1,609			—			—
State rate change		—			(105	)		—
Other		(1,088	)		—			—

Total Federal		24,304			(683	)		(22,322	)

State and Local:
Current		1,310			—			—
Deferred		3,033			(99	)		(4,295	)
Long-term valuation allowance		293			—			—
State rate change		—			300			—
Other		852			—			—

Total State and Local		5,488			201			(4,295	)

Total income tax provision (benefit)	$	29,792		$	(482	)	$	(26,617	)

The Federal and State current provision is offset partially by net operating losses of the company and partially by net operating losses of affiliated entities.

The effective tax rate differs from the statutory tax rate as follows:


	Year Ended December 31,
	2005			2004			2003

Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net		3.9			3.9			4.6
State rate change					(9.1	)		—
Permanent difference of meals and entertainment		0.2			(5.3	)		—
Other permanent differences					(1.6	)		—
Valuation allowance		2.6			—			—
Stock option adjustment to additional paid in capital		—			(0.3	)		(0.7	)
Other		(0.3	)		—			—

Effective tax rate		41.4	%		22.6	%		38.9	%

Pre-tax income for the year ended December, 31, 2005 was $72.0 million. Pre-tax loss for the years ended December 31, 2004 and 2003 was $2.1 million and $68.4 million, respectively. As pre-tax income (loss) approaches $0, a similar amount of permanent differences has a larger impact on the effective tax rate.

The acquisition of Dex East (as more fully described in Note 1(a) was considered to be a taxable asset acquisition for income tax purposes. As a result, the Company recorded all acquired assets at their fair value

F-26

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

at the date of acquisition. In addition, the Company acquired several intangible assets for tax purposes that will be amortized on a straight-line basis over a 15-year period beginning with the date of acquisition.

Dex Media East is included in the consolidated federal income tax return and combined or consolidated state income tax returns, where permitted, for Dex Media, the Company’s ultimate parent. Dex Media East is a single member limited liability company and is disregarded as a separate taxable entity from its parent for income tax purposes. Dex Media East’s parent has no other business operations or investments. The Company calculates and records income taxes as if it filed a separate corporate income tax return at the parent level on a stand-alone basis. For the year ended December 31, 2005, the Company generated income for tax purposes of $57.7 million pending final tax filing. For the year ended December 31, 2004 the Company generated income for tax purposes of $8.3 million. For the year ended December 31, 2003, the Company generated income for tax purposes of $1.0 million.

All remaining net operating losses were used to offset taxable income in 2005. Taxable income in excess of the net operating loss carry forwards is offset on a consolidated basis by net operating losses generated by affiliated entities. The Company recorded an intercompany liability in the amount of $7.4 million in recognition of this.

No significant payments for income taxes were made for the years ending December 31, 2005, 2004 and 2003.

The components of the net deferred tax assets are as follows (in thousands):


	As of December 31,
	2005		2004

Assets:
Book/tax difference in amounts owed to related party for employee benefit expenses not currently deductible	$	4,015	$	2,068
Book/tax difference in amounts owed to related party for post employment benefit expenses not currently deductible		7,972		5,373
Amortization of goodwill and other intangibles		18,896		9,152
Net operating loss carryforward		—		28,294
Allowance for doubtful accounts		4,607		4,823
Mark-to-market adjustments		—		501
Other expenses not currently deductible		885		1,833

Total Assets	$	36,375	$	52,044

Liabilities:
Book/tax difference in amounts owed to related party for employee benefit expenses previously deducted		25		119
Depreciation		10,587		5,290
Mark-to-market adjustments		836		—
Other expenses previously deducted		—		149

Total Liabilities	$	11,448	$	5,558

Valuation Allowance

Capitalized merger costs	$	1,903	$	—

F-27

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

Included in other noncurrent deferred tax (liabilities) assets as of December 31, 2005 and 2004 is $(0.8) million and $0.5 million, respectively, in deferred tax (liabilities) assets associated with mark-to-market adjustments for the Company’s derivative financial instruments, with the related tax benefit included in accumulated other comprehensive income on the consolidated balance sheet.

The Company was audited by the Internal Revenue Service (the “IRS”) in 2005 for the tax years ending November 30, 2002 and 2003. As a result of this audit, $13.8 million of deferred tax assets was reclassified from net operating loss carryforward to amortization of goodwill and other intangibles.

Management of Dex Media East believes that it is more likely than not that some of the deferred tax assets associated with capitalized merger costs will not be realized in the future. Therefore, a valuation allowance has been established in the amount of $1.9 million to reduce the noncurrent deferred tax asset to realizable value.


11.	Employee Benefit Plans

(a) Pension and other post-retirement benefits

(i) General description

Effective November 8, 2002, Dex Media adopted a pension plan and effective December 1, 2002, Dex Media adopted an other post-retirement benefit plan providing retiree healthcare (together, the “Dex Media Plans”). The noncontributory defined benefit pension plan included substantially all management and occupational (union) employees. Post-retirement and healthcare and life insurance plans provide medical, dental and life insurance benefits for certain retirees.

Pension costs and other post-retirement costs are recognized over the periods in which the employee renders services and becomes eligible to receive benefits as determined by using the projected unit credit method. Dex Media’s funding policy is to make contributions with the objective of accumulating sufficient assets to pay all benefits when due. No pension funding was required for Dex Media for years ended December 31, 2005, 2004 and 2003. The other post-retirement benefit plan is pay-as-you go and is funded out of Dex Media’s operating cash as the costs are incurred.

On September 9, 2003, Dex West employees became employees of Dex Media East. As such, as of December 31, 2003, all employee-related liabilities, including pension and other post-retirement obligations, are included in Dex Media East’s reported liabilities, with an offsetting asset recorded as an affiliate receivable from Dex Media West for the portion of the liability associated with the Dex Media East employees who provide services to Dex Media West. Under the Shared Services and Employees Agreement dated September 9, 2003, costs related to Dex Media East employees providing services entirely for Dex Media West are allocated 100% to Dex Media West. Shared employee costs are allocated and charged to Dex Media West based upon Dex Media West’s proportional share of consolidated Dex Media revenue.

Effective January 1, 2004, all employees of Dex Media East were transferred to another indirect wholly-owned subsidiary of Dex Media, Dex Media Service LLC. As such, as of December 31, 2004, all employee-related liabilities, including pension and other post-retirement obligations are included in Dex Media Service LLC’s reported liabilities with an offsetting asset recorded as an affiliate receivable from Dex Media East for the portion of the liability associated with the Dex Media East employees. Dex media East is charged and carries an affiliate payable for the portion of the liability associated with employees providing services to Dex Media East. Under the Shared Services and Employees Agreement dated September 9, 2003, costs related to Dex Media East employees providing services entirely for Dex Media East are allocated 100% to Dex Media East. Shared employee costs are allocated and charged to Dex Media East based upon Dex Media East’s proportional share of consolidated Dex Media revenue.

F-28

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Medicare Act”) was signed into law. The Medicare Act introduces a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. As provided by FASB Staff Position No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” Dex Media elected to defer recognizing the effects of the Medicare Act on its post-retirement benefit plan in 2004. Effects of the Medicare Act are reflected in the measures of accumulated post-retirement obligation and net periodic post-retirement benefit costs in 2005. The impact was not material to the financial statements.

Effective February 1, 2004, Dex Media’s pension plan was amended to eliminate the death benefit previously provided to certain management employees. This amendment resulted in approximately $0.2 million in annual expense savings and a reduction in the projected benefit obligation of $2.0 million.

Effective January 1, 2004, several changes were made to the Company’s retiree health care plan for management and Communications Workers of America (“CWA”) retirees resulting in approximately $0.6 million in annual expense savings and a reduction in the projected benefit obligation of $4.5 million. The changes were as follows: (i) elimination of Company-provided post-65 medical coverage for management retirees; (ii) elimination of Medicare Part B reimbursement for management retirees; (iii) implementation of pre-65 retiree medical plan for all management employees with associated employee contributions; (iv) change in dental coverage to a voluntary retiree-paid plan for management and CWA retirees; and (v) a reduction in the life insurance benefit for management and CWA retirees.

(ii) Obligations and funded status (in thousands)


	Pension Benefits						Post-Retirement Benefits
	Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,
	2005			2004			2005			2004

Change in benefit obligation
Projected benefit obligation at beginning of period	$	100,047		$	202,781		$	29,129		$	55,479
Service cost		4,274			4,645			1,015			1,112
Interest cost		5,361			5,786			1,687			1,657
Amendments		—			—			—			—
Actuarial loss (gain)		1,454			3,650			(1,754	)		1
Benefits paid		(579	)		(9,697	)		(594	)		(303	)
Benefit obligation relating to Dex West employees		—			(107,118	)		—			(28,817	)
Plan settlements		(22,134	)		—			—			—

Projected benefit obligation at end of period	$	88,423		$	100,047		$	29,483		$	29,129

F-29

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

Pension Benefits Post-Retirement Benefits

Year Ended
Year Ended
Year Ended
Year Ended

December 31,
December 31,
December 31,
December 31,

2005 2004 2005 2004

Change in plan assets

Fair value of plan assets at beginning of period $ 95,411 $ 194,025 $ — $ —

Actual return on plan assets
5,523 12,906 — —

Employer contribution
— — 594 303

Benefits paid
(579 ) (9,697 ) (594 ) (303 )

Plan settlements
(22,134 ) — —

Assets relating to Dex West employees
— (101,823 ) — —

Fair value of plan assets at end of period $ 78,221 $ 95,411 $ — $ —

Funded status $ (10,202 ) $ (4,636 ) $ (29,483 ) $ (29,129 )

Unrecognized net actuarial (gain) loss (1,821 ) (3,815 ) 21 1,778

Unrecognized prior service cost (743 ) (841 ) (1,945 ) (2,200 )

Total accrued liabilities $ (12,766 ) $ (9,292 ) $ (31,407 ) $ (29,551 )

The accumulated benefit obligation for the defined benefit pension plan was $81.5 million and $91.1 million at December 31, 2005 and 2004, respectively.

(iii) Components of net periodic benefit cost (in thousands)


	Pension Benefits									Post-Retirement Benefits
	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
	2005			2004			2003			2005			2004			2003

Service cost	$	4,274		$	4,645		$	6,512		$	1,015		$	1,112		$	1,230
Interest cost		5,361			5,786			8,494			1,687			1,657			2,426
Expected return on plan assets		(7,438	)		(7,573	)		(9,700	)		—			—			—
Amortization of prior service costs		(99	)		(99	)		—			(257	)		(256	)		—
Loss from plan settlements		1,414			—			—			—			—			—
Recognized net actuarial loss					—			—			8			44			—

Total net periodic benefit cost		3,512			2,759			5,306			2,453			2,557			3,656
Less Dex Media West allocation					—			1,233						—			879

Dex Media East net periodic benefit cost	$	3,512		$	2,759		$	4,073		$	2,453		$	2,557		$	2,777

To compute its expected return on plan assets, Dex Media applies its expected rate of return to the market-related value of the pension plan assets. In computing the market-related asset value, companies may

F-30

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

elect to amortize the difference between the actual return on plan assets and the expected return on plan assets over a period of time, not to exceed five years. In accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” Dex Media elected to amortize actual returns on its plan assets falling outside a defined corridor over a five year period. Any actual returns falling within the corridor are recognized currently. Dex Media defined the corridor as a range that is 50% higher and 50% lower than the expected return on plan assets. For the year ending December 31, 2005, the corridor is defined as the range from 4.5% to 13.5%, based upon its expected return of 9.0%.

On August 1, 2005, a settlement of the Company’s defined benefit pension obligation occurred as defined by SFAS 88 “Employers Accounting for Settlements and Curtailments of Defined Benefits Plans and for Termination Benefits.” At that time, lump sum payments to participants exceeded the service cost plus the interest cost component of the net periodic benefit costs for the year. The settlement resulted in the recognition of $1.4 million in actuarial losses. In addition, 2005 pension expense was recomputed based on assumptions as of settlement date, including a decrease in the discount rate from 6.00% to 5.50%. This resulted in an immaterial change to pension expense for the remainder of the year.

(iv) Assumptions

The actuarial assumptions used to compute the pension and other post-retirement net periodic benefit costs are based upon information available as of August 2, 2005, January 1, 2005, January 1, 2004 and January 1, 2003, respectively, and are as follows:


	Pension Benefits
	August 2 -			January 1-									Post-Retirement
	December 31,			August 1,									Benefits
	2005			2005			2004			2003			2005			2004			2003

Weighted average discount rate		5.50	%		6.00	%		6.25	%		6.50	%		6.00	%		6.25	%		6.50	%
Weighted average rate of compensation increase		4.00	%		4.00	%		4.00	%		4.65	%		N/A			N/A			N/A
Expected long-term rate of return on plan assets		9.00	%		9.00	%		9.00	%		8.00	%		N/A			N/A			N/A
Initial healthcare cost trend rate		N/A			N/A			N/A			N/A			9.50	%		10.00	%		10.00	%
Ultimate healthcare cost trend rate		N/A			N/A			N/A			N/A			5.00	%		5.00	%		5.00	%
Year ultimate trend rate is reached		N/A			N/A			N/A			N/A			2014			2014			2013

The actuarial assumptions used to compute the projected benefit obligation for the plans are based upon information available as of December 31, 2005, and December 31, 2004, respectively, and are as follows:


							Post-Retirement
	Pension Benefits						Benefits
	2005			2004			2005			2004

Weighted average discount rate		5.75	%		6.00	%		5.75	%		6.00	%
Weighted average rate of compensation increase		4.00	%		4.00	%		N/A			N/A
Initial healthcare cost trend rate		N/A			N/A			9.00	%		9.50	%
Ultimate healthcare cost trend rate		N/A			N/A			5.00	%		5.00	%
Year ultimate trend rate is reached		N/A			N/A			2014			2014

F-31

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

The discount rate is the current rate at which the pension and post-retirement obligations can effectively be settled as of the end of the calendar year. To determine this rate for each of the years presented, the Company selected an actuarially computed composite rate based upon high quality (AA-/Aa- rated or better), non-callable corporate bonds whose cash flows match the expected timing of the settlement of the pension and post-retirement obligations. The high quality corporate bond rates were based on information obtained from Standard and Poor’s.

Assumed health care cost trend rates have a significant effect on the amounts reported for the post-retirement benefit plan. A one-percent change in the assumed healthcare cost trend rate would have had the following effects at December 31, 2005 (in thousands):


	One Percent Change
	Increase		Decrease

Effect on the aggregate of the service and interest cost components of net periodic post-retirement benefit cost (statement of operations)	$	94	$	(81	)
Effect on accumulated post-retirement benefit obligation (balance sheet)	$	797	$	(698	)

(v) Plan Assets

Dex Media’s pension plan weighted-average asset allocations at December 31, 2005, by asset category, are as follows:


	Plan Assets at			Asset
	December 31,			Allocation
	2005			Target

Asset Category
Equity Securities		68	%		65	%
Debt Securities		25	%		26	%
Real Estate		5	%		5	%
Cash		2	%		4	%

		100	%		100	%

The plan’s assets are invested in accordance with investment practices that emphasize long-term investment fundamentals. The plan’s investment objective is to achieve a positive rate of return over the long-term from capital appreciation and a growing stream of current income that would significantly contribute to meeting the plan’s current and future obligations. These objectives can be obtained through a well-diversified portfolio structure in a manner consistent with the plan’s investment policy statement.

The plan’s assets are invested in marketable equity and fixed income securities managed by professional investment managers. The plan’s assets are to be broadly diversified by asset class, investment style, number of issues, issue type and other factors consistent with the investment objectives outlined in the plan’s investment policy statement. The plan’s assets are to be invested with prudent levels of risk and with the expectation that long-term returns will maintain and contribute to increase purchasing power of the plan’s assets, net of all disbursements, over the long-term.

The plan’s assets in separately managed accounts may not be used for the following purposes: short sales, purchases of letter stock, private placements, leveraged transactions, commodities transactions, option strategies, investments in some limited partnerships, investments by the managers in their own securities, their affiliates or subsidiaries, investment in futures, use of margin or investments in any derivative not explicitly permitted in the plan’s investment policy statement.

F-32

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

In 2003, the Dex Media Pension Plan assumed an expected long-term rate of return of 8% in computing its net periodic pension cost. The basis used for determining this rate was the historical capital market returns for an asset mix similar to the Pension Plan’s 65% equity and 35% fixed income. Dex Media did not begin to manage the trust assets until November 1, 2003, when Qwest transferred assets from its pension trust to the Dex Media pension trust. From January 1, 2003 until the date of transfer, Qwest Asset Management Company managed the Dex Media pension assets as provided for in the Purchase Agreement. In determining the 2004 and 2005 expected long-term rate of return of 9%, Dex Media took into consideration the change in its asset allocation as well as the expectation that there is opportunity for active management of the trust’s investments to add value over the long term. The asset allocation return component was supported by looking at historical capital market returns for similar asset mixes. The active asset management expectation was supported by calculating historical returns for the eight investment managers who were selected to actively manage the trust’s assets.

(vi) Cash Flows

Dex Media does not expect to make any contributions to its pension plan in 2006.

The pension benefits and post-retirement benefits expected to be paid in each year 2006 — 2010 and the aggregate benefits expected to be paid 2011 — 2015 are as follows (in thousands):


	Pension		Post-Retirement
	Benefits		Benefits

2006	$	9,686	$	1,319
2007		6,756		1,067
2008		6,988		1,315
2009		7,588		1,564
2010		7,951		1,820
2011-2015		41,803		12,154

(vii) Subsequent Events

As more fully described in Note 1(a), on January 31, 2006, the Company merged with Donnelley. At this time and for the remainder of 2006, there are no plans to change any of the existing employee benefits.

(b) 401(k) plan

Effective November 1, 2002, Dex Media adopted a defined contribution benefit plan covering substantially all management and occupational employees of Dex Media. Under this plan, employees may contribute a percentage of their annual compensation to the plan up to a maximum percentage identified in the plan. The annual pre-tax dollar contribution of the employees is limited to the maximum amount determined by the Internal Revenue Service.

Dex Media matches a percentage of employee contributions, and those matching contributions allocated to Dex Media East as recorded in the statement of operations were $2.9 million for the year ending December 31, 2005, $3.1 million for the year ending December 31, 2004 and $2.5 million for the year ending December 31, 2003. Effective January 1, 2004, Dex Media increased the matching formula for all management employees participating in its defined contribution plan from 100% on the first 3% of employee contributions to 100% on the first 4% of employee contributions and 50% on the next 2% of employee contributions.

F-33

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)


12.	Commitments and Contingencies

(a) Lease commitments

The Company has entered into operating leases for office facilities and equipment with terms ranging up to 15 years. Minimum future lease payments for the operating leases as of December 31, 2005, are as follows (in thousands):


2006	$	5,217
2007		4,714
2008		3,763
2009		2,434
2010		1,643
Thereafter		3,109

	$	20,880

The Company recorded rent expense under the provisions of SFAS No. 13 “Accounting for Leases” for operating leases of $9.0 million, $7.8 million and $8.3 million for the years ended December 31, 2005, 2004 and 2003, respectively.

As required by the Dex East Purchase Agreement, the Company has leased its Englewood facility (located at 198 Inverness Drive West in Englewood, Colorado) from Qwest on terms and conditions that are reasonably acceptable to the Company. The aggregate lease commitments disclosed above include the amounts associated with this provision of the agreement.

(b) Litigation

The Company is involved, from time to time, in litigation arising in the normal course of business. The outcome of this litigation is not expected to have a material adverse impact on the Company.

(c) Collective Bargaining Agreement

As of December 31, 2005, 22% and 44% of Dex Media’s employees were members of the International Brotherhood of Electrical Workers (“IBEW”) and the Communication Workers of America (“CWA”), respectively. The collective bargaining agreement covering the IBEW members’ employment will expire in May 2006 and the collective bargaining agreement covering the CWA members’ employment will expire in October 2006.


13.	Related Party Transactions

As also described in Note 11(a)(i), upon consummation of the acquisition of Dex West, all Dex West employees became employees of Dex Media East. Effective January 1, 2004, all employees of Dex Media East were transferred to Service Co. As such, all employee-related liabilities, including pension and other post-retirement obligations, are now included in Service Co.’s liabilities, with an offsetting asset recorded as an affiliate receivable. Dex Media East is charged and carries an affiliate payable for the portion of the liability associated with employees providing services to Dex Media East. Under the Shared Services and Employees Agreement dated September 9, 2003, costs related to Dex Media East employees providing services entirely for Dex Media East are allocated 100% to Dex Media East. Shared employee costs are allocated and charged to Dex Media East based upon Dex Media East’s proportional share of consolidated Dex Media revenue. All cash related affiliate balances are settled at least monthly.

F-34

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

In connection with the Acquisition, the Company entered into a management consulting agreement with each of Carlyle and WCAS. Each agreement allows the Company access to Carlyle and WCAS’s expertise in areas such as corporate management, financial transactions, product strategy, investment, acquisitions and other matters that relate to the Company’s business, administration and policies. Each of Carlyle and WCAS received a one-time transaction fee for structuring the transactions related to the Acquisition of $15.0 million. In addition, each of Carlyle and WCAS received an annual advisory fee of $1.0 million for advisory, consulting and other services. The annual advisory fees payable to Carlyle and WCAS were terminated after the Company and Dex Media West each paid a one time termination fee of $5.0 million to each of Carlyle and WCAS in conjunction with the Dex Media IPO. Thereafter, Carlyle and WCAS maintained the right to act as Dex Media’s financial advisor or investment banker in conjunction with any merger, acquisition, disposition, financing or similar transaction in return for additional reasonable compensation and expenses as may be agreed upon by the parties. Pursuant to these management consulting agreements, the Company incurred $1.0 million and $2.0 million in annual advisory fees for the years ended December 31, 2004 and 2003, respectively. These management consulting agreements have been terminated. No amounts were owed to Carlyle or WCAS at December 31, 2005.

During February 2003, Dex Media entered into a five year agreement with Amdocs, Inc. (“Amdocs”) for the complete modernization of its core production platform. This project is designed to upgrade the Company’s existing software system to enhance its functionality. WCAS was a shareholder of Amdocs at the time the Company entered into the agreement and ceased to be a shareholder during 2004. For the years ended December 31, 2005, 2004 and 2003, Dex Media paid Amdocs $33.5 million, $47.6 million and $15.0 million, respectively, under this agreement and other related on-going support.

On November 10, 2003, the Company’s indirect parent, Dex Media, issued $500.0 million 8% Notes due 2013 and $389.0 million aggregate principal amount at maturity 9% Discount Notes due 2013 for aggregate gross proceeds of $750.2 million. On February 11, 2004, Dex Media issued another $361.0 million aggregate principal amount at maturity of 9% Discount Notes for gross proceeds of $250.5 million. All gross proceeds were paid by Dex Media as a dividend to its parent and ultimately to Carlyle and WCAS. Such notes are expected to be serviced and repaid from distributions from the Company and Dex Media West, subject to any restrictions in their respective debt agreements.


14.	Subsequent Events

As discussed in Note 1(a), Dex Media merged with Donnelley on January 31, 2006. Pursuant to the Agreement and Plan of Merger dated October 3, 2005, each issued and outstanding share of Dex Media common stock was converted into $12.30 in cash and 0.24154 of a share of Donnelley common stock, resulting in an aggregate cash value of $1.9 billion and an aggregate stock value of $2.2 billion, based on 36,547,381 newly issued shares of Donnelley common stock. All outstanding stock options of Dex Media were converted into stock options of Donnelley at a ratio of 1 to 0.43077 and the 2002 Plan and 2004 Plan governing those Dex Media stock options were terminated. Additionally, Donnelley assumed all Dex Media’s outstanding indebtedness on January 31, 2006 with a fair value of $5.7 billion (including all our indebtedness on January 31, 2006 with a fair value of $1.6 billion). The acquired Dex Media directory business now operates as Dex Media, Inc., one of Donnelley’s direct wholly owned subsidiaries.

As a result of the modifications discussed in Note 9(b), stock options to purchase approximately 1.3 million shares of Dex Media common stock became fully exercisable immediately prior to the consummation of the Donnelley Merger. Dex Media expects to recognize additional stock compensation expense in its January 2006 financial statements as a result of these modifications.

F-35

DEX MEDIA EAST LLC

An Indirect Wholly-Owned Subsidiary of Dex Media, Inc.

Notes to Consolidated Financial Statements — (Continued)

Costs of $5.0 million related to the Donnelley Merger are included in the statement of operations for the year ended December 31, 2005. These costs relate primarily to financial advisory, legal and accounting fees and are included in general and administrative expense.

In connection with the Donnelley Merger, on January 31, 2006, Dex Media, as successor to Dex Media, Inc. (“DMI”), entered into an Amended and Restated Credit Agreement (the “Amended East Credit Agreement”), by and among Dex Media East, Inc. (“Dex East”), Dex Media East, the administrative agent and the lenders and other agents parties thereto, relating to the Credit Agreement, dated as of November 8, 2002, as amended (the “Original East Credit Agreement”), among DMI, Dex East, Dex Media East, the administrative agent and the lenders and other agents parties thereto.

The Amended East Credit Agreement amends and restates the Original East Credit Agreement in its entirety, to, among other things: (i) permit the Donnelley Merger; (ii) permit certain additional restricted payments to Dex Media; (iii) modify the financial performance covenants contained in the Original East Credit Agreement; and (iv) provide for shared service arrangements between R.H. Donnelley Inc., an affiliate of Dex Media East, and its subsidiaries, on the one hand, and the Dex Media and its subsidiaries, on the other hand.

In addition, in connection with the Amended East Credit Agreement, Dex Media, Dex East and its subsidiaries reaffirmed, pursuant to a Reaffirmation Agreement dated as of January 31, 2006 (the “East Reaffirmation Agreement”) that the obligations under the Amended East Credit Agreement continue to be secured by: (i) the pledge of the stock of Dex East under that certain Pledge Agreement dated as of November 10, 2003 and (ii) the assets of and guarantee by Dex East and its subsidiaries pursuant to the terms of that certain Amended and Restated Guarantee and Collateral Agreement, dated as of November 8, 2002.

F-36


ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*

None.


ITEM 9A.	*CONTROLS AND PROCEDURES*

Dex Media East maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Dex Media East’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, Dex Media East carried out an evaluation, under the supervision and with the participation of Dex Media East’s management, including its Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the design and operation of Dex Media East’s disclosure controls and procedures. Based on that evaluation, Dex Media East’s Chief Executive Officer and Chief Financial Officer concluded that Dex Media East’s disclosure controls and procedures were effective as of the end of the period covered by this report.

During the fiscal quarter ended December 31, 2005, there was no change in Dex Media East’s internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, Dex Media East’s internal controls over financial reporting.


ITEM 9B.	*OTHER INFORMATION*

None.

PART III


ITEM 10.	*DIRECTORS AND EXECUTIVE OFFICERS*

Omitted pursuant to General Instructions I(2)(c) of Form 10-K.


ITEM 11.	*EXECUTIVE COMPENSATION*

Omitted pursuant to General Instructions I(2)(c) of Form 10-K.


ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*

Omitted pursuant to General Instructions I(2)(c) of Form 10-K.


ITEM 13.	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS*

Omitted pursuant to General Instructions I(2)(c) of Form 10-K.


ITEM 14.	*PRINCIPAL ACCOUNTANT FEES AND SERVICES*

KPMG LLP serves as the Company’s independent registered public accounting firm. The following table presents fees for professional services rendered by KPMG LLP for the audit of Dex Media East’s annual financial statements for the years ended December 31, 2005 and 2004 and fees billed for other services rendered by KPMG LLP during those years.


	2005		2004

Audit fees(1)	$	767,017	$	417,900
Audit-related fees(2)		88,695		—
Tax fees(3)		—		37,651
All other fees		—		—

Total fees	$	855,712	$	455,551


(1)		Audit fees consisted principally of fees for the audit of financial statements and review of the financial statements included in our Quarterly Reports on Form 10-Q, consents, comfort letters, registration statements and debt compliance letters.

(2)		Audit-related fees consisted of financial due diligence performed prior to entering into our merger with Donnelley.

(3)		Tax fees consisted primarily of fees for tax consultation, tax compliance activities and compensation and benefits advice.

The Audit Committee of the Board of Directors of Dex Media East is responsible for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. As part of this responsibility, the Audit Committee is required to pre-approve the non-audit services performed by the independent registered public accounting firm in order to ensure their independence. The Audit Committee has adopted a pre-approval process with respect to the provision of non-audit services to be performed by KPMG LLP. This pre-approval process requires the Audit Committee to review and approve all audit services and permitted non-audit services to be performed by KPMG LLP. Pre-approval fee levels for all services to be provided by KPMG LLP are established annually by the Audit Committee. Audit services are subject to specific pre-approval while audit-related services, tax services and all other services may be granted pre-approvals within specified categories. Any proposed services exceeding these levels require specific pre-approval by the Audit Committee. Additionally, the Audit Committee may delegate either type of pre-approval authority to one or more of its members.

PART IV


ITEM 15.	*EXHIBITS AND FINANCIAL STATEMENT SCHEDULES*

(a) The following documents are being filed as part of this report:

(1) Consolidated Financial Statements. The following consolidated financial statements of Dex Media are filed as part of this report:


	Page

Reports of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2005 and 2004		F-3
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003		F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		F-5
Consolidated Statements of Changes in Owner’s Equity and Comprehensive Income (Loss) for the years ended December 31, 2005, 2004 and 2003		F-6
Notes to Consolidated Financial Statements		F-7


Number			Description

	10	.4++	Amended and Restated Billing and Collection Agreement, dated September 1, 2003, by and between Qwest Corporation and Dex Media East LLC (f/k/a SGN LLC).
	10	.5+	Non-Competition and Non-Solicitation Agreement, dated November 8, 2002, by and among Dex Media East LLC (f/k/a SGN LLC), Dex Holdings LLC and Qwest Corporation, Qwest Communications International Inc. and Qwest Dex, Inc.
	10	.6+	Management Consulting Agreement among Dex Media East and The Carlyle Group dated November 8, 2002.
	10	.7+	Management Consulting Agreement among Dex Media East and Welsh, Carson, Anderson and Stowe dated November 8, 2002.
	10	.8+	Equityholders Agreement of Dex Holdings LLC among Carlyle Partners III, L.P., CP III Coinvestment L.P., Carlyle Dex Partners II, L.P., Carlyle High Yield Partners, L.P., Welsh, Carson, Anderson & Stowe IX, L.P., WD GP Associates LLC, WD Investors LLC and A.S.F. Co-Investment Partners, L.P., dated November 8, 2002.
	10	.9++	Joinder Agreement to the Dex Holdings LLC Equityholders Agreement, effective as of April 30, 2003.
	10	.10+	Agreement Among Members (Dex Holdings LLC) among Carlyle Partners III, L.P., Carlyle-Dex Partners L.P., Carlyle-Dex Partners II L.P., Welsh, Carson, Anderson & Stowe IX, L.P., WD Investors LLC, Dex Holdings LLC, Dex Media, Inc., Dex Media East, Inc. and Dex Media East LLC, dated November 8, 2002.
	10	.11++	First Amendment to the Agreement Among Members (Dex Holdings LLC), effective as of September 8, 2003, among Carlyle Partners III, L.P., Carlyle-Dex Partners L.P., Carlyle-Dex Partners II L.P., Welsh, Carson, Anderson & Stowe IX, L.P., WD Investors LLC, Dex Holdings LLC, Dex Media, Inc., Dex Media East, Inc., Dex Media East LLC, Dex Media West, Inc. and Dex Media West LLC, dated November 8, 2002.
	10	.12+	Publishing Agreement by and among Dex Holdings LLC, SGN LLC (Dex Media East LLC), GPP LLC (Dex Media West LLC) and Qwest Corporation, dated November 8, 2002.
	10	.13+	Non-Competition and Non-Solicitation Agreement by and between SGN LLC, GPP LLC, Dex Holdings LLC, Qwest Corporation, Qwest Communications International Inc. and Qwest Dex, Inc., dated November 8, 2002.
	10	.14++	Employee Cost Sharing Agreement, by and among Dex Media Service LLC, Dex Media East LLC and Dex Media West LLC, effective as of December 31, 2003.
	10	.15++	Shared Services Agreement, by and among Dex Media, Inc., Dex Media East LLC, Dex Media West LLC, and any direct or indirect subsidiary of Dex Media that becomes a party thereto, effective as of December 31, 2003.
	10	.16++	Intercompany License Agreement, by and among Dex Media, Inc., Dex Media East LLC and Dex Media West LLC, effective as of September 9, 2003.
	10	.17++	Network Services Agreement between Dex Media, Inc. and SAVVIS Communications Corporation, dated September 30, 2003.
	10	.18++*	Employment Agreement, effective as of November 8, 2002, by and between George Burnett and Dex Media, Inc.
	10	.19++*	Employment Agreement, effective as of January 2, 2003, by and between Robert M. Neumeister, Jr. and Dex Media, Inc.
	10	.20++*	Employment Agreement, effective as of November 8, 2002, by and between Marilyn B. Neal and Dex Media, Inc.
	10	.21++*	Employment Agreement, effective as of November 8, 2002, by and between Maggie Le Beau and Dex Media, Inc.


Number			Description

	10	.22++*	Employment Agreement, effective as of January 2, 2003, by and between Linda Martin and Dex Media, Inc.
	10	.23++*	Employment Agreement, effective as of November 8, 2002, by and between Kristine Shaw and Dex Media, Inc.
	10	.24++*	Amended and Restated Management Stockholders Agreement of Dex Media, Inc., entered into as of November 11, 2003, by and among Dex Media, Inc., Dex Holdings LLC, and those members of management who become parties thereto from time to time.
	10	.25++*	Stock Option Plan of Dex Media, Inc., effective as of November 8, 2002.
	10	.26++*	First Amendment to Stock Option Plan of Dex Media, Inc., effective as of September 9, 2003.
	10	.27++*	Second Amendment to Stock Option Plan of Dex Media, Inc., effective as of December 18, 2003.
	10	.28*	Dex Media, Inc. 2004 Incentive Award Plan (incorporated by reference to Dex Media Inc.’s Registration Statement on Form S-8 (File No. 333-120631), filed on November 19, 2004).
	10	.29*	Dex Media, Inc. Senior Executive Incentive Bonus Plan (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated February 17, 2005, File No. 001-32249).
	10	.30*	Form of Restricted Stock Agreement pursuant to the 2004 Incentive Award Plan of Dex Media, Inc. (incorporated by reference to Dex Media, Inc.’s Current Report on Form 8-K dated March 4, 2005, File No. 001-32249).
	10	.31	Master Agreement for Printing Services dated as of March 31, 2005, by and between Dex Media, Inc., on behalf of itself and it subsidiaries Dex Media East LLC and Dex Media West LLC, and Quebecor World (USA) Inc. (incorporated by reference to Dex Media, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005).
	10	.32*	Dex Media, Inc. Deferred Compensation Plan (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated May 17, 2005).
	10	.33*	Dex Media, Inc. Corporate Aircraft Policy (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated May 17, 2005).
	10	.34*	Dex Media, Inc. Financial Planning Benefit (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated May 17, 2005).
	10	.35*	Dex Media, Inc. 2005 Bonus Plan Targets (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated May 17, 2005).
	10	.36	Fifth Amendment, dated as of June 16, 2005, to the Credit Agreement, dated as of November 8, 2002, as amended and restated as of October 31, 2003, by and among Dex Media, Inc., Dex Media East, Inc., Dex Media East LLC, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Securities Inc. and Banc of America Securities LLC, as joint bookrunners and co-lead arrangers, and Bank of America, N.A., Wachovia Bank, National Association, Lehman Commercial Paper Inc. and Deutsche Bank Trust company Americas, as co-syndication agents (incorporated by reference to Dex Media Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005).
	10	.37*	Retirement and General Release Agreement dated October 5, 2005, by and between Dex Media, Inc. and Robert M. Neumeister, Jr. (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated October 2, 2005).
	10	.38	Agreement and Plan of Merger, dated as of October 3, 2005, by and among Dex Media, Inc., R.H. Donnelley Corporation and Forward Acquisition Corp. (included in Exhibit 2.4).
	10	.39*	Letter Agreement dated October 2, 2005, by and between Dex Media, Inc. and George Burnett (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K/A dated October 18, 2005).


Number			Description

	10	.40*	Letter Agreement dated October 2, 2005, by and between Dex Media, Inc. and Marilyn Neal (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K/A dated October 18, 2005).
	10	.41*	Form of Letter Agreement dated October 2, 2005, by and between Dex Media, Inc. and each of its Senior Vice Presidents (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K/A dated October 18, 2005).
	10	.42*	Form of Letter Agreement dated October 2, 2005, by and between Dex Media, Inc. and each of its Vice Presidents (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K/A dated October 18, 2005).
	10	.43*	Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and Linda A. Martin (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K/A dated December 21, 2005).
	10	.44*	Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and George A. Burnett (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated December 19, 2005).
	10	.45*	Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and Scott A. Pomeroy (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated December 19, 2005).
	10	.46*	Form of Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and each of its Senior Vice Presidents and Vice Presidents (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated December 19, 2005).
	10	.47*	Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and Robert M. Neumeister, Jr. (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated December 19, 2005).
	10	.48*	Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and Marilyn B. Neal (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated December 19, 2005).
	10	.49	Amended and Restated Credit Agreement, dated January 31, 2006, by and among Dex Media, Inc. (f/k/a Forward Acquisition Corp.), Dex Media East, Inc., Dex Media East LLC, JPMorgan Chase Bank, N.A., as administrative agent, and the other entities from time to time parties thereto (incorporated by reference to Dex Media, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2006).
	10	.50	Reaffirmation Agreement, dated January 31, 2006, among Dex Media, Inc., Dex Media East, Inc., Dex Media East LLC, Dex Media East Finance Co. and JPMorgan Chase Bank, N.A., as collateral agent (incorporated by reference to Dex Media, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2006).
	14	.1++	Dex Media Code of Business Ethics and Conduct.
	31	.1	Certification of Chief Executive Officer of Dex Media East LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification of Chief Financial Officer of Dex Media East LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DEX MEDIA EAST LLC


	By:	/s/ SCOTT A. POMEROY

Scott A. Pomeroy

Chief Financial Officer

Date: March 16, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ GEORGE A. BURNETT George A. Burnett	President and Chief Executive Officer (Principal Executive Officer)	March 16, 2006

/s/ SCOTT A. POMEROY Scott A. Pomeroy	Chief Financial Officer (Principal Financial and Accounting Officer)	March 16, 2006

/s/ STEVEN M. BLONDY Steven M. Blondy	Director	March 16, 2006

/s/ ROBERT J. BUSH Robert J. Bush	Director	March 16, 2006

/s/ JENNY L. APKER Jenny L. Apker	Director	March 16, 2006


Number			Description

	10	.5+	Non-Competition and Non-Solicitation Agreement, dated November 8, 2002, by and among Dex Media East LLC (f/k/a SGN LLC), Dex Holdings LLC and Qwest Corporation, Qwest Communications International Inc. and Qwest Dex, Inc.
	10	.6+	Management Consulting Agreement among Dex Media East and The Carlyle Group dated November 8, 2002.
	10	.7+	Management Consulting Agreement among Dex Media East and Welsh, Carson, Anderson and Stowe dated November 8, 2002.
	10	.8+	Equityholders Agreement of Dex Holdings LLC among Carlyle Partners III, L.P., CP III Coinvestment L.P., Carlyle Dex Partners II, L.P., Carlyle High Yield Partners, L.P., Welsh, Carson, Anderson & Stowe IX, L.P., WD GP Associates LLC, WD Investors LLC and A.S.F. Co-Investment Partners, L.P., dated November 8, 2002.
	10	.9++	Joinder Agreement to the Dex Holdings LLC Equityholders Agreement, effective as of April 30, 2003.
	10	.10+	Agreement Among Members (Dex Holdings LLC) among Carlyle Partners III, L.P., Carlyle-Dex Partners L.P., Carlyle-Dex Partners II L.P., Welsh, Carson, Anderson & Stowe IX, L.P., WD Investors LLC, Dex Holdings LLC, Dex Media, Inc., Dex Media East, Inc. and Dex Media East LLC, dated November 8, 2002.
	10	.11++	First Amendment to the Agreement Among Members (Dex Holdings LLC), effective as of September 8, 2003, among Carlyle Partners III, L.P., Carlyle-Dex Partners L.P., Carlyle-Dex Partners II L.P., Welsh, Carson, Anderson & Stowe IX, L.P., WD Investors LLC, Dex Holdings LLC, Dex Media, Inc., Dex Media East, Inc., Dex Media East LLC, Dex Media West, Inc. and Dex Media West LLC, dated November 8, 2002.
	10	.12+	Publishing Agreement by and among Dex Holdings LLC, SGN LLC (Dex Media East LLC), GPP LLC (Dex Media West LLC) and Qwest Corporation, dated November 8, 2002.
	10	.13+	Non-Competition and Non-Solicitation Agreement by and between SGN LLC, GPP LLC, Dex Holdings LLC, Qwest Corporation, Qwest Communications International Inc. and Qwest Dex, Inc., dated November 8, 2002.
	10	.14++	Employee Cost Sharing Agreement, by and among Dex Media Service LLC, Dex Media East LLC and Dex Media West LLC, effective as of December 31, 2003.
	10	.15++	Shared Services Agreement, by and among Dex Media, Inc., Dex Media East LLC, Dex Media West LLC, and any direct or indirect subsidiary of Dex Media that becomes a party thereto, effective as of December 31, 2003.
	10	.16++	Intercompany License Agreement, by and among Dex Media, Inc., Dex Media East LLC and Dex Media West LLC, effective as of September 9, 2003.
	10	.17++	Network Services Agreement between Dex Media, Inc. and SAVVIS Communications Corporation, dated September 30, 2003.
	10	.18++*	Employment Agreement, effective as of November 8, 2002, by and between George Burnett and Dex Media, Inc.
	10	.19++*	Employment Agreement, effective as of January 2, 2003, by and between Robert M. Neumeister, Jr. and Dex Media, Inc.
	10	.20++*	Employment Agreement, effective as of November 8, 2002, by and between Marilyn B. Neal and Dex Media, Inc.
	10	.21++*	Employment Agreement, effective as of November 8, 2002, by and between Maggie Le Beau and Dex Media, Inc.
	10	.22++*	Employment Agreement, effective as of January 2, 2003, by and between Linda Martin and Dex Media, Inc.


Number			Description

	10	.23++*	Employment Agreement, effective as of November 8, 2002, by and between Kristine Shaw and Dex Media, Inc.
	10	.24++*	Amended and Restated Management Stockholders Agreement of Dex Media, Inc., entered into as of November 11, 2003, by and among Dex Media, Inc., Dex Holdings LLC, and those members of management who become parties thereto from time to time.
	10	.25++*	Stock Option Plan of Dex Media, Inc., effective as of November 8, 2002.
	10	.26++*	First Amendment to Stock Option Plan of Dex Media, Inc., effective as of September 9, 2003.
	10	.27++*	Second Amendment to Stock Option Plan of Dex Media, Inc., effective as of December 18, 2003.
	10	.28*	Dex Media, Inc. 2004 Incentive Award Plan (incorporated by reference to Dex Media Inc.’s Registration Statement on Form S-8 (File No. 333-120631), filed on November 19, 2004).
	10	.29*	Dex Media, Inc. Senior Executive Incentive Bonus Plan (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated February 17, 2005, File No. 001-32249).
	10	.30*	Form of Restricted Stock Agreement pursuant to the 2004 Incentive Award Plan of Dex Media, Inc. (incorporated by reference to Dex Media, Inc.’s Current Report on Form 8-K dated March 4, 2005, File No. 001-32249).
	10	.31	Master Agreement for Printing Services dated as of March 31, 2005, by and between Dex Media, Inc., on behalf of itself and it subsidiaries Dex Media East LLC and Dex Media West LLC, and Quebecor World (USA) Inc. (incorporated by reference to Dex Media, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005).
	10	.32*	Dex Media, Inc. Deferred Compensation Plan (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated May 17, 2005).
	10	.33*	Dex Media, Inc. Corporate Aircraft Policy (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated May 17, 2005).
	10	.34*	Dex Media, Inc. Financial Planning Benefit (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated May 17, 2005).
	10	.35*	Dex Media, Inc. 2005 Bonus Plan Targets (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated May 17, 2005).
	10	.36	Fifth Amendment, dated as of June 16, 2005, to the Credit Agreement, dated as of November 8, 2002, as amended and restated as of October 31, 2003, by and among Dex Media, Inc., Dex Media East, Inc., Dex Media East LLC, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Securities Inc. and Banc of America Securities LLC, as joint bookrunners and co-lead arrangers, and Bank of America, N.A., Wachovia Bank, National Association, Lehman Commercial Paper Inc. and Deutsche Bank Trust company Americas, as co-syndication agents (incorporated by reference to Dex Media Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005).
	10	.37*	Retirement and General Release Agreement dated October 5, 2005, by and between Dex Media, Inc. and Robert M. Neumeister, Jr. (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated October 2, 2005).
	10	.38	Agreement and Plan of Merger, dated as of October 3, 2005, by and among Dex Media, Inc., R.H. Donnelley Corporation and Forward Acquisition Corp. (included in Exhibit 2.4).
	10	.39*	Letter Agreement dated October 2, 2005, by and between Dex Media, Inc. and George Burnett (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K/A dated October 18, 2005).
	10	.40*	Letter Agreement dated October 2, 2005, by and between Dex Media, Inc. and Marilyn Neal (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K/A dated October 18, 2005).


Number			Description

	10	.41*	Form of Letter Agreement dated October 2, 2005, by and between Dex Media, Inc. and each of its Senior Vice Presidents (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K/A dated October 18, 2005).
	10	.42*	Form of Letter Agreement dated October 2, 2005, by and between Dex Media, Inc. and each of its Vice Presidents (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K/A dated October 18, 2005).
	10	.43*	Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and Linda A. Martin (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K/A dated December 21, 2005).
	10	.44*	Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and George A. Burnett (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated December 19, 2005).
	10	.45*	Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and Scott A. Pomeroy (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated December 19, 2005).
	10	.46*	Form of Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and each of its Senior Vice Presidents and Vice Presidents (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated December 19, 2005).
	10	.47*	Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and Robert M. Neumeister, Jr. (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated December 19, 2005).
	10	.48*	Letter Agreement dated December 19, 2005, by and between Dex Media, Inc. and Marilyn B. Neal (incorporated by reference to Dex Media Inc.’s Current Report on Form 8-K dated December 19, 2005).
	10	.49	Amended and Restated Credit Agreement, dated January 31, 2006, by and among Dex Media, Inc. (f/k/a Forward Acquisition Corp.), Dex Media East, Inc., Dex Media East LLC, JPMorgan Chase Bank, N.A., as administrative agent, and the other entities from time to time parties thereto (incorporated by reference to Dex Media, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2006).
	10	.50	Reaffirmation Agreement, dated January 31, 2006, among Dex Media, Inc., Dex Media East, Inc., Dex Media East LLC, Dex Media East Finance Co. and JPMorgan Chase Bank, N.A., as collateral agent (incorporated by reference to Dex Media, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2006).
	14	.1++	Dex Media Code of Business Ethics and Conduct.
	31	.1	Certification of Chief Executive Officer of Dex Media East LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification of Chief Financial Officer of Dex Media East LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

43 EX-2.4 2 d33980exv2w4.txt AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of October 3, 2005, by and among Dex Media, Inc., a Delaware corporation (the "Company"), R.H. Donnelley Corporation, a Delaware corporation ("Parent"), and Forward Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub"). RECITALS: A. The Boards of Directors of the Company, Parent and Merger Sub have determined that it is in the best interests of their respective companies and stockholders to enter into a business combination pursuant to the terms and subject to the conditions set forth herein, and have approved this Agreement and the Merger; B. This Agreement contemplates (1) the merger of the Company with and into Merger Sub (the "Merger") and (2) the conversion of the capital stock of the Company into the right to receive cash and capital stock of Parent; C. For federal income tax purposes, it is intended that the Merger qualify as a "reorganization" and this Agreement shall constitute a "plan of reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code") and the Treasury Regulations promulgated thereunder; D. It is intended that Parent will be treated as the acquiring entity for accounting purposes; E. As an inducement and condition to Parent's entering into this Agreement, Parent and certain stockholders of the Company (collectively, the "Company Sponsors") are entering into (1) support agreements pursuant to which, among other things, the Company Sponsors have agreed to vote in favor of the adoption of this Agreement (the "Company Sponsors Support Agreements") and (2) stockholders agreements (the "Sponsor Stockholders Agreements"), effective as of the Effective Time, providing for certain rights of the Company Sponsors; F. In connection with the parties entering into this Agreement, Parent, R.H. Donnelley, Inc. and certain investment partnerships affiliated with The Goldman Sachs Group, Inc. (collectively, the "GS Funds") are entering into an agreement pursuant to which, among other things, the GS Funds have agreed to vote in favor of the issuance of the Parent Shares in the Merger (the "GS Support Agreement"); and G. The parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger. NOW, THEREFORE, the parties agree as follows: ARTICLE I. THE MERGER 1.1 The Merger. Subject to the terms of this Agreement and the conditions set forth in Article VII, and in accordance with the Delaware General Corporation Law (the "DGCL"), at the Effective Time, the Company will be merged with and into Merger Sub, the separate corporate existence of the Company will cease and Merger Sub will continue as the surviving corporation of the Merger (the "Surviving Corporation"). 1.2 Effective Time. As promptly as practicable after the satisfaction or, if permissible, waiver of the conditions set forth in Article VII, the parties hereto will cause the Merger to be consummated by filing a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as is required by, and executed in accordance with, the relevant provisions of the DGCL (the date and time of such filing of the Certificate of Merger (or such later time as may be agreed by each of the parties hereto and specified in the Certificate of Merger) being the "Effective Time"). 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger will be as provided in the DGCL. 1.4 Certificate of Incorporation and Bylaws of the Surviving Corporation. At the Effective Time, the Certificate of Incorporation and Bylaws of Merger Sub, attached hereto as Exhibit A and Exhibit B, respectively, will be the Certificate of Incorporation and Bylaws, respectively, of the Surviving Corporation until thereafter amended in accordance with applicable Law. 1.5 Directors and Officers of the Surviving Corporation. The directors of Merger Sub immediately prior to the Effective Time will be the directors of the Surviving Corporation until the next annual meeting (or the earlier of their resignation or removal) and until their respective successors are duly elected and qualified, as the case may be. The officers of Merger Sub immediately prior to the Effective Time will be the officers of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. 1.6 Bylaws of the Parent. At the Effective Time, the Bylaws of Parent will be amended and restated in the form attached hereto as Exhibit C. 1.7 Tax Consequences. It is intended that (i) the Merger qualify as a "reorganization" within the meaning of Section 368(a) of the Code, (ii) this Agreement will constitute a "plan of reorganization" within the meaning of Treasury Regulation Section 1.368-2(g), and (iii) the Company, Parent and Merger Sub will each be a party to the reorganization within the meaning of Section 368(b) of the Code. 1.8 Headquarters. The headquarters of Parent will be in Raleigh, North Carolina. The parties expect to maintain a significant operating presence in Denver, Colorado. 1.9 Certain Executive Officers of Parent and Other Matters. Immediately following the Effective Time, the individuals set forth on Exhibit D will have the executive officer positions at Parent as set forth therein, until the earlier of their resignation or removal and until their respective successors are duly elected and qualified, as the case may be. In addition, certain other matters with respect to Parent following the Effective Time are set forth on Exhibit D. 2 1.10 Parent Board. Effective as of the Effective Time, (i) the Parent Board shall be composed of 13 directors, consisting of (A) Parent's Chief Executive Officer, (B) six individuals designated by Parent from among the members of the Parent Board prior to the Effective Time (at least five of whom shall be independent under the New York Stock Exchange (the "NYSE") rules and regulations), (C) the Chief Executive Officer of the Company immediately prior to the Effective Time, (D) one designee of each Company Sponsor, pursuant to the terms of the Sponsor Stockholders Agreements, and (E) three individuals designated by the Company from among the members of the Company Board prior to the Effective Time, each of whom shall be independent under the NYSE rules and regulations and not affiliated with any Company Sponsor (with the individuals described in clauses (C) through (E) being referred to as the "Company Directors"), (ii) two Company Directors shall have been assigned to each of the three classes of directors on the Parent Board; provided, however, that three Company Directors may be elected to the class of Parent directors whose term expires in 2008 (with the remaining directors spread as evenly as possible among the other two classes) and the Company will designate the individuals to be assigned to each class in accordance with the foregoing, and (iii) the Presiding Director (as defined in the Parent Bylaws) shall be an individual designated by Parent from among the members of the Parent Board prior to the Effective Time who shall be independent under the NYSE rules and regulations. ARTICLE II. CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES 2.1 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Parent, Merger Sub or the holders of any of the following securities: (a) Cancellation of Certain Company Common Stock. Each share of common stock, par value $0.01 per share, of the Company (the "Company Common Stock") issued and outstanding and owned by Parent, Merger Sub or any direct or indirect wholly owned subsidiary of Parent or of the Company (all issued and outstanding shares of the Company Common Stock being hereinafter collectively referred to as the "Company Shares") and each share of Company Common Stock held in the treasury of the Company immediately prior to the Effective Time will be canceled without any conversion thereof and no payment or distribution will be made with respect thereto. (b) Shares of Merger Sub Stock. Each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time will be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation. (c) Conversion of Company Common Stock. Each Company Share (other than any Company Shares canceled pursuant to Section 2.1(a)) will be canceled and converted automatically, subject to adjustment in accordance with this Section 2.1 and Section 2.2, into the right to receive (i) $12.30 in cash (the "Cash Consideration") and (ii) 0.24154 of a share of common stock (the "Exchange Ratio"), par value $1.00 per share ("Parent Shares"), of Parent (the "Stock Consideration," together with the Cash Consideration, the "Merger Consideration"), 3 in each case payable upon surrender, in the manner provided in Section 2.2, of the certificate that formerly evidenced such Company Share. (d) Anti-Dilution Provisions. In the event either Parent or the Company (i) changes (or establishes a record date for changing) the number of shares of its capital stock issued and outstanding prior to the Effective Time as a result of a stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into shares of its capital stock), extraordinary dividends, stock combination, recapitalization, reclassification, reorganization, combination, exchange of shares or similar transaction or like change with respect to shares of its capital stock or (ii) pays or makes an extraordinary dividend or distribution in respect of shares of its capital stock (other than a distribution referred to in clause (i) of this sentence) and, in either case, the record date therefor is prior to the Effective Time, the Merger Consideration will be proportionately adjusted. Cash dividends and increases thereon, the purchase referred to in Section 6.15 and redemptions not prohibited by Sections 5.2(c) and 5.3(c) of this Agreement will not be considered extraordinary for purposes of the preceding sentence. 2.2 Exchange of Certificates and Cash Consideration. (a) Exchange Agent. Parent will deposit, or cause to be deposited, with a bank or trust company designated by Parent (the "Exchange Agent"), for the benefit of the holders of Company Shares, for exchange in accordance with this Article II through the Exchange Agent, certificates representing the Parent Shares issuable pursuant to Section 2.1, and cash, from time to time as required to make payments in respect of the Cash Consideration and payments in lieu of any fractional shares pursuant to Section 2.2(e) (such cash and certificates for Parent Shares, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund"). The Exchange Agent will, pursuant to irrevocable instructions, deliver the Parent Shares and cash payments contemplated to be issued pursuant to Section 2.1 out of the Exchange Fund. Except as contemplated by Section 2.2(f), the Exchange Fund will not be used for any other purpose. (b) Exchange Procedures. As promptly as practicable after the Effective Time, Parent will cause the Exchange Agent to mail to each person who was, at the Effective Time, a holder of record of Company Shares entitled to receive the Merger Consideration pursuant to Section 2.1(c): (i) a letter of transmittal (which will be in customary form and will specify that delivery will be effected, and risk of loss and title to the certificates evidencing such Company Shares (the "Certificates") will pass, only upon proper delivery of the Certificates to the Exchange Agent) and (ii) instructions for use in effecting the surrender of the Certificates pursuant to such letter of transmittal. Upon surrender to the Exchange Agent of a Certificate for cancellation, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, (i) the holder of such Certificate will be entitled to receive in exchange therefor (A) a certificate representing that number of whole Parent Shares which such holder has the right to receive in respect of the Company Shares formerly represented by such Certificate (after taking into account all Company Shares then held by such holder), if any, (B) cash in respect of the Cash Consideration to be received by such holder, if any, (C) cash in lieu of any fractional Parent Shares to which such holder is entitled pursuant to Section 2.2(e), and (D) any dividends or other distributions to which such holder is entitled pursuant to Section 2.2(c) (such items described in clauses (A) - (D), the "Delivered Items"), and (ii) the Certificate so 4 surrendered will forthwith be cancelled. In the event of a transfer of ownership of Company Shares that is not registered in the transfer records of the Company, the Delivered Items may be issued to a transferee if the Certificate representing such Company Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.2, each Certificate will be deemed at all times after the Effective Time to represent only the right to receive upon such surrender the Delivered Items. (c) Distributions with Respect to Unexchanged Parent Shares. No dividends or other distributions declared or made after the Effective Time with respect to Parent Shares with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the Parent Shares represented thereby, and no cash payment in lieu of any fractional shares will be paid to any such holder pursuant to Section 2.2(e), until the holder of such Certificate surrenders such Certificate. Subject to the effect of escheat, tax or other applicable Laws, following surrender of any such Certificate, there will be paid to the holder of the certificates representing whole Parent Shares issued in exchange therefor, without interest, (i) promptly, the amount of any cash payable with respect to a fractional Parent Share to which such holder is entitled pursuant to Section 2.2(e) and the amount of dividends or other distributions with a record date after the Effective Time and theretofore paid with respect to such whole Parent Shares and (ii) at the appropriate payment date, the amount of dividends or other distributions, with a record date after the Effective Time but prior to surrender and a payment date occurring after surrender, payable with respect to such whole Parent Shares. (d) No Further Rights in Company Common Stock. All Merger Consideration issued upon conversion of the Company Shares in accordance with the terms hereof (together with cash paid pursuant to Section 2.2(c) or Section 2.2(e)) will be deemed to have been issued in full satisfaction of all rights pertaining to such Company Shares, including any "Rights" under the Company Rights Agreement. (e) No Fractional Shares. No certificate or scrip representing fractional Parent Shares will be issued upon the surrender for exchange of Certificates, and such fractional share interests will not entitle the owner thereof to vote or to any other rights of a stockholder of Parent. Notwithstanding any other provision of this Agreement, each holder of shares of Company Common Stock converted pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Parent Common Stock (after taking into account all Certificates delivered by such holder) will receive, in lieu thereof, cash (without interest) in an amount equal to such fraction as determined below. As promptly as practicable following the Effective Time, the Exchange Agent will determine the excess of (i) the number of full Parent Shares delivered to the Exchange Agent by Parent for issuance to holders of Certificates over (ii) the aggregate number of full Parent Shares to be distributed to holders of Company Common Stock (such excess being herein referred to as the "Excess Shares"). As soon as practicable after the Effective Time, the Exchange Agent, as agent for such holders of Company Common Stock will sell the Excess Shares at then prevailing prices on the NYSE all in the manner provided herein. The sale of the Excess Shares by the Exchange Agent will be executed on the NYSE and will be executed in round lots to the extent practicable. Until the net proceeds of any such sale or sales have been distributed to the holders of Company Common Stock, the Exchange Agent will hold such proceeds in trust for such holders. Parent will pay all commissions, transfer taxes and other out-of-pocket transaction costs of the Exchange Agent incurred in connection with such 5 sale or sales of Excess Shares and the Exchange Agent's compensation and expenses in connection with such sale or sales. The Exchange Agent will determine the portion of such net proceeds to which each holder of Company Common Stock will be entitled, if any, by multiplying the amount of the aggregate net proceeds by a fraction, the numerator of which is the amount of the fractional share interest to which such holder of Company Common Stock is entitled (after taking into account all Certificates then held by such holder) and the denominator of which is the aggregate amount of fractional share interests to which all holders of Company Common Stock are entitled. As soon as practicable after the determination of the amount of cash, if any, to be paid to holders of Certificates with respect to any fractional share interests, the Exchange Agent will promptly pay such amounts to such holders of Company Common Stock, subject to and in accordance with the terms of Sections 2.2(b) and (c). (f) Termination of Exchange Fund and Additional Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the holders of Company Shares for one year after the Effective Time will be delivered to Parent, upon demand, and any holders of Company Shares who have not theretofore complied with this Article II will thereafter look only to Parent for the Delivered Items. Any portion of the Exchange Fund remaining unclaimed by holders of Company Shares as of a date which is immediately prior to such time as such amounts would otherwise escheat to or become property of any government entity will, to the extent permitted by applicable Law, become the property of Parent free and clear of any claims or interest of any person previously entitled thereto. (g) No Liability. None of the Exchange Agent, Parent or the Surviving Corporation will be liable to any holder of Company Shares for any such Company Shares (or dividends or distributions with respect thereto), or cash delivered to a public official pursuant to any abandoned property, escheat or similar Law. (h) Withholding Rights. Each of the Surviving Corporation and Parent will be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Company Shares, options to purchase shares of Company Common Stock (a "Company Stock Option") or other awards based on Company Common Stock (the "Company Stock-Based Awards"), such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax Law. To the extent that amounts are so withheld by the Surviving Corporation or Parent, as the case may be, such withheld amounts will be treated for all purposes of this Agreement as having been paid to the holder of the Company Shares, Company Stock Options or Company Stock-Based Awards in respect of which such deduction and withholding was made by the Surviving Corporation or Parent, as the case may be. Any amounts deducted and withheld from the consideration otherwise payable pursuant to this Agreement shall be remitted by Parent or the Surviving Corporation to the appropriate governmental authority on a timely basis. (i) Lost Certificates. If any Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Delivered Items. 6 2.3 Stock Transfer Books. At the Effective Time, the stock transfer books of the Company will be closed and there will be no further registration of transfers of Company Shares thereafter on the records of the Company. From and after the Effective Time, the holders of Certificates will cease to have any rights with respect to such Company Shares, except as provided in this Agreement or by Law. On or after the Effective Time, subject to, with respect to the relevant holders of Company Shares, their delivery of the Certificates required by Section 2.2 of this Agreement, any Certificates presented to the Exchange Agent or Parent for any reason will be converted into the Delivered Items. 2.4 Company Options; Other Company Stock-Based Awards. (a) As soon as practicable following the date of this Agreement, the Company will take such actions so that the Company Board or, if appropriate, any committee thereof administering the Company Stock Plans (as identified on Section 3.11(a) of the Company Disclosure Schedule) adopts such resolutions and takes such other actions (including obtaining any required consents) as may be required to provide that each Company Stock Option that is outstanding immediately prior to the Effective Time, whether vested or unvested, will, at the Effective Time, be converted into an option to purchase a number of shares of Parent Common Stock equal to the number of shares of Company Common Stock subject to such Company Stock Option multiplied by 0.43077 (the "Stock Exchange Ratio") (rounded down to the nearest whole share), at an exercise price per share of Parent Common Stock equal to the exercise price per share of Company Common Stock under such Company Stock Option divided by the Stock Exchange Ratio (rounded up to the nearest whole cent), and otherwise having the same terms and conditions as were applicable under such Company Stock Option immediately prior to the Effective Time (each, a "Company Rollover Option"). Notwithstanding the foregoing, the Company may adjust the conversion described in this Section 2.4(a) by modifying the exercise price per share of Parent Common Stock and may take such actions as may be necessary or appropriate to comply with Section 409A of the Code and to preserve the intended tax treatment of the Company Rollover Options; provided, however, that in no event shall any such adjustment to the conversion described in this Section 2.4(a) increase the aggregate number of shares of Parent Common Stock subject to the Company Rollover Options without the prior written consent of Parent. (b) The Company will take all actions necessary to ensure that all restrictions and limitations on vesting, transfer and exercise and all risk of forfeiture and rights of repurchase with respect to Company Stock Options, shares of Company Common Stock and other Company Stock-Based Awards, to the extent not already lapsed as of the Effective Time, will remain in full force and effect with respect to such Company Stock Options, shares of Company Common Stock and other Company Stock-Based Awards after giving effect to the Merger and their conversion into Company Rollover Options, shares of Parent Common Stock and awards denominated in Parent Common Stock, except to the extent required by the terms of such Company Stock Options and Company Stock-Based Awards Benefit Plan or pursuant to any Company Benefit Plan as in effect on the date hereof and except as set forth on Section 2.4(b) of the Company Disclosure Schedule. 7 (c) Parent will prepare and file with the Securities and Exchange Commission (the "SEC"), and use reasonable best efforts to cause to be effective prior to or at the Effective Time, a registration statement on Form S-8 (or another appropriate form) registering under the Company Stock Plans all shares of Parent Common Stock subject to the Company Rollover Options and the Company Stock-Based Awards which survive the Effective Time and become denominated in the form of Parent Common Stock. Such registration statement will be kept effective (and the current status of the prospectus or prospectuses required thereby will be maintained) as long as any Company Rollover Options and Company Stock-Based Awards remain outstanding. 2.5 Appraisal Rights/Dissenting Shares. (a) Notwithstanding any provision of this Agreement to the contrary and to the extent available under the DGCL, Company Shares that are outstanding immediately prior to the Effective Time and that are held by stockholders who have neither voted in favor of the Merger nor consented thereto in writing and who have demanded properly in writing appraisal for such Company Shares in accordance with Section 262 of the DGCL (collectively, the "Dissenting Shares") will not be converted into, or represent the right to receive, the Merger Consideration payable to No Election Shares. Such stockholders will be entitled to receive payment of the appraised value of Dissenting Shares held by them in accordance with the provisions of such Section 262, except that all Company Shares held by stockholders who have failed to perfect or who effectively have withdrawn or lost their rights to appraisal of such Dissenting Shares under such Section 262, will thereupon be deemed to have been converted into, and to have become exchangeable for, as of the 8 Effective Time, the right to receive the Merger Consideration, without any interest thereon, upon surrender, in the manner provided in Section 2.2, of the certificate or certificates that formerly evidenced such Company Shares. Notwithstanding anything to the contrary contained in this Section 2.5, if the Merger is rescinded or abandoned, then the right of any stockholder to be paid the appraised value of such stockholder's Dissenting Shares pursuant to Section 262 of the DGCL will cease. (b) The Company will give Parent (i) prompt (and in any event prior to the Effective Time) notice of any demands for appraisal received by the Company, and prompt notice of any withdrawals of such demands, and any other instruments served pursuant to the DGCL and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company will not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as disclosed in (x) a publicly available final registration statement, prospectus, report, form, schedule or definitive proxy statement filed since January 1, 2005 by the Company with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934, as amended (the "Exchange Act") (collectively, the "Company SEC Reports"), and prior to the close of business on September 30, 2005 (the "Measurement Date"), but excluding any risk factor disclosure contained in any such Company SEC Report under the heading "Risk Factors" or "Forward-Looking Information," or (y) the disclosure letter (the "Company Disclosure Schedule") delivered by the Company to Parent prior to the execution of this Agreement (which letter sets forth items of disclosure with specific reference to the particular Section or subsection of this Agreement to which the information in the Company Disclosure Schedule relates; provided, however, that any information set forth in one section of the Company Disclosure Schedule will be deemed to apply to each other Section or subsection of this Agreement to which its relevance is reasonably apparent; provided, further, that, notwithstanding anything in this Agreement to the contrary, the inclusion of an item in such schedule as an exception to a representation or warranty will not be deemed an admission that such item represents a material exception or material fact, event or circumstance or that such item has had or would reasonably be expected to have a Material Adverse Effect on the Company), the Company represents and warrants to Parent as follows: 3.1 Corporate Organization. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. As used in this Agreement, the term "Material Adverse Effect" means, with respect to Parent or the Company, as the case may be, any change, effect, event, occurrence or state of facts that has had or would be reasonably expected to have a material adverse effect on 9 (i) the business, results of operations or financial condition of such party and its Subsidiaries, taken as a whole (provided, however, that with respect to this clause (i), Material Adverse Effect will be deemed not to include effects to the extent resulting from (A) changes in or relating to the United States economy or United States financial, credit or securities markets in general or (B) changes in or relating to the industries in which such party operates or the markets for any of such party's products or services in general, which changes in the case of clauses (A) and (B) do not affect such party to a materially disproportionate degree relative to other entities operating in such markets or industries or serving such markets) or (ii) the ability of such party to consummate the transactions contemplated by this Agreement in the manner contemplated hereby. (b) True and complete copies of the Second Amended and Restated Certificate of Incorporation of the Company, as amended through, and as in effect as of, the date of this Agreement (including any certificates of designation thereto) (the "Company Charter"), and the Amended and Restated By-laws of the Company, as amended through, and as in effect as of, the date of this Agreement (the "Company Bylaws"), have previously been made available to Parent. (c) Each Company Subsidiary (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) is duly qualified to do business and in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified, and (iii) has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as now conducted, except for such variances from the matters set forth in any of clauses (i), (ii) or (iii) as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. 3.2 Capitalization. (a) As of the date of this Agreement, the authorized Company capital stock consists of (i) 700,000,000 shares of Company Common Stock of which, as of the Measurement Date, 150,508,492 shares were issued and outstanding, and (ii) 200,000 shares of Company Series A junior participating preferred stock, par value $0.01 per share, of which, as of the Measurement Date, no shares were issued and outstanding (the "Company Series A Preferred Stock" and, together with the Company Common Stock, the "Company Capital Stock"). As of the Measurement Date, no shares of Company Capital Stock were held in the Company's treasury. As of the Measurement Date, no shares of Company Capital Stock were reserved for issuance except for 4,821,858 shares of Company Common Stock reserved for issuance upon the exercise of Company Stock Options or Company Stock-Based Awards issued or issuable pursuant to the equity-based compensation plans identified on Section 3.11(a) of the Company Disclosure Schedule (the "Company Stock Plans"). All of the issued and outstanding shares of Company Capital Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date of this Agreement, except as set forth above or in the last sentence of this Section 3.2(a), or pursuant to this Agreement and the Company Stock Plans, there are no outstanding shares of capital stock or other voting securities of the Company, and the Company does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments, preemptive rights, redemption obligations or agreements of any character calling for the purchase, issuance or registration of any shares of 10 the Company's capital stock or any other equity securities of the Company or any securities representing the right to purchase or otherwise receive any shares of the Company's capital stock. Section 3.2(a) of the Company Disclosure Schedule sets forth the following information with respect to each Company Stock Option and Company Stock-Based Award outstanding as of the date of this Agreement, as applicable: (i) the name of the recipient; (ii) the number of shares of Company Common Stock subject to such Company Stock Option or Company Stock-Based Award; (iii) the exercise, purchase or grant price; (iv) the date of grant; (v) the applicable vesting schedule; (vi) the date of expiration; (vii) the type of such awards and the Company Stock Plans under which such Company Stock Options or Company Stock-Based Awards were issued; and (viii) whether the exercisability of such Company Stock Option or Company Stock-Based Award will be accelerated in any way by the transactions contemplated by this Agreement, and the extent of such acceleration. From and after the Measurement Date through the date hereof, the Company has not issued or awarded any Company Capital Stock, Company Stock Options or Company Stock-Based Awards (other than upon the exercise or satisfaction of Company Stock Options or Company Stock-Based Awards or the conversion of convertible securities, in each case outstanding as of the Measurement Date). (b) As of the date of this Agreement, no bonds, debentures, notes or other indebtedness of the Company having the right to vote on any matters on which stockholders may vote ("Company Voting Debt") are issued or outstanding. (c) All of the issued and outstanding shares of capital stock or other equity ownership interests of each "significant subsidiary" (as such term is defined under Regulation S-X of the SEC) of the Company are owned by the Company, directly or indirectly, free and clear of any material liens, pledges, charges and security interests and similar encumbrances, other than for Taxes that are not yet due ("Liens"), and free of any restriction on the right to vote, sell or otherwise dispose of such capital stock or other equity ownership interest (other than restrictions under applicable securities Laws), and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. No such significant subsidiary is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such significant subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such significant subsidiary. Except for the capital stock or other equity ownership interests of the Company Subsidiaries, as of the date of this Agreement, the Company does not beneficially own directly or indirectly any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person that constitutes a Substantial Investment. As used in this Agreement, (i) "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a business trust or an unincorporated organization, (ii) "Subsidiary," when used with respect to either party, means any corporation, partnership, limited liability company or other organization, whether incorporated or unincorporated, (x) of which such party or any other Subsidiary of such party is a general partner (excluding partnerships, the general partnership interests of which held by such party or any Subsidiary of such party do not have a majority of the voting interests in such partnership) or (y) a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or 11 controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries, and the terms "Company Subsidiary" and "Parent Subsidiary" will mean any Subsidiary of the Company or Parent, respectively, and (iii) "Substantial Investment," when used with respect to either party, means a stock or other equity investment having a fair market value or book value in excess of $5 million, directly or indirectly, in any Person. 3.3 Authority; No Violation. (a) The Company has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of the Company (the "Company Board"). The Company Board has determined that this Agreement and the transactions contemplated hereby are in the best interests of the Company and its stockholders, has resolved to recommend that holders of Company Common Stock vote in favor of the adoption of this Agreement and has directed that this Agreement be submitted to the Company's stockholders for adoption, and the Merger be submitted to the Company's stockholders for approval, at a duly held meeting of such stockholders (the "Company Stockholders Meeting"), and, except for the adoption of this Agreement and the approval of the Merger at such meeting by the affirmative vote of the holders of a majority of the Company Shares issued an outstanding and entitled to vote thereon ("Company Stockholder Approval"), no other corporate proceedings on the part of the Company or vote by the holders of any class or series of Company Capital Stock are necessary to approve or adopt this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and (assuming due authorization, execution and delivery by the other parties hereto) constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar Laws affecting the rights of creditors generally and the availability of equitable remedies). (b) Neither the execution and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby, nor compliance by the Company with any of the terms or provisions of this Agreement, will (i) assuming that the Company Stockholder Approval is obtained, violate any provision of the Company Charter or the Company Bylaws or (ii) assuming that the consents, approvals and filings referred to in Section 3.4 are duly obtained and/or made, (A) violate any order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition (an "Injunction") or any federal, state, local or foreign laws, statutes, ordinances, rules, regulations, judgments, orders, Injunctions, decrees, arbitration awards, agency requirements, licenses and permits of all Governmental Entities (each, a "Law" and collectively, "Laws") applicable to the Company, any of the Company Subsidiaries or any of their respective properties or assets or (B) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of the Company or any of the Company Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company or any of the Company 12 Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except, in the case of clause (ii), for such violations, conflicts, breaches, defaults, terminations, rights of termination or cancellation, accelerations or Liens that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. 3.4 Consents and Approvals. Except for (i) the filing with the SEC of a Joint Proxy Statement in definitive form relating to the Company Stockholders Meeting and the Parent Stockholders Meeting (the "Joint Proxy Statement") and of a registration statement on Form S-4 (the "Form S-4") in which the Joint Proxy Statement will be included as a prospectus, and declaration of effectiveness of the Form S-4, (ii) the filing of the Certificate of Merger with the Delaware Secretary of State pursuant to the DGCL, (iii) any notices or filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (iv) such filings and approvals as are required to be made or obtained under the securities or "Blue Sky" laws of various states in connection with the issuance of the shares of Parent capital stock pursuant to this Agreement, (v) the Company Stockholder Approval and Parent Stockholder Approval, and (vi) the consents or approvals listed in Section 3.4 of the Company Disclosure Schedule, no consents or approvals of or filings or registrations with any federal, state, local or foreign government, court of competent jurisdiction, administrative agency, commission or other governmental authority or instrumentality (each, a "Governmental Entity") are necessary in connection with (A) the execution and delivery by the Company of this Agreement or (B) the consummation by the Company of the Merger and the other transactions contemplated by this Agreement. 3.5 Reports. The Company and each of the Company Subsidiaries have timely filed all reports, registrations, schedules, forms, statements and other documents, together with any amendments required to be made with respect thereto, that they were required to file since July 22, 2004 with (i) the SEC, (ii) any state or other federal regulatory authority (other than any taxing authority, which is covered by Section 3.10), and (iii) any foreign regulatory authority (other than any taxing authority, which is covered by Section 3.10) (collectively, "Regulatory Agencies"), and have paid all fees and assessments due and payable in connection therewith, except in each case under clauses (ii) and (iii) where the failure to file such report, registration, schedule, form, statement or other document, or to pay such fees and assessments, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. No Company SEC Report, as of the date of such Company SEC Report, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances in which they were made, not misleading, except that information as of a later date (but before the date of this Agreement) will be deemed to modify information as of an earlier date. Since July 22, 2004, as of their respective dates, all Company SEC Reports complied as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act, and the rules and regulations thereunder with respect thereto. 3.6 Financial Statements. The Company has previously made available to Parent copies of (i) the consolidated balance sheets of the Company and the Company Subsidiaries as of December 31, 2004 and 2003, the related consolidated statements of operations and cash flows for the years ended December 31, 2004 and December 31, 2003 and for the periods from 13 November 9 to December 31, 2002 and January 1 to November 8, 2002, and the related consolidated statements of changes in stockholders' equity and comprehensive loss for the years ended December 31, 2004 and December 31, 2003 and for the period from November 9 to December 31, 2002, as reported in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004, including any amendments thereto filed with the SEC prior to the Measurement Date (collectively, the "Company 2004 10-K"), filed with the SEC under the Exchange Act, accompanied by the audit report of KPMG LLP, the independent registered public accounting firm with respect to the Company for such periods (such balance sheets and statements, the "Audited Company Financial Statements"), and (ii) the unaudited condensed consolidated balance sheet of the Company and the Company Subsidiaries as of June 30, 2005 and the related condensed consolidated statements of operations and cash flows for the six-month periods ended June 30, 2005 and 2004, as reported in the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, including any amendments thereto filed with the SEC prior to the Measurement Date (collectively, the "Company 10-Q") (such balance sheets and statements, the "Unaudited Company Financial Statements" and, together with the Audited Company Financial Statements, the "Company Financial Statements"). The consolidated balance sheets of the Company (including the related notes, where applicable) included in the Company Financial Statements fairly present in all material respects the consolidated financial position of the Company and the Company Subsidiaries as of the dates thereof, and the other financial statements included in the Company Financial Statements (including the related notes, where applicable) fairly present in all material respects the results of the consolidated operations, cash flows and changes in stockholders' equity of the Company and the Company Subsidiaries for the respective periods therein set forth, subject in the case of the Unaudited Company Financial Statements to normal year-end audit adjustments that are immaterial in nature and in amounts consistent with past experience; each of such statements (including the related notes, where applicable) complies in all material respects with the published rules and regulations of the SEC with respect thereto; and each of the Company Financial Statements (including the related notes, where applicable) has been prepared in all material respects in accordance with U.S. generally accepted accounting principles ("GAAP") consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. To the knowledge of the Company, there is no applicable accounting rule, consensus or pronouncement that has been adopted by the SEC, the Financial Accounting Standards Board, the Emerging Issues Task Force or any similar body but is not in effect as of the date of this Agreement that, if implemented, would reasonably be expected to have a Material Adverse Effect on the Company. 3.7 Advisors' Fees. None of the Company, any Company Subsidiary or any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker's fees, commissions or finder's fees in connection with the Merger or related transactions contemplated by this Agreement, other than Lehman Brothers Inc. and Merrill Lynch & Co. (the "Company's Advisors"), which firms the Company retained pursuant to engagement letters, copies of which have been provided to Parent. 3.8 Absence of Certain Changes or Events. (a) Since June 30, 2005, no event has occurred that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company. 14 (b) From June 30, 2005, through the date hereof, the Company and the Company Subsidiaries have carried on their respective businesses in all material respects in the ordinary course and have not taken any action or failed to take any action that would have resulted in a breach of Section 5.2 had such section been in effect since June 30, 2005. (c) The aggregate amount of payments permitted to be made under the restricted payments covenant under each of the indentures governing the notes of the Company and Dex Media West, LLC is at least $450 million and $200 million, respectively. 3.9 Legal Proceedings. (a) None of the Company or any of the Company Subsidiaries is a party to any, and there are no pending or, to the knowledge of the Company, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations or reviews of any nature against the Company or any of the Company Subsidiaries, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. (b) There is no Injunction, judgment, or regulatory restriction imposed upon the Company, any of the Company Subsidiaries or the assets of the Company or any of the Company Subsidiaries that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. 3.10 Taxes and Tax Returns. (a) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company: (i) the Company and the Company Subsidiaries have timely filed all Tax Returns required to be filed by them on or prior to the date of this Agreement taking into account any extensions of time within which to file such Tax Returns (all such returns being accurate and complete in all material respects) and have paid all Taxes required to be paid by them other than Taxes that are not yet due or that are being contested in good faith in appropriate proceedings; (ii) there are no Liens for Taxes on any assets of the Company or the Company Subsidiaries other than Liens for Taxes that are not yet due and payable; (iii) no deficiency for any Tax has been asserted or assessed by a taxing authority against the Company or any of the Company Subsidiaries which deficiency has not been paid or is not being contested in good faith in appropriate proceedings; (iv) the Company and the Company Subsidiaries have provided adequate reserves in their financial statements for any Taxes that have not been paid; and (v) neither the Company nor any of the Company Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among the Company and the Company Subsidiaries). (b) Within the past five years, neither the Company nor any of the Company Subsidiaries has been a "distributing corporation" or a "controlled corporation" in a distribution intended to qualify for tax-free treatment under Section 355 of the Code. (c) Neither the Company nor any of the Company Subsidiaries has been a party to a transaction that, as of the date of this Agreement, constitutes a "listed transaction" for purposes of Section 6011 of the Code and applicable Treasury Regulations thereunder (or a similar provision of state law). To the knowledge of the Company, the Company has disclosed to Parent all "reportable transactions" within the meaning of Treasury Regulation Section 15 1.6011-4(b) (or a similar provision of state law) to which it or any of the Company Subsidiaries has been a party. (d) Neither the Company nor any of the Company Subsidiaries has any liability for the Taxes of any person other than the Company or the Company Subsidiaries under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise. (e) Neither the Company nor any of the Company Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date (except consistent with its treatment of such items in Tax Returns for prior periods) as a result of any (i) change in method of accounting, (ii) agreement with a Tax authority relating to Taxes, (iii) installment sale or open transaction disposition or intercompany transaction made on or prior to the Effective Time, (iv) the completed contract method of accounting or other method of accounting applicable to long-term contracts (or any comparable provisions of state, local or foreign law), or (v) prepaid amount received prior to the Effective Time. (f) As used in this Agreement, the term "Tax" or "Taxes" means (i) all federal, state, local and foreign income, excise, gross receipts, gross income, ad valorem, profits, gains, property, capital, sales, transfer, use, payroll, employment, severance, withholding, duties, intangibles, franchise, backup withholding and other taxes, charges, levies or like assessments together with all penalties and additions to tax and interest thereon and (ii) any liability for Taxes described in clause (i) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law), and the term "Tax Return" means any return, filing, report, questionnaire, information statement or other document required to be filed, including any amendments that may be filed, for any taxable period with any taxing authority (whether or not a payment is required to be made with respect to such filing). 3.11 Employees. (a) As of the date of this Agreement, the Company Disclosure Schedule sets forth a true and complete list of each material benefit or compensation plan, program, fund, contract, arrangement or agreement, including any material bonus, incentive, deferred compensation, vacation, stock purchase, stock option, severance, employment, golden parachute, retention, salary continuation, change of control, retirement, pension, profit sharing or fringe benefit plan, program, fund, contract, arrangement or agreement of any kind (whether written or oral, tax-qualified or non-tax qualified, funded or unfunded, foreign or domestic, active, frozen or terminated) and any related trust, insurance contract, escrow account or similar funding arrangement, that is maintained or contributed to by the Company or any Company Subsidiary (or required to be maintained or contributed to by the Company or any Company Subsidiary) for the benefit of current or former directors, officers or employees of, or consultants to, the Company and the Company Subsidiaries or with respect to which the Company or the Company Subsidiaries may, directly or indirectly, have any liability, as of the date of this Agreement (the "Company Benefit Plans"). (b) The Company has heretofore made available to Parent true and complete copies of (i) each written Company Benefit Plan, (ii) the actuarial report for each Company Benefit Plan (if applicable) for each of the last three years, (iii) the most recent determination 16 letter from the Internal Revenue Service ("IRS") (if applicable) for each Company Benefit Plan, (iv) the current summary plan description of each Company Benefit Plan that is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (v) a copy of the description of each Company Benefit Plan not subject to ERISA that is currently provided to participants in such plan, (vi) a summary of the material terms of each unwritten Company Benefit Plan, and (vii) the annual report for each Company Benefit Plan (if applicable) for each of the last three years. (c) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company, (i) each of the Company Benefit Plans has been operated and administered in compliance with its terms and applicable Law, including ERISA and the Code, (ii) each of the Company Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified, and there are no existing circumstances or any events that have occurred that would reasonably be expected to adversely affect the qualified status of any such Company Benefit Plan, and each such plan has a favorable determination letter from the IRS to the effect that it is so qualified or the applicable remedial amendment period has not expired and, if the letter for such plan is not current, such plan is the subject of a timely request for a current favorable determination letter or the applicable remedial amendment period has not expired, (iii) with respect to each Company Benefit Plan that is subject to Title IV of ERISA, the present value (as defined under Section 3(27) of ERISA) of accumulated benefit obligations under such Company Benefit Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Company Benefit Plan's actuary with respect to such Company Benefit Plan, did not, as of its latest valuation date, exceed the then current value (as defined under Section 3(26) of ERISA) of the assets of such Company Benefit Plan allocable to such accrued benefits, (iv) no Company Benefit Plan that is an employee welfare benefit plan (including any plan described in Section 3(1) of ERISA) (a "Welfare Plan") provides benefits coverage, including death or medical benefits coverage (whether or not insured), with respect to current or former employees or directors of the Company or the Company Subsidiaries beyond their retirement or other termination of service, other than (A) coverage mandated by applicable Law, (B) benefits the full cost of which is borne by such current or former employee or director (or his or her beneficiary), (C) coverage through the last day of the calendar month in which retirement or other termination of service occurs, or (D) medical expense reimbursement accounts, (v) no liability under Title IV of ERISA has been incurred by the Company, the Company Subsidiaries or any trade or business, whether or not incorporated, all of which together with the Company would be deemed a "single employer" within the meaning of Section 414(b), 414(c) or 414(m) of the Code or Section 4001(b) of ERISA (a "Company ERISA Affiliate"), that has not been satisfied in full, and no condition exists that presents a material risk to the Company, the Company Subsidiaries or any Company ERISA Affiliate of incurring a liability thereunder, (vi) no Company Benefit Plan is a "multiemployer plan" (as such term is defined in Section 3(37) of ERISA) or a "multiple employer plan" (as described in Section 413(c) of the Code), (vii) none of the Company or the Company Subsidiaries or, to the knowledge of the Company, any other Person, including any fiduciary, has engaged in a transaction in connection with which the Company, the Company Subsidiaries or any Company Benefit Plan would reasonably be expected to be subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a Tax imposed pursuant to Section 4975 or 4976 of the Code, (viii) to the knowledge of the Company, there are no pending, threatened or anticipated claims (other than routine claims 17 for benefits) by, on behalf of or against any of the Company Benefit Plans or any trusts, insurance contracts, escrow accounts or similar funding arrangements related thereto, (ix) all contributions or other amounts required to be paid by the Company or the Company Subsidiaries as of the Effective Time with respect to each Company Benefit Plan in respect of current or former plan years have been paid in accordance with Section 412 of the Code or accrued in accordance with GAAP (as applicable) and (x) since December 31, 2004, no Company Benefit Plan has been amended or modified in any material respect or adopted or terminated. (d) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement will (either alone or in conjunction with any other event) (i) result in the Surviving Corporation or any of its Subsidiaries being liable for any payment or benefit (including non-deductible employee remuneration (described in Section 162(m) of the Code), severance, retention, stay-put, change of control, unemployment compensation, "excess parachute payment" (within the meaning of Section 280G of the Code), tax gross-up, forgiveness of indebtedness or otherwise) becoming due to any director, officer or employee of, or any consultant to, the Company or any of the Company Subsidiaries from the Company or any of the Company Subsidiaries under any Company Benefit Plan or otherwise, (ii) increase any amounts or benefits otherwise payable or due to any such Person under any Company Benefit Plan or otherwise, or (iii) result in any acceleration of the time of payment or vesting of, or any requirement to fund or secure, any such amounts or benefits (including any Company Stock Option or Company Stock-Based Award) or result in any breach of or default under any Company Benefit Plan. (e) (i) There are no controversies relating to or arising out of a collective bargaining relationship between the Company or any Company Subsidiary and any union pending or, to the knowledge of the Company, threatened between the Company or any Company Subsidiary and any of their respective employees, which controversies would, individually or in the aggregate, have a Material Adverse Effect on the Company, (ii) to the knowledge of the Company, as of the date hereof there are not any organizational campaigns, petitions or other activities or proceedings of any labor union to organize any such employees that would, individually or in the aggregate, have a Material Adverse Effect on the Company, (iii) neither the Company nor any Company Subsidiary has breached or otherwise failed to comply with any provision of any collective bargaining or other labor union contract applicable to persons employed by the Company or any Company Subsidiary (including any obligation that the Company or any Company Subsidiary can, will or may have in connection with a sale, merger or any other like transaction) that would individually or in the aggregate, have a Material Adverse Effect on the Company, and there are no material grievances outstanding against the Company or any Company Subsidiary under any such agreement or contract that would, individually or in the aggregate, have a Material Adverse Effect on the Company, (iv) there are no unfair labor practice complaints pending against the Company or any Company Subsidiary before the National Labor Relations Board or any other Governmental Entity or any current union representation questions involving employees of the Company or any Company Subsidiary that would, individually or in the aggregate, have a Material Adverse Effect on the Company, and (v) as of the date hereof, there is no strike, slowdown, work stoppage or lockout, or, to the knowledge of the Company, threat thereof by any union or significant group of union workers, by or with respect to any employees of the Company or any Company Subsidiary. 18 (f) The Company and each Company Subsidiary is in material compliance with all applicable Laws relating to the employment of labor, including those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by the appropriate Governmental Entity and have withheld and paid to the appropriate Governmental Entity or are holding for payment not yet due to such Governmental Entity all amounts required to be withheld from employees of the Company or any Company Subsidiary and are not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing except for such failures that would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The Company and each Company Subsidiary has paid in full to all employees or adequately accrued for in accordance with GAAP consistently applied all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees and there is no claim with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or threatened before any Governmental Entity with respect to any persons currently or formerly employed by the Company or any Company Subsidiary, that would, individually or in the aggregate, have a Material Adverse Effect on the Company. Neither the Company nor any Company Subsidiary is a party to, or otherwise bound by, any consent decree with any Governmental Entity relating to employees or employment practices. There is no charge or proceeding with respect to a violation of any occupational safety or health standards that has been asserted or is now pending or threatened with respect to the Company or any Company Subsidiary, that would, individually or in the aggregate, have a Material Adverse Effect on the Company. There is no charge of discrimination in employment or employment practices, for any reason, including age, gender, race, religion or other legally protected category, which has been asserted or is now pending or threatened before the United States Equal Employment Opportunity Commission, or any other Governmental Entity in any jurisdiction in which the Company or any Company Subsidiary has employed or employ any person that would, individually or in the aggregate, have a Material Adverse Effect on the Company. 3.12 Internal Controls. The Company and the Company Subsidiaries have designed and maintained a system of internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) sufficient to provide reasonable assurances regarding the reliability of financial reporting. The Company (i) has designed and maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure and (ii) has disclosed to the Company's auditors and the audit committee of the Company Board and Parent (A) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting that are reasonably likely to adversely affect in any material respect the Company's ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls over financial reporting. 3.13 Compliance with Laws; Licenses. The businesses of each of the Company and the Company Subsidiaries have been conducted in compliance with all Laws, except where the 19 failure to so comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. Each of the Company and each Company Subsidiary is in possession of all governmental permits, licenses, franchises, variances, exemptions, orders issued or granted by a Governmental Entity and all other authorizations, consents, certificates of public convenience and/or necessity and approvals issued or granted by a Governmental Entity (collectively, "Licenses") necessary for each of the Company or the Company Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted, except where the failure to have, or the suspension or cancellation of, any such License would not, individually or in the aggregate, have a Material Adverse Effect on the Company. As of the date of this Agreement, no suspension or cancellation of any such License is pending or, to the knowledge of the Company, threatened, except where the failure to have, or the suspension or cancellation of, any such License would not, individually or in the aggregate, have a Material Adverse Effect on the Company. Neither the Company nor any Company Subsidiary is in conflict with, or in default, breach or violation of, any such License, except for any such conflicts, defaults, breaches or violations that would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 3.14 Certain Contracts. (a) Neither the Company nor any of the Company Subsidiaries is a party to or bound by any contract, arrangement, commitment or understanding (whether written or oral) (i) that is a "material contract" (as such term is defined in Item 601(b)(10) of SEC Regulation S-K) to be performed after the date of this Agreement that has not been made available to Parent prior to the date hereof, (ii) that materially restricts the conduct of any material line of business by the Company or, upon consummation of the Merger, will materially restrict the ability of Parent following the Effective Time to engage in any line of business material to the Company or, to the knowledge of the Company, Parent, (iii) with or to a labor union or guild (including any collective bargaining agreement) except for the Agreement, effective as of May 16, 1998, between the International Brotherhood of Electrical Workers, AFL-CIO, Local 1269 and the Company, and the Agreement for Clerical, Production and Sales Employees, effective October 16, 2003, between the Communications Workers of America and Dex Media East, LLC, or (iv) a credit agreement or indenture to which the Company or any Company Subsidiary is a party, guarantor or by which any of them is bound and pursuant to which Indebtedness in excess of $5,000,000 of the Company and/or any Company Subsidiary is outstanding. Each contract, arrangement, commitment or understanding of the type described in clauses (i), (ii), (iii) and (iv) of this Section 3.14(a), whether or not set forth in the Company Disclosure Schedule or made available to Parent in the case of clause (i), is referred to as a "Company Contract," and neither the Company nor any of the Company Subsidiaries knows of, or has received notice of, any violation of any Company Contract by any of the other parties thereto that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. (b) With such exceptions that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company, (i) each Company Contract is valid and binding on the Company or the applicable Company Subsidiary, as applicable, and is in full force and effect, (ii) the Company and each of the Company Subsidiaries has performed all obligations required to be performed by it to date under each Company Contract, and (iii) no event or condition exists that constitutes or, after notice or lapse 20 of time or both, will constitute, a default on the part of the Company or any of the Company Subsidiaries under any such Company Contract. (c) None of the confidentiality agreements or standstill agreements the Company has entered into with a third party (or any agent thereof) that is in effect on the date hereof contains any exclusivity or standstill provisions that are or will be binding on the Company or any Company Subsidiary or, after the Effective Time, the Parent or any Parent Subsidiary. 3.15 Agreements with Regulatory Agencies. Neither the Company nor any of the Company Subsidiaries is subject to any material cease-and-desist or other material order or enforcement action issued by, or is a party to any material written agreement, consent agreement or memorandum of understanding with, or is a party to any material commitment letter or similar undertaking to, or is subject to any material order or directive by, or has been ordered to pay any material civil money penalty by, any Regulatory Agency or other Governmental Entity (other than a taxing authority, which is covered by Section 3.10), other than those of general application that apply to similarly situated directory publication companies or their Subsidiaries (each item in this sentence, whether or not set forth in the Company Disclosure Schedule, a "Company Regulatory Agreement"), nor has the Company or any of the Company Subsidiaries been advised in writing since January 1, 2004 by any Regulatory Agency or other Governmental Entity that it is considering issuing, initiating, ordering, or requesting any such Company Regulatory Agreement. 3.16 Undisclosed Liabilities. Except for those liabilities that are reflected or reserved against on the Company's condensed consolidated balance sheet or disclosed in the notes to the Unaudited Company Financial Statements, in each case included in the Company 10-Q, and for liabilities incurred in the ordinary course of business consistent with past practice since June 30, 2005, since such date, neither the Company nor any of the Company Subsidiaries has incurred any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due and including any off-balance sheet loans, financings, indebtedness, make-whole or similar liabilities or obligations) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. 3.17 Environmental Liability. There are no pending or, to the knowledge of the Company, threatened legal, administrative, arbitral or other proceedings, claims, actions, causes of action, private environmental investigations or remediation activities, or governmental investigations, requests for information or notices of violation of any nature seeking to impose, or that are reasonably likely to result in the imposition, on the Company or any of the Company Subsidiaries, of any liability or obligation arising under common law or under any local, state or federal environmental statute, regulation, permit or ordinance including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), which liability or obligation would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. To the knowledge of the Company, there is no reasonable basis for any such proceeding, claim, action, investigation or remediation that would impose any liability or obligation that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on 21 the Company. Neither the Company nor any of the Company Subsidiaries is subject to any agreement, order, judgment, decree, directive or Lien by or with any Governmental Entity or third party with respect to any environmental liability or obligation that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. 3.18 Real Property. (a) Neither the Company nor any Company Subsidiary owns any parcel of real property that is material to the business of the Company and the Company Subsidiaries, taken as a whole. (b) Section 3.18(b) of the Company Disclosure Schedule lists by address each material parcel of real property leased or subleased by the Company or any Company Subsidiary that is currently used in and material to the conduct of the business of the Company and the Company Subsidiaries, taken as a whole (the "Company Leased Properties"), and any material guaranty given by the Company or any Company Subsidiary in connection therewith. The Company or one of its Subsidiaries has a valid leasehold interest in all of the Company Leased Properties, free and clear of all Liens, except (i) Liens for current taxes and assessments not yet past due, (ii) inchoate mechanics' and materialmen's Liens for construction in progress, (iii) workmen's, repairmen's, warehousemen's and carriers' Liens arising in the ordinary course of business of the Company or such Company Subsidiary consistent with past practice, and (iv) all Liens and other imperfections of title (including matters of record) and encumbrances that do not materially interfere with the conduct of the business of the Company and the Company Subsidiaries, taken as a whole, or as have not had, and would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (collectively, "Permitted Liens"). Except as has not had, and would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company, the Company or one of the Company Subsidiaries has the right to the use and occupancy of the Company Leased Properties, subject to the terms of the applicable leases and subleases relating thereto and Permitted Liens. 3.19 State Takeover Laws; Company Rights Agreement. (a) The Company Board has approved this Agreement, the Company Sponsors Support Agreement and the transactions contemplated hereby and thereby as required to render inapplicable to such agreements and transactions the restrictions set forth in Section 203 of the DGCL, and, to the knowledge of the Company, there are no other similar "takeover" or "interested stockholder" law applicable to the transactions contemplated by this Agreement (any such laws, "Takeover Statutes"). (b) The Company has taken all action, if any, necessary or appropriate so that (i) the execution of this Agreement and the consummation of the transactions contemplated hereby do not and will not result in the ability of any Person to exercise any "Rights" under the Rights Agreement (the "Company Rights Agreement"), dated as of July 27, 2004, between the Company and Wachovia Bank, N.A., (ii) neither Parent nor any of its affiliates is or will become an "Acquiring Person" under the Company Rights Agreement, (iii) neither a "Distribution Date" or "Shares Acquisition Date" under the Company Rights Agreement will occur by reason of the approval, execution, delivery or announcement of this Agreement or the consummation of the transactions contemplated hereby, including the Merger, and (iv) that the Company Rights Agreement will terminate upon consummation of the Merger. 22 3.20 Intellectual Property. (a) Section 3.20(a) of the Company Disclosure Schedule lists all material (i) issued patents and pending patent applications, (ii) trademark and service mark registrations and applications for registration thereof, (iii) copyright registrations and applications for registration thereof, and (iv) internet domain name registrations, in each case that are that are owned by the Company or any of the Company Subsidiaries and are material to the business of the Company and the Company Subsidiaries, taken as a whole. Except as disclosed in Section 3.20(a) of the Company Disclosure, with respect to each item that is required to be identified therein: (A) the Company or the applicable Company Subsidiary is the sole owner and possesses all material right, title and interest in and to the item in the listed country or jurisdiction, free and clear of any Liens, the absence of such interest which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect of the Company and (B) neither the Company nor any Company Subsidiary has received written notice of any pending or threatened action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand that challenges the legality, validity, enforceability, registrations, use or ownership of the item in the listed country or jurisdiction that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. (b) Except as disclosed in Section 3.20(b) of the Company Disclosure Schedule, to the knowledge of the Company, neither the Company nor any Company Subsidiary is infringing or misappropriating any material Intellectual Property rights of third parties in connection with the operation of the Business that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. Except as disclosed in Section 3.20(b) of the Company Disclosure Schedule, neither the Company nor any Company Subsidiary has received any written charge, complaint, claim, demand or notice during the past two years (or earlier, if not resolved) alleging any such infringement or misappropriation that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. To the knowledge of the Company, except as disclosed in Section 3.20(b) of the Company Disclosure Schedule, during the past two years (or earlier, if not resolved) no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of the Company or any Company Subsidiary which interference, infringement, misappropriation or conflict would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. For purposes of this Agreement, "Intellectual Property" means (i) all inventions, all patents and patent applications, (ii) all trademarks, service marks, trade dress, logos, brand names, trade names and domain names and all registrations of and applications to register the foregoing, (iii) all copyrightable works, all copyrights and all registrations of and applications to register the foregoing, (iv) all trade secrets, know how and confidential business information, and (v) all other proprietary rights that are, in the case of clauses (i) through (v), material to the business of the Company and the Company Subsidiaries, taken as a whole. (c) The Company's and the Company Subsidiaries' use and dissemination of any data and information concerning users of their web sites is in compliance with all applicable privacy policies, terms of use, and Laws, the violation of which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. The transactions contemplated hereunder will not violate any privacy policy, terms of use, or Laws 23 relating to the use, dissemination or transfer of such data or information, except for such violations which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. 3.21 Reorganization. As of the date of this Agreement, the Company is not aware of any agreement, plan, fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a "reorganization" within the meaning of Section 368(a) of the Code. 3.22 Opinions. Prior to the execution of this Agreement, the Company has received opinions from Lehman Brothers Inc. and Merrill Lynch & Co., copies of which have been or will promptly be provided to Parent, to the effect that as of the date thereof and based upon and subject to the matters set forth therein the Merger Consideration to be received by holders of Company Common Stock is fair from a financial point of view to such holders. Such opinions have not been amended or rescinded as of the date of this Agreement. 3.23 Company Information. The information relating to the Company and the Company Subsidiaries that is provided by the Company or its representatives for inclusion in the Joint Proxy Statement and the Form S-4, or in any other document filed with any other Regulatory Agency in connection with the transactions contemplated by this Agreement, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The Joint Proxy Statement (except for such portions thereof that relate only to Parent or any of the Parent Subsidiaries) will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. 3.24 Affiliate Transactions. As of the date hereof, there are no transactions, contracts, arrangements, commitments or understandings between the Company or any of the Company Subsidiaries, on the one hand, and any of the Company's affiliates (other than wholly owned Company Subsidiaries), on the other hand, that would be required to be disclosed by the Company under Item 404 of Regulation S-K under the Securities Act (the "Company S-K 404 Arrangements"). ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Except as disclosed in (x) a publicly available final registration statement, prospectus, report, form, schedule or definitive proxy statement filed since January 1, 2005 by Parent with the SEC pursuant to the Securities Act or the Exchange Act (collectively, the "Parent SEC Reports") and prior to the Measurement Date, but excluding any risk factor disclosure contained in any such Parent SEC Report under the heading "Risk Factors" or "Forward-Looking Statements," or (y) the disclosure letter (the "Parent Disclosure Schedule") delivered by Parent to the Company prior to the execution of this Agreement (which letter sets forth items of disclosure with specific reference to the particular Section or subsection of this Agreement to which the information in the Parent Disclosure Schedule relates; provided, however, that any information set forth in one section of the Parent Disclosure Schedule will be deemed to apply to each other Section or subsection of this Agreement to which its relevance is reasonably apparent; provided, 24 further, that, notwithstanding anything in this Agreement to the contrary, the inclusion of an item in such schedule as an exception to a representation or warranty will not be deemed an admission that such item represents a material exception or material fact, event or circumstance or that such item has had or would reasonably be expected to have a Material Adverse Effect on Parent), Parent and Merger Sub jointly and severally represent and warrant to the Company as follows: 4.1 Corporate Organization. (a) Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Parent has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. (b) True and complete copies of the Restated Certificate of Incorporation of Parent, as amended through, and as in effect as of, the date of this Agreement (including any certificates of designation thereto) (the "Parent Charter"), and the Amended and Restated By-Laws of Parent, as amended through, and as in effect as of, the date of this Agreement (the "Parent Bylaws"), have previously been made available to the Company. (c) Each Parent Subsidiary (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) is duly qualified to do business and in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified, and (iii) has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as now conducted, except for such variances from the matters set forth in any of clauses (i), (ii) or (iii) as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. 4.2 Capitalization. (a) As of the date of this Agreement, the authorized Parent capital stock consists of (i) 400,000,000 shares of Parent common stock, of which, as of the Measurement Date, 31,856,812 shares were issued and outstanding (the "Parent Common Stock"), (ii) 10,000,000 shares of Parent Convertible Cumulative Preferred Stock, of which, as of the Measurement Date, 100,301 shares were issued and outstanding (the "Parent Convertible Preferred Stock"), and (iii) 400,000 shares of Series B Participating Cumulative Preferred Stock, of which, as of the Measurement Date, no shares were issued and outstanding (the "Series B Preferred Stock" and, together with the Parent Common Stock and the Parent Convertible Preferred Stock, the "Parent Capital Stock"). As of the Measurement Date, no more than 19,765,082 shares of Parent's capital stock were held in Parent's treasury. As of the Measurement Date, no shares of Parent Capital Stock were reserved for issuance except for (i) 5,249,895 shares of Parent Common Stock reserved for issuance upon the exercise of Parent Stock Options or for other awards based on Parent Common Stock (the "Parent Stock-Based Awards") issued or issuable pursuant to the Parent Stock Plans, (ii) 6,000,000 shares of Parent Common Stock reserved for issuance upon conversion of shares of Parent Convertible Preferred Stock, and (iii) 1,650,000 shares of Parent Common Stock reserved for issuance upon exercise of the Warrant Agreements, dated as of November 25, 2002 and January 3, 25 2003, among Parent and the GS Funds. All of the issued and outstanding shares of Parent Capital Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date of this Agreement, except as set forth above or in the last sentence of this Section 4.2(a), or pursuant to this Agreement, the Registration Rights Agreement, dated as of November 25, 2002, among Parent and the GS Funds, the Preferred Stock and Warrant Purchase Agreement, dated as of September 21, 2002, among Parent and the GS Funds, as amended, the Parent Stock Plans and the Parent Charter, there are no outstanding shares of capital stock, securities convertible into shares of Parent Common Stock or other voting securities of Parent, and Parent does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments, preemptive rights, redemption obligations or agreements of any character calling for the purchase, issuance or registration of any shares of Parent's capital stock or any other equity securities of Parent or any securities representing the right to purchase or otherwise receive any shares of Parent's capital stock. From and after the Measurement Date through the date hereof, Parent has not issued or awarded any Parent Capital Stock, Parent Stock Options or Parent Stock-Based Awards (other than upon the exercise or satisfaction of Parent Stock Options or Parent Stock-Based Awards or the conversion of convertible securities, in each case outstanding as of the Measurement Date). (b) As of the date of this Agreement, no bonds, debentures, notes or other indebtedness of Parent having the right to vote on any matters on which stockholders may vote ("Parent Voting Debt") are issued or outstanding. (c) All of the issued and outstanding shares of capital stock or other equity ownership interests of each "significant subsidiary" (as such term is defined under Regulation S-X of the SEC) of Parent are owned by Parent, directly or indirectly, free and clear of any Liens and free of any restriction on the right to vote, sell or otherwise dispose of such capital stock or other equity ownership interest (other than restrictions under applicable securities Laws), and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. No such significant subsidiary is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such significant subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such significant subsidiary. Except for the capital stock or other equity ownership interests of the Parent Subsidiaries, as of the date of this Agreement, Parent does not beneficially own directly or indirectly any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person that constitutes a Substantial Investment. 4.3 Authority; No Violation. (a) Parent has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of Parent (the "Parent Board"). The Parent Board has determined that this Agreement and the transactions contemplated hereby are in the best interests of Parent and its stockholders, has resolved to recommend that holders of Parent Common Stock vote in favor of the approval of this Agreement, the Sponsor Stockholders Agreements and the transactions contemplated 26 hereby and thereby and has directed that this Agreement and the Sponsor Stockholders Agreements be submitted to Parent's stockholders for approval at a duly held meeting of such stockholders (the "Parent Stockholders Meeting"), and, except for (i) the approval of this Agreement, the Sponsor Stockholders Agreements and the transactions contemplated hereby and thereby by the affirmative vote of stockholders of Parent having the majority of the voting power present in person or represented by proxy at the Parent Stockholders Meeting or any adjournment or postponement thereof (assuming that the total vote cast on the proposal represents a majority in interest of all outstanding shares of Parent Common Stock entitled to vote) (the "Parent Stockholder Approval"), and (ii) the adoption of this Agreement and the approval of the Merger by Parent as the sole stockholder of Merger Sub, no other corporate proceedings on the part of Parent or vote by the holders of any class or series of Parent Capital Stock are necessary to approve or adopt this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Parent and (assuming due authorization, execution and delivery by the other parties hereto) constitutes the valid and binding obligation of Parent, enforceable against Parent in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar Laws affecting the rights of creditors generally and the availability of equitable remedies). (b) Neither the execution and delivery of this Agreement by Parent and Merger Sub nor the consummation by Parent and Merger Sub of the transactions contemplated hereby, nor compliance by Parent and Merger Sub with any of the terms or provisions of this Agreement will (i) violate any provision of the Parent Charter or the Parent Bylaws or (ii) assuming that the consents, approvals and filings referred to in Section 4.4 are duly obtained and/or made, (A) violate any Injunction or any Law applicable to Parent, any of the Parent Subsidiaries or any of their respective properties or assets or (B) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Parent or any of the Parent Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Parent or any of the Parent Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except, in the case of clause (ii), for such violations, conflicts, breaches, defaults, terminations, rights of termination or cancellation, accelerations or Liens that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. 4.4 Consents and Approvals. Except for (i) the filing with the SEC of the Joint Proxy Statement and the Form S-4 in which the Joint Proxy Statement will be included as a prospectus, and declaration of effectiveness of the Form S-4, (ii) the filing of the Certificate of Merger with the Delaware Secretary of State pursuant to the DGCL, (iii) any notices or filings under the HSR Act, (iv) such filings and approvals as are required to be made or obtained under the securities or "Blue Sky" laws of various states in connection with the issuance of the shares of Parent capital stock pursuant to this Agreement, (v) the Parent Stockholder Approval and Company Stockholder Approval, and (vi) the consents or approvals listed in Section 4.4 of the Parent Disclosure Schedule, no consents or approvals of or filings or registrations with any 27 Governmental Entity are necessary in connection with (A) the execution and delivery by Parent and Merger Sub of this Agreement or (B) the consummation by Parent of the Merger and the other transactions contemplated by this Agreement. 4.5 Reports. Parent and each of the Parent Subsidiaries have timely filed all reports, registrations, schedules, forms, statements and other documents, together with any amendments required to be made with respect thereto, that they were required to file since January 1, 2003 with the Regulatory Agencies, and have paid all fees and assessments due and payable in connection therewith, except where the failure to file such report, registration, schedule, form, statement or other document, or to pay such fees and assessments, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. No Parent SEC Report, as of the date of such Parent Report, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances in which they were made, not misleading, except that information as of a later date (but before the date of this Agreement) will be deemed to modify information as of an earlier date. Since January 1, 2003, as of their respective dates, all Parent SEC Reports complied as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act, and the rules and regulations thereunder with respect thereto. 4.6 Financial Statements. Parent has previously made available to the Company copies of (i) the consolidated balance sheet of Parent at December 31, 2004 and 2003, and the related consolidated statements of operations, cash flows and changes in stockholders' equity (deficit) for the three years ended December 31, 2004, as reported in Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 2004, including any amendments thereto filed with the SEC prior to the Measurement Date (collectively, the "Parent 2004 10-K"), filed with the SEC under the Exchange Act, accompanied by the audit report of PricewaterhouseCoopers LLP, independent public accountants with respect to Parent (such balance sheets and statements, the "Audited Parent Financial Statements"), and (ii) the unaudited consolidated balance sheet of Parent at June 30, 2005 and the related consolidated statements of operations and comprehensive income (loss) and cash flows for the six-month ended June 30, 2005 and 2004, as reported in Parent's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, including any amendments thereto filed with the SEC prior to the Measurement Date (collectively, the "Parent 10-Q") (such balance sheets and statements, the "Unaudited Parent Financial Statements" and, together with the Audited Parent Financial Statements, the "Parent Financial Statements"). The consolidated balance sheets of Parent (including the related notes, where applicable) included in the Parent Financial Statements fairly present in all material respects the consolidated financial position of Parent and the Parent Subsidiaries as of the dates thereof, and the other financial statements included in the Parent Financial Statements (including the related notes, where applicable) fairly present in all material respects the results of the consolidated operations, cash flows (and in the case of the Audited Parent Financial Statements, changes in stockholders' equity) of Parent and the Parent Subsidiaries for the respective periods therein set forth, subject in the case of the Unaudited Parent Financial Statements to normal year-end audit adjustments that are immaterial in nature and in amounts consistent with past experience; each of such statements (including the related notes, where applicable) complies in all material respects with the published rules and regulations of the SEC with respect thereto; and each of the Parent 28 Financial Statements (including the related notes, where applicable) has been prepared in all material respects in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. To the knowledge of Parent, there is no applicable accounting rule, consensus or pronouncement that has been adopted by the SEC, the Financial Accounting Standards Board, the Emerging Issues Task Force or any similar body but is not in effect as of the date of this Agreement that, if implemented, would reasonably be expected to have a Material Adverse Effect on Parent. 4.7 Advisors' Fees. None of Parent, any Parent Subsidiary or any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker's fees, commissions or finder's fees in connection with the Merger or related transactions contemplated by this Agreement, other than JP Morgan Securities Inc. and Bear, Stearns & Co. Inc. 4.8 Absence of Certain Changes or Events. (a) Since June 30, 2005, no event has occurred that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Parent. (b) From June 30, 2005 through the date hereof, Parent and the Parent Subsidiaries have carried on their respective businesses in all material respects in the ordinary course and have not taken any action or failed to take any action that would have resulted in a breach of Section 5.3 had such section been in effect since June 30, 2005. 4.9 Legal Proceedings. (a) None of Parent or any of the Parent Subsidiaries is a party to any, and there are no pending or, to the knowledge of Parent, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations or reviews of any nature against Parent or any of the Parent Subsidiaries, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. (b) There is no Injunction, judgment, or regulatory restriction imposed upon Parent, any of the Parent Subsidiaries or the assets of Parent or any of the Parent Subsidiaries that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. 4.10 Taxes and Tax Returns. (a) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent: (i) Parent and the Parent Subsidiaries have timely filed all Tax Returns required to be filed by them on or prior to the date of this Agreement taking into account any extension of time within which to file such Tax Returns (all such returns being accurate and complete in all material respects) and have paid all Taxes required to be paid by them other than Taxes that are not yet due or that are being contested in good faith in appropriate proceedings; (ii) there are no Liens for Taxes on any assets of Parent or the Parent Subsidiaries; (iii) no deficiency for any Tax has been asserted or assessed by a taxing authority against Parent or any of the Parent Subsidiaries which deficiency has not been paid or is not being contested in good faith in appropriate proceedings; (iv) Parent and the Parent Subsidiaries have provided adequate reserves in their financial statements for any Taxes that have not been paid; and (v) neither Parent nor any of the Parent 29 Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among Parent and the Parent Subsidiaries). (b) Within the past five years, neither Parent nor any of the Parent Subsidiaries has been a "distributing corporation" or a "controlled corporation" in a distribution intended to qualify for tax-free treatment under Section 355 of the Code. (c) Neither Parent nor any of the Parent Subsidiaries has been a party to a transaction that, as of the date of this Agreement, constitutes a "listed transaction" for purposes of Section 6011 of the Code and applicable Treasury Regulations thereunder (or a similar provision of state law). To the knowledge of Parent, Parent has disclosed to the Company all "reportable transactions" within the meaning of Treasury Regulation Section 1.6011-4(b) (or a similar provision of state law) to which it or any of the Parent Subsidiaries has been a party. (d) Neither Parent nor any of the Parent Subsidiaries has any liability for the Taxes of any person other than the Parent or the Parent Subsidiaries under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise. (e) Neither Parent nor any of the Parent Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date (except consistent with its treatment of such items in Tax Returns for prior periods) as a result of any (i) change in method of accounting, (ii) agreement with a Tax authority relating to Taxes, (iii) installment sale or open transaction disposition or intercompany transaction made on or prior to the Effective Time, (iv) the completed contract method of accounting or other method of accounting applicable to long-term contracts (or any comparable provisions of state, local or foreign law), or (v) prepaid amount received prior to the Effective Time. 4.11 Employees. (a) As of the date of this Agreement, the Parent Disclosure Schedule sets forth a true and complete list of each material benefit or compensation plan, program, fund, contract, arrangement or agreement, including any material bonus, incentive, deferred compensation, vacation, stock purchase, stock option, severance, employment, golden parachute, retention, salary continuation, change of control, retirement, pension, profit sharing or fringe benefit plan, program, fund, contract, arrangement or agreement of any kind (whether written or oral, tax-qualified or non-tax qualified, funded or unfunded, foreign or domestic, active, frozen or terminated) and any related trust, insurance contract, escrow account or similar funding arrangement, that is maintained or contributed to by Parent or any Parent Subsidiary (or required to be maintained or contributed to by Parent or any Parent Subsidiary) for the benefit of current or former directors, officers or employees of, or consultants to, Parent and the Parent Subsidiaries or with respect to which Parent or the Parent Subsidiaries may, directly or indirectly, have any liability, as of the date of this Agreement (the "Parent Benefit Plans"). (b) Parent has heretofore made available to the Company true and complete copies of (i) each written Parent Benefit Plan, (ii) the actuarial report for each Parent Benefit 30 Plan (if applicable) for each of the last three years, (iii) the most recent determination letter from the IRS (if applicable) for each Parent Benefit Plan, (iv) the current summary plan description of each Parent Benefit Plan that is subject to ERISA, (v) a copy of the description of each Parent Benefit Plan not subject to ERISA that is currently provided to participants in such plan, (vi) a summary of the material terms of each unwritten Parent Benefit Plan, and (vii) the annual report for each Parent Benefit Plan (if applicable) for each of the last three years. (c) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent, (i) each of the Parent Benefit Plans has been operated and administered in compliance with its terms and applicable Law, including ERISA and the Code, (ii) each of the Parent Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified, and there are no existing circumstances or any events that have occurred that would reasonably be expected to adversely affect the qualified status of any such Parent Benefit Plan, and each such plan has a favorable determination letter from the IRS to the effect that it is so qualified or the applicable remedial amendment period has not expired and, if the letter for such plan is not current, such plan is the subject of a timely request for a current favorable determination letter or the applicable remedial amendment period has not expired, (iii) with respect to each Parent Benefit Plan that is subject to Title IV of ERISA, the present value (as defined under Section 3(27) of ERISA) of accumulated benefit obligations under such Parent Benefit Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Parent Benefit Plan's actuary with respect to such Parent Benefit Plan, did not, as of its latest valuation date, exceed the then current value (as defined under Section 3(26) of ERISA) of the assets of such Parent Benefit Plan allocable to such accrued benefits, (iv) no Parent Benefit Plan that is a Welfare Plan provides benefits coverage, including death or medical benefits coverage (whether or not insured), with respect to current or former employees or directors of Parent or the Parent Subsidiaries beyond their retirement or other termination of service, other than (A) coverage mandated by applicable Law, (B) benefits the full cost of which is borne by such current or former employee or director (or his or her beneficiary), (C) coverage through the last day of the calendar month in which retirement or other termination of service occurs, or (D) medical expense reimbursement accounts, (v) no liability under Title IV of ERISA has been incurred by Parent, the Parent Subsidiaries or any trade or business, whether or not incorporated, all of which together with Parent would be deemed a "single employer" within the meaning of Section 414(b), 414(c) or 414(m) of the Code or Section 4001(b) of ERISA (a "Parent ERISA Affiliate"), that has not been satisfied in full, and no condition exists that presents a material risk to Parent, the Parent Subsidiaries or any Parent ERISA Affiliate of incurring a liability thereunder, (vi) no Parent Benefit Plan is a "multiemployer plan" (as such term is defined in Section 3(37) of ERISA) or a "multiple employer plan" (as described in Section 413(c) of the Code), (vii) none of Parent or the Parent Subsidiaries or, to the knowledge of Parent, any other Person, including any fiduciary, has engaged in a transaction in connection with which Parent, the Parent Subsidiaries or any Parent Benefit Plan would reasonably be expected to be subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a Tax imposed pursuant to Section 4975 or 4976 of the Code, (viii) to the knowledge of Parent, there are no pending, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Parent Benefit Plans or any trusts, insurance contracts, escrow accounts or similar funding arrangements related thereto, (ix) all contributions or other amounts required to be paid by Parent or the Parent Subsidiaries as of the Effective Time with respect to each Parent Benefit Plan in 31 respect of current or former plan years have been paid in accordance with Section 412 of the Code or accrued in accordance with GAAP (as applicable) and (x) since December 31, 2004, no Parent Benefit Plan has been amended or modified in any material respect or adopted or terminated. (d) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement will (either alone or in conjunction with any other event) (i) result in the Surviving Corporation or any of its Subsidiaries being liable for any payment or benefit (including non-deductible employee remuneration (described in Section 162(m) of the Code), severance, retention, stay-put, change of control, unemployment compensation, "excess parachute payment" (within the meaning of Section 280G of the Code), tax gross-up, forgiveness of indebtedness or otherwise) becoming due to any director, officer or employee of, or any consultant to, Parent or any of the Parent Subsidiaries from Parent or any of the Parent Subsidiaries under any Parent Benefit Plan or otherwise, (ii) increase any amounts or benefits otherwise payable or due to any such Person under any Parent Benefit Plan or otherwise, or (iii) result in any acceleration of the time of payment or vesting of, or any requirement to fund or secure, any such amounts or benefits (including any Parent Stock Option or Parent Stock-Based Award) or result in any breach of or default under any Parent Benefit Plan. (e) (i) There are no controversies relating to or arising out of a collective bargaining relationship between Parent or any Parent Subsidiary and any union pending or, to the knowledge of Parent, threatened between Parent or any Parent Subsidiary and any of their respective employees, which controversies would, individually or in the aggregate, have a Material Adverse Effect on Parent, (ii) to the knowledge of Parent, as of the date hereof there are not any organizational campaigns, petitions or other activities or proceedings of any labor union to organize any such employees that would, individually or in the aggregate, have a Material Adverse Effect on Parent, (iii) neither Parent nor any Parent Subsidiary has breached or otherwise failed to comply with any provision of any collective bargaining or other labor union contract applicable to persons employed by Parent or any Parent Subsidiary (including any obligation that Parent or any Parent subsidiary can, will or may have in connection with a sale, merger or any other like transaction) that would, individually or in the aggregate, have a Material Adverse Effect on the Company, and there are no material grievances outstanding against Parent or any Parent Subsidiary under any such agreement or contract that would, individually or in the aggregate, have a Material Adverse Effect on Parent, (iv) there are no unfair labor practice complaints pending against Parent or any Parent Subsidiary before the National Labor Relations Board or any other Governmental Entity or any current union representation questions involving employees of Parent or any Parent Subsidiary that would, individually or in the aggregate, have a Material Adverse Effect on Parent, and (v) as of the date hereof, there is no strike, slowdown, work stoppage or lockout, or, to the knowledge of Parent, threat thereof by any union or significant group of union workers, by or with respect to any employees of Parent or any Parent Subsidiary. (f) Parent and each Parent Subsidiary is in material compliance with all applicable Laws relating to the employment of labor, including those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by the appropriate Governmental Entity and have withheld and paid to the appropriate 32 Governmental Entity or are holding for payment not yet due to such Governmental Entity all amounts required to be withheld from employees of Parent or any Parent Subsidiary and are not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing except for such failures that would not, individually or in the aggregate, have a Material Adverse Effect on Parent. Parent and each Parent Subsidiary has paid in full to all employees or adequately accrued for in accordance with GAAP consistently applied all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees and there is no claim with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or threatened before any Governmental Entity with respect to any persons currently or formerly employed by Parent or any Parent Subsidiary, that would, individually or in the aggregate, have a Material Adverse Effect on Parent. Neither Parent nor any Parent Subsidiary is a party to, or otherwise bound by, any consent decree with any Governmental Entity relating to employees or employment practices. There is no charge or proceeding with respect to a violation of any occupational safety or health standards that has been asserted or is now pending or threatened with respect to Parent or any Parent Subsidiary, that would, individually or in the aggregate, have a Material Adverse Effect on Parent. There is no charge of discrimination in employment or employment practices, for any reason, including age, gender, race, religion or other legally protected category, which has been asserted or is now pending or threatened before the United States Equal Employment Opportunity Commission, or any other Governmental Entity in any jurisdiction in which Parent or any Parent Subsidiary has employed or employ any person that would, individually or in the aggregate, have a Material Adverse Effect on Parent. 4.12 Internal Controls. Parent and the Parent Subsidiaries have designed and maintained a system of internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) sufficient to provide reasonable assurances regarding the reliability of financial reporting. Parent (i) has designed and maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) to ensure that material information required to be disclosed by Parent in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to Parent's management as appropriate to allow timely decisions regarding required disclosure and (ii) has disclosed to Parent's auditors and the audit committee of the Parent Board (A) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting that are reasonably likely to adversely affect in any material respect Parent's ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in Parent's internal controls over financial reporting. 4.13 Compliance with Laws; Licenses. The businesses of each of Parent and the Parent Subsidiaries have been conducted in compliance with all Laws, except where the failure to so comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. Each of Parent and each Parent Subsidiary is in possession of all Licenses necessary for each of Parent or the Parent Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted, except where the failure to have, or the suspension or cancellation of, any such License would not, individually or in the aggregate, have a Material Adverse Effect on Parent. As of the date of this Agreement, no 33 suspension or cancellation of any such License is pending or, to the knowledge of Parent, threatened, except where the failure to have, or the suspension or cancellation of, any such License would not, individually or in the aggregate, have a Material Adverse Effect on Parent. Neither Parent nor any Parent Subsidiary is in conflict with, or in default, breach or violation of, any such License, except for any such conflicts, defaults, breaches or violations that would not, individually or in the aggregate, have a Material Adverse Effect on Parent. 4.14 Certain Contracts. (a) Neither Parent nor any of the Parent Subsidiaries is a party to or bound by any contract, arrangement, commitment or understanding (whether written or oral) (i) that is a "material contract" (as such term is defined in Item 601(b)(10) of SEC Regulation S-K) to be performed after the date of this Agreement that has not been made available to the Company prior to the date hereof, (ii) that materially restricts the conduct of any material line of business by Parent or upon consummation of the Merger will materially restrict the ability of Parent following the Effective Time to engage in any line of business material to Parent or, to the knowledge of Parent, the Company, (iii) with or to a labor union or guild (including any collective bargaining agreement), or (iv) a credit agreement or indenture to which Parent or any Parent Subsidiary is a party, guarantor or by which any of them is bound and pursuant to which Indebtedness in excess of $5,000,000 of the Parent and/or any Parent Subsidiary is outstanding. Each contract, arrangement, commitment or understanding of the type described in clauses (i), (ii), (iii) and (iv) of this Section 4.14(a), whether or not set forth in the Parent Disclosure Schedule or made available to the Company in the case of clause (i), is referred to as a "Parent Contract," and neither Parent nor any of the Parent Subsidiaries knows of, or has received notice of, any violation of any Parent Contract by any of the other parties thereto that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. (b) With such exceptions that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent, (i) each Parent Contract is valid and binding on Parent or the applicable Parent Subsidiary, as applicable, and is in full force and effect, (ii) Parent and each of the Parent Subsidiaries has performed all obligations required to be performed by it to date under each Parent Contract, and (iii) no event or condition exists that constitutes or, after notice or lapse of time or both, will constitute, a default on the part of Parent or any of the Parent Subsidiaries under any such Parent Contract. (c) None of the confidentiality agreements or standstill agreements Parent has entered into with a third party (or any agent thereof) that is in effect on the date hereof contains any exclusivity or standstill provisions that are or will be binding on Parent or any Parent Subsidiary after the Effective Time. 4.15 Agreements with Regulatory Agencies. Neither Parent nor any of the Parent Subsidiaries is subject to any material cease-and-desist or other material order or enforcement action issued by, or is a party to any material written agreement, consent agreement or memorandum of understanding with, or is a party to any material commitment letter or similar undertaking to, or is subject to any material order or directive by, or has been ordered to pay any material civil money penalty by, any Regulatory Agency or other Governmental Entity (other than a taxing authority, which is covered by Section 4.10), other than those of general application that apply to similarly situated directory publication companies or their 34 Subsidiaries (each item in this sentence, whether or not set forth in the Parent Disclosure Schedule, a "Parent Regulatory Agreement"), nor has Parent or any of the Parent Subsidiaries been advised in writing since January 1, 2004 by any Regulatory Agency or other Governmental Entity that it is considering issuing, initiating, ordering, or requesting any such Parent Regulatory Agreement. 4.16 Undisclosed Liabilities. Except for those liabilities that are reflected or reserved against on Parent's consolidated balance sheet or disclosed in the notes to the Unaudited Parent Financial Statements, in each case included in the Parent 10-Q, and for liabilities incurred in the ordinary course of business consistent with past practice since June 30, 2005, since such date, neither Parent nor any of the Parent Subsidiaries has incurred any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due and including any off-balance sheet loans, financings, indebtedness, make-whole or similar liabilities or obligations) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. 4.17 Environmental Liability. There are no pending or, to the knowledge of Parent, threatened legal, administrative, arbitral or other proceedings, claims, actions, causes of action, private environmental investigations or remediation activities, or governmental investigations, requests for information or notices of violation of any nature seeking to impose, or that are reasonably likely to result in the imposition, on Parent or any of the Parent Subsidiaries, of any liability or obligation arising under common law or under any local, state or federal environmental statute, regulation, permit or ordinance including CERCLA, which liability or obligation would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. To the knowledge of Parent, there is no reasonable basis for any such proceeding, claim, action, investigation or remediation that would impose any liability or obligation that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. Neither Parent nor any of the Parent Subsidiaries is subject to any agreement, order, judgment, decree, directive or Lien by or with any Governmental Entity or third party with respect to any environmental liability or obligation that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. 4.18 Real Property. (a) Section 4.18(a) of the Parent Disclosure Schedule lists by address each parcel of real property owned by Parent or any Parent Subsidiary that is material to the business of Parent and the Parent Subsidiaries, taken as a whole (the "Parent Owned Property"). (b) Section 4.18(b) of the Parent Disclosure Schedule lists by address each material parcel of real property leased or subleased by the Parent or any Parent Subsidiary that is currently used in and material to the conduct of the business of Parent and the Subsidiaries, taken as a whole (the "Parent Leased Properties" and, together with the Parent Leased Properties, the "Parent Properties"), and any material guaranty given by Parent or any Parent Subsidiary in connection therewith. Parent or one of the Parent Subsidiaries validly owns, or has a valid leasehold interest in, all of the Parent Properties, free and clear of all Liens, except (i) Liens for current taxes and assessments not yet past due, (ii) inchoate mechanics' and materialmen's Liens 35 for construction in progress, (iii) workmen's, repairmen's, warehousemen's and carriers' Liens arising in the ordinary course of business of Parent or such Subsidiary consistent with past practice, and (iv) all Liens and other Permitted Liens. Except as has not had, and would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent, Parent or one of the Parent Subsidiaries has the right to the use and occupancy of the Parent Properties, subject to the terms of the applicable leases and subleases relating thereto and Permitted Liens. 4.19 State Takeover Laws. (a) The Parent Board has approved this Agreement, the GS Support Agreement, the Company Sponsors Support Agreements, the Sponsor Stockholders Agreements and the transactions contemplated hereby and thereby, as required to render inapplicable to such agreements and transactions the restrictions set forth in Section 203 of the DGCL (including any deemed agreement, arrangement or understanding for purposes of acquiring, holding, voting or disposing of Parent Shares between the Company Sponsors as a result of the execution, delivery or performance of this Agreement, the GS Support Agreement, the Company Sponsors Support Agreements, the Sponsor Stockholders Agreements and the transactions contemplated hereby and thereby), and, to the knowledge of Parent, there are no other Takeover Statutes. (b) As of the date hereof, Parent shall have taken all action, if any, necessary or appropriate so that (i) the execution of this Agreement and the consummation of the transactions contemplated hereby do not and will not result in the ability of any Person to exercise any "Rights" under the Rights Agreement (the "Parent Rights Agreement"), dated as of October 27, 1998, between Parent and First Chicago Trust Company, as amended from time to time, (ii) (A) neither the Company nor any of its affiliates is or will become an "Acquiring Person" under the Parent Rights Agreement and (B) neither a "Distribution Date" nor a "Stock Acquisition Date" under the Parent Rights Agreement will occur, in each case, by reason of the approval, execution, delivery or announcement of this Agreement or the consummation of the transactions contemplated hereby, including the Merger. As of the date hereof, the Parent Rights Agreement shall have been amended to provide that so long as a Company Sponsor complies with the ownership limitations imposed on such Company Sponsor in such Company Sponsor's Stockholders Agreement, then such Company Sponsor shall not be deemed (including by participation in a "group" (as defined in Rule 13d-5 under the Exchange Act) with the other Company Sponsor) to be an "Acquiring Person" under the Parent Rights Agreement. 4.20 Intellectual Property. (a) Section 4.20(a) of the Parent Disclosure Schedule lists all material (i) trademark and service mark registrations and applications for registration thereof, (ii) copyright registrations and applications for registration thereof, and (iii) internet domain name registrations, in each case that are that are owned by Parent or any of the Parent Subsidiaries and are material to the business of Parent and the Subsidiaries, taken as a whole. Except as disclosed in Section 4.20(a) of the Parent Disclosure Schedule, with respect to each item that is required to be identified in therein: (A) Parent or the applicable Parent Subsidiary is the sole owner and possesses all material right, title and interest in and to the item in the listed country or jurisdiction, free and clear of any Liens, the absence of such interest which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on 36 Parent; and (B) neither Parent nor any Parent Subsidiary has received written notice of any pending or threatened action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand that challenges the legality, validity, enforceability, registrations, use or ownership of the item in the listed country or jurisdiction that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. (b) Except as disclosed in Section 4.20(b) of the Parent Disclosure Schedule, to the knowledge of Parent, neither Parent nor any Parent Subsidiary is infringing or misappropriating any material Intellectual Property rights of third parties in connection with the operation of the Business that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. Except as disclosed in Section 4.20(b) of the Parent Disclosure Schedule, neither Parent nor any Parent Subsidiary has received any written charge, complaint, claim, demand or notice during the past two years (or earlier, if not resolved) alleging any such infringement or misappropriation that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. To the knowledge of Parent, except as disclosed in Section 4.20(b), during the past two years (or earlier, if not resolved) no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of Parent or any Parent Subsidiary which interference, infringement, misappropriation or conflict would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. (c) Parent's and the Parent Subsidiaries' use and dissemination of any data and information concerning users of their web sites is in compliance with all applicable privacy policies, terms of use, and Laws, the violation of which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. The transactions contemplated hereunder will not violate any privacy policy, terms of use, or Laws relating to the use, dissemination or transfer of such data or information, except for such violations that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. 4.21 Reorganization. As of the date of this Agreement, Parent is not aware of any plan, agreement, fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a "reorganization" within the meaning of Section 368(a) of the Code. 4.22 Opinions. Prior to the execution of this Agreement, Parent has received opinions from JP Morgan Securities Inc. and/or Bear, Stearns & Co. Inc., copies of which have been or will promptly be provided to the Company, to the effect that as of the date thereof and based upon and subject to the matters set forth therein the Merger Consideration to be paid by Parent is fair to Parent from a financial point of view. Such opinions have not been amended or rescinded as of the date of this Agreement. 4.23 Parent Information. The information relating to Parent and the Parent Subsidiaries that is provided by Parent or its representatives for inclusion in the Joint Proxy Statement and the Form S-4, or in any other document filed with any other Regulatory Agency in connection with the transactions contemplated by this Agreement, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The 37 Joint Proxy Statement (except for such portions thereof that relate only to the Company or any of the Company Subsidiaries) will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. 4.24 Affiliate Transactions. As of the date hereof, there are no transactions, contracts, arrangements, commitments or understandings between Parent or any of the Parent Subsidiaries, on the one hand, and any of Parent's affiliates (other than wholly owned Parent Subsidiaries), on the other hand, that would be required to be disclosed by Parent under Item 404 of Regulation S-K under the Securities Act (the "Parent S-K 404 Arrangements"). 4.25 Financing. Prior to the date hereof, Parent has delivered to the Company true, complete and correct copies of executed commitment letters from certain lenders (the "Financing Commitments") committing such lenders to provide to Parent, the Company and their respective Subsidiaries, as applicable, debt financing necessary to consummate the Merger and the other transactions contemplated hereby and thereby, subject to the terms and conditions set forth therein. As of the date hereof, the Financing Commitments have not been withdrawn or terminated, and Parent has no reason to believe that the financing contemplated by the Financing Commitments will not be available. The financing contemplated by the Financing Commitments constitutes all of the financing required for the consummation of the transactions contemplated by this Agreement and the Financing Commitments and the payments of all fees and expenses incurred by Parent in connection therewith. 4.26 Merger Sub. (a) True and complete copies of the constituent documents of Merger Sub, each as in effect as of the date of this Agreement, have previously been made available to the Company. (b) The authorized capital stock of Merger Sub, as of the date hereof, consists of 1,000 shares of common stock, par value $0.01 per share, of which 1,000 shares are issued and outstanding. Parent is the legal and beneficial owner of all of the issued and outstanding shares of Merger Sub. Merger Sub was recently formed by Parent solely for the purpose of effecting the Merger and the other transactions contemplated by this Agreement. Except as contemplated by this Agreement, Merger Sub does not hold and has not held any material assets or incurred any material liabilities, and has not carried on any business activities other than in connection with the Merger and the other transactions contemplated by this Agreement. (c) Merger Sub has full corporate or other requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of Merger Sub. This Agreement has been duly and validly executed and delivered by Merger Sub and (assuming due authorization, execution and delivery by the other parties hereto) constitutes the valid and binding obligation of Merger Sub enforceable against Merger Sub in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar Laws affecting the rights of creditors generally and the availability of equitable remedies). 38 ARTICLE V. COVENANTS RELATING TO CONDUCT OF BUSINESS 5.1 Conduct of Businesses Prior to the Effective Time. During the period from the date of this Agreement to the Effective Time, except as expressly contemplated or permitted by this Agreement and except as specifically set forth in the Company Disclosure Schedule and the Parent Disclosure Schedule, as applicable (in each case subject to Section 6.1(c)), each of the Company and Parent will, and will cause each of its respective Subsidiaries to (i) conduct its business in the ordinary course in all material respects, (ii) use reasonable best efforts to maintain and preserve intact its business organization and advantageous business relationships and retain the services of its officers and key employees, and (iii) take no action that would prohibit or materially impair or delay the ability of either the Company or Parent to obtain any necessary approvals of any Regulatory Agency or other Governmental Entity required for the transactions contemplated hereby or to consummate the transactions contemplated hereby. 5.2 Company Forbearances. During the period from the date of this Agreement to the Effective Time, except as set forth in the Company Disclosure Schedule and except as required by Law or as expressly contemplated or permitted by this Agreement, the Company will not, and will not permit any of the Company Subsidiaries to, without the prior written consent of Parent: (a) incur any indebtedness for borrowed money (other than indebtedness of the Company or any of the wholly owned Company Subsidiaries to the Company or any of the wholly owned Company Subsidiaries or between wholly owned Company Subsidiaries) in excess of $25 million in the aggregate, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity, or make any loan or advance; (b) adjust, split, combine or reclassify any of the Company's capital stock; (c) make, declare or pay any dividend, or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain events) into or exchangeable for any shares of its capital stock (except (i) dividends paid by any of the wholly owned Company Subsidiaries to the Company or to any of its wholly owned Subsidiaries, (ii) regular quarterly dividends with respect to shares of Company Common Stock not to exceed $0.09 per share per quarter for the third and fourth quarters of the fiscal year ending on December 31, 2005 and any subsequent fiscal quarters of the fiscal year ending December 31, 2006 that are completed prior to the Effective Time, and (iii) the acceptance of shares of Company Common Stock as payment for the exercise price of Company Stock Options or for withholding taxes incurred in connection with the exercise of Company Stock Options, in each case, in accordance with past practice and the terms of the applicable award agreements); (d) grant any stock appreciation right, any Company Stock Options or any other right to acquire any shares of its capital stock or other Company Stock-Based Awards, 39 other than as required by employment agreements with the Company as in effect on the date hereof; (e) issue any additional shares of capital stock, any Company Voting Debt or any securities convertible into or exchangeable for, or any warrants or options to acquire, any such shares or Company Voting Debt, except (i) pursuant to the exercise of Company Stock Options or the satisfaction of any Company Stock-Based Awards, in each case, outstanding and in accordance with the terms and conditions in effect as of the date of this Agreement or issued hereafter in compliance with this Agreement or (ii) for issuances by a wholly owned Company Subsidiary of capital stock to such Subsidiary's parent or another wholly owned Company Subsidiary; (f) notwithstanding any other provision hereof, increase, decrease, change or exchange any Company Common Stock for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in capitalization; (g) other than as required to comply with applicable Law (including Section 409A of the Code) or a Company Benefit Plan as in effect on the date hereof or collective bargaining or similar labor union or other agreement the existence of which does not breach this Agreement, (i) other than in the ordinary course of business consistent with past practice, increase the wages, salaries, compensation, bonus, pension or other benefits or perquisites payable to any current or former director, officer or employee, (ii) grant or increase any severance, change of control, termination or similar compensation or benefits payable to any current or former director, officer or employee, (iii) except in the ordinary course of business and consistent with past practice, pay any bonus, (iv) adopt, enter into, terminate or amend in any material respect any Company Benefit Plan or any collective bargaining or similar labor union agreement, (v) except for the provision of indemnification pursuant to indemnification agreements in effect on the date hereof, enter into any Company S-K 404 Arrangement, other than in connection with the appointment or election of new directors or the hiring or promotion of new officers in the ordinary course of business, or (vi) accelerate the time of payment or vesting of, or the lapsing of restrictions with respect to, or fund or otherwise secure the payment of, any compensation or benefits under any Company Benefit Plan; provided, however, that in no event may any such acceleration of vesting, lapse of restrictions or funding be as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement unless required to comply with applicable Law; (h) sell, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets that are material to the Company and the Company Subsidiaries, taken as a whole, in any transaction or series of transactions, to any Person other than the Company or a Company Subsidiary, or cancel, release or assign to any such Person any indebtedness or any claims held by the Company or any Company Subsidiary, in each case that is material to the Company and the Company Subsidiaries, taken as a whole, other than in the ordinary course of business consistent with past practice); (i) enter into any new line of business that is material to the Company and the Company Subsidiaries, taken as a whole; 40 (j) make any material acquisition or investment either by purchase of stock or securities, contributions to capital, property transfers, or by purchase of any property or assets of any other Person, or make any capital expenditures, in each case other than (i) investments in wholly owned Subsidiaries or (ii) acquisitions of assets used in the operations of the Company and its Subsidiaries in the ordinary course of business; (k) amend its Certificate of Incorporation or Bylaws or similar organizational documents, or amend, or redeem the rights issued under, the Company Rights Agreement, or otherwise take any action to exempt any Person (other than as required pursuant to Section 3.19(b) of this Agreement), or any action taken by any such Person, from the Company Rights Agreement or any Takeover Statute or similarly restrictive provisions of its organizational documents, or terminate, amend or waive any provisions of any confidentiality or standstill agreements in place with any third parties; (l) settle any material claim, action or proceeding, except (i) in the ordinary course of business or (ii) settlements to the extent subject to and not in excess of reserves that relate to the matter being settled existing as of June 30, 2005 in accordance with GAAP; (m) take any action that is intended or would be reasonably likely to result in any of the conditions to the Merger set forth in Article VII not being satisfied, except as may be required by applicable Law; (n) implement or adopt any material change in its tax accounting or financial accounting policies, practices or methods, other than as may be required by applicable Law, GAAP or regulatory guidelines; (o) amend in any material respect, waive any of its material rights under, or enter into any contract or binding agreement that would be a Company Contract; (p) take, or agree to take, any action that would prevent the Merger from qualifying as a "reorganization" within the meaning of Section 368(a) of the Code; (q) except in the ordinary course of business, sell, assign, abandon, license, or otherwise dispose of any Intellectual Property that is used in the conduct of, or is otherwise material to, the business of Company and the Company Subsidiaries; (r) pay or agree to pay to the Company's Advisors any investment banking or fairness opinion fees in connection with the Merger or related transactions contemplated by this Agreement in excess of the amount set forth on Section 5.2(r) to the Company Disclosure Schedule; or (s) agree or commit to take any of the actions prohibited by this Section 5.2. 5.3 Parent Forbearances. During the period from the date of this Agreement to the Effective Time, except as set forth in the Parent Disclosure Schedule (subject to Section 6.1(c)) and except as required by Law or as expressly contemplated or permitted by this Agreement, Parent will not, and will not permit any of the Parent Subsidiaries to, without the prior written consent of the Company: 41 (a) incur any indebtedness for borrowed money (except for indebtedness contemplated by the Financing Commitments and other than indebtedness of Parent or any of the wholly owned Parent Subsidiaries to Parent or any of the wholly owned Parent Subsidiaries or between wholly owned Parent Subsidiaries) in excess of $25 million in the aggregate, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity, or make any loan or advance; (b) adjust, split, combine or reclassify any of Parent's capital stock; (c) make, declare or pay any dividend, or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain events) into or exchangeable for any shares of its capital stock (except (i) dividends paid by any of the wholly owned Parent Subsidiaries to Parent or to any of its wholly owned Subsidiaries, (ii) dividends paid on, or conversion of, Parent Preferred Stock outstanding on the date hereof in accordance with the certificate of designation for such Parent Preferred Stock, and (iii) the acceptance of shares of Parent Common Stock as payment for the exercise price of Parent Stock Options or for withholding taxes incurred in connection with the exercise of Parent Stock Options, in each case, in accordance with past practice and in accordance with applicable Law and the terms of the applicable award agreements); (d) issue any additional shares of capital stock, any Parent Voting Debt or any securities convertible into or exchangeable for, or any warrants or options to acquire, any such shares or Parent Voting Debt, except (i) pursuant to the exercise of Parent Stock Options or the satisfaction of any Parent Stock-Based Awards, in each case, outstanding and in accordance with the terms and conditions in effect as of the date of this Agreement or issued thereafter in compliance with this Agreement, (ii) upon the conversion of convertible securities outstanding as of the date of this Agreement, or (iii) for issuances by a wholly owned Parent Subsidiary of capital stock to such Subsidiary's parent or another wholly owned Parent Subsidiary; (e) notwithstanding any other provision hereof, increase, decrease, change or exchange any Parent Preferred Stock for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in capitalization, in each case other than as required by the terms thereof as in effect on the date of this Agreement; (f) other than as required to comply with applicable Law (including Section 409A of the Code) or a Parent Benefit Plan as in effect on the date hereof or collective bargaining or similar labor union or other agreement the existence of which does not breach this Agreement, (i) other than in the ordinary course of business consistent with past practice, increase the wages, salaries, compensation, bonus, pension or other benefits or perquisites payable to any current or former director, officer or employee, (ii) grant or increase any severance, change of control, termination or similar compensation or benefits payable to any current or former director, officer or employee, (iii) except in the ordinary course of business and consistent with past practice pay any bonus, (iv) adopt, enter into, terminate or amend in any material respect any Parent Benefit Plan or any collective bargaining or similar labor union 42 agreement, (v) except for the provision of indemnification pursuant to indemnification agreements in effect on the date hereof, enter into any Parent S-K 404 Arrangement, other than in connection with the appointment or election of new directors or the hiring or promotion of new officers in the ordinary course of business, or (vi) accelerate the time of payment or vesting of, or the lapsing of restrictions with respect to, or fund or otherwise secure the payment of, any compensation or benefits under any Parent Benefit Plan; provided, however, that in no event may any such acceleration of vesting, lapse of restrictions or funding be as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement unless required to comply with applicable Law; (g) sell, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets that are material to Parent and the Parent Subsidiaries, taken as a whole, in any transaction or series of transactions, to any Person other than Parent or a Parent Subsidiary or cancel, release or assign to any such Person any indebtedness or any claims held by Parent or any Parent Subsidiary, in each case that is material to Parent and the Parent Subsidiaries, taken as a whole, other than in the ordinary course of business consistent with past practice); (h) enter into any new line of business that is material to Parent and the Parent Subsidiaries, taken as a whole; (i) make any material acquisition or investment either by purchase of stock or securities, contributions to capital, property transfers, or by purchase of any property or assets of any other Person, or make any capital expenditures, in each case other than (i) investments in wholly owned Subsidiaries or (ii) acquisitions of assets used in the operations of Parent and its Subsidiaries in the ordinary course of business; (j) amend its Certificate of Incorporation or Bylaws or similar organizational documents, or amend, or redeem the rights issued under, the Parent Rights Agreement, or otherwise take any action to exempt any Person (other than as required pursuant to Section 4.19(b) of this Agreement), or any action taken by any Person, from the Parent Rights Agreement or from any Takeover Statute or similarly restrictive provisions of its organizational documents, or terminate, amend or waive any provisions of any confidentiality or standstill agreements in place with any third parties; (k) settle any material claim, action or proceeding, except (i) in the ordinary course of business or (ii) settlements to the extent subject to and not in excess of reserves that relate to the matter being settled existing as of June 30, 2005 in accordance with GAAP; (l) take any action that is intended or would be reasonably likely to result in any of the conditions to the Merger set forth in Article VII not being satisfied, except as may be required by applicable Law; or (m) implement or adopt any material change in its tax accounting or financial accounting policies, practices or methods, other than as may be required by applicable Law, GAAP or regulatory guidelines; (n) take, or agree to take, any action that would prevent the Merger from qualifying as a "reorganization" within the meaning of Section 368(a) of the Code; 43 (o) except in the ordinary course of business, sell, assign, abandon, license, or otherwise dispose of any Intellectual Property that is used in the conduct of, or is otherwise material to, the business of Parent and the Parent Subsidiaries; or (p) agree or commit to take any of the actions prohibited by this Section 5.3. 5.4 Control of Other Party's Business. Nothing contained in this Agreement will give Parent, directly or indirectly, the right to control or direct the Company's operations prior to the Effective Time. Nothing contained in this Agreement will give the Company, directly or indirectly, the right to control or direct Parent's operations prior to the Effective Time. Prior to the Effective Time, each of Parent and the Company will exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its respective operations. ARTICLE VI. ADDITIONAL AGREEMENTS 6.1 Regulatory and Tax Matters. (a) Parent and the Company will promptly prepare and file with the SEC the Joint Proxy Statement and Form S-4 in which the Joint Proxy Statement will be included as a prospectus and any amendments or supplements thereto. Each of Parent and the Company will use their reasonable best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing, and each of the Company and Parent will thereafter mail or deliver the Joint Proxy Statement to its respective stockholders. Each party will also use its reasonable best efforts to obtain all necessary state securities law or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement, and each party will furnish all information concerning such party and the holders of its capital stock as may be reasonably requested in connection with any such action. The parties will promptly provide copies to and consult with each other and prepare written responses with respect to any written comments received from the SEC with respect to the Form S-4 and the Joint Proxy Statement and promptly advise the other party of any oral comments received from the SEC. (b) Without limiting Section 6.4, the parties will cooperate with each other and use their respective reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and Governmental Entities that are necessary or advisable to consummate the transactions contemplated by this Agreement (including the Merger) and to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such Governmental Entities. The Company and Parent will have the right to review in advance, and, to the extent practicable, each will consult the other on, in each case, subject to applicable Law relating to the exchange of information, all the information relating to the Company or Parent, as the case may be, and any of their respective Subsidiaries, that appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties will act reasonably and as promptly as practicable. The parties will consult with each other with respect to obtaining all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions 44 contemplated by this Agreement, and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated by this Agreement. (c) The parties will cooperate with each other and use their respective reasonable best efforts to cause the Merger to qualify as a "reorganization" within the meaning of Section 368(a) of the Code (the "Intended Tax Treatment"), including (A) not taking any action that such party knows is reasonably likely to prevent the Intended Tax Treatment, (B) executing such amendments to this Agreement as may be reasonably required in order to obtain the Intended Tax Treatment (it being understood that no party will be required to agree to any such amendment (x) that it determines in good faith materially adversely affects the value of the transactions contemplated hereby to such party or its stockholders or (y) after the date of the Company Stockholders Meeting or the Parent Stockholders Meeting, as applicable, which under applicable Law expressly requires the further approval of its stockholders), and (C) using their respective reasonable best efforts to obtain the opinions referred to in Sections 7.2(c) and 7.3(c). Parent, Merger Sub and the Company shall each deliver to counsel to Parent and counsel to the Company, for the purpose of their rendering the opinions referred to in Sections 7.2(c) and 7.3(c), representations reasonably requested by such counsel at such time or times as may be reasonably requested by such counsel, including at the effective date of the Form S-4 and at the Effective Time. For tax purposes, each of the Company, Parent and Merger Sub will report the Merger in a manner consistent with Section 1.7. (d) Each of Parent and the Company will, upon request, furnish to the other all information concerning itself, its Subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with the Joint Proxy Statement, the Form S-4 or any other statement, filing, notice or application made by or on behalf of Parent, the Company or any of their respective Subsidiaries to any Governmental Entity in connection with the Merger and the other transactions contemplated by this Agreement. (e) Each of Parent and the Company will promptly advise the other upon receiving any communication from any Governmental Entity and any material communication given or received in connection with any proceeding by a private party, in each case in connection with the Merger and the other transactions contemplated by this Agreement. 6.2 Access to Information. (a) Upon reasonable notice and subject to applicable Law relating to the exchange of information, each of the Company and Parent will, and will cause each of its Subsidiaries to, afford to the officers, employees, accountants, counsel and other representatives of the other, reasonable access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records, and, during such period, each party will, and will cause its Subsidiaries to, make available to the other party (i) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws or federal or state laws applicable to such party (other than reports or documents that such party is not permitted to disclose under applicable Law) and (ii) all other information concerning its business, properties and personnel as the other may reasonably request, including information (financial or otherwise) regarding the Company and the Company Subsidiaries as may be necessary or appropriate to complete the financings contemplated by the Financing Commitments. Notwithstanding the foregoing, neither the 45 Company nor Parent nor any of their Subsidiaries will be required to provide access to or to disclose information where such access or disclosure would jeopardize the attorney-client privilege of such party or its Subsidiaries or contravene any Law, fiduciary duty or binding agreement entered into prior to the date of this Agreement or entered into after the date of this Agreement in the ordinary course of business. The parties will use their reasonable best efforts to make appropriate substitute arrangements to permit reasonable disclosure under circumstances in which the restrictions of the preceding sentence apply. Whenever any event occurs that is required to be set forth in an amendment or supplement to the Proxy Statement or the offering memoranda or other materials pursuant to which the debt financing contemplated by the Financing Commitments (the "Debt Financing") is offered to potential purchasers or lenders (the "Debt Offer Documents"), the Company or Parent, as the case may be, will promptly inform the other party of such occurrence and cooperate in filing with the SEC and/or mailing to the stockholders of the Company, in the case of the Proxy Statement, or the extent required to the potential purchasers or lenders of the Debt Financing, such amendment or supplement, in each case as promptly as practicable. The information provided and to be provided by Parent, Merger Sub and the Company, respectively, for use in the Proxy Statement or any amendment or supplement thereto and the Debt Offer Documents or any amendment or supplement thereto, in the case of the Proxy Statement, at the time of the Company Stockholders Meeting and the Parent Stockholders Meeting, and in the case of the Debt Offer Documents or any amendments or supplements thereto, at the time the Debt Offer Documents are first made available to potential purchasers or lenders of the Debt Financing and at the time of the consummation of the Debt Financing, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company will, and will cause the Company Subsidiaries to, cooperate in good faith with Parent's efforts to plan for the post-Closing integration of its business with the business of the Company and the Company Subsidiaries. (b) All information and materials provided pursuant to this Agreement will be subject to the provisions of the Non Disclosure Agreement, dated June 13, 2005, between the Company and Parent, as amended from time to time (the "Confidentiality Agreement"). (c) No investigation by either of the parties or their respective representatives will affect the representations and warranties of the other set forth in this Agreement. 6.3 Stockholder Approvals. (a) Each of Parent and the Company will duly call, convene and hold a meeting of its stockholders to be held as soon as reasonably practicable after the Form S-4 is declared effective for the purpose of obtaining the Parent Stockholder Approval and the Company Stockholder Approval, and each will use its reasonable best efforts to cause such meetings to occur as soon as reasonably practicable and on the same date. Subject to Section 6.10, the Board of Directors of each of Parent and the Company will use its reasonable best efforts to obtain from its respective stockholders the Parent Stockholder Approval and the Company Stockholder Approval. Without limiting the generality of the foregoing but subject to Sections 8.1(j) and 8.1(k), respectively, Parent's and the Company's obligations pursuant to this Section 6.3(a) will not be affected by the commencement, public proposal, public disclosure or communication to such party or its respective representatives of any Acquisition Proposal. 46 (b) Except as permitted by Section 6.10(g), the Parent Board will recommend to the Parent stockholders the approval of this Agreement, the Sponsor Stockholders Agreements and the transactions contemplated hereby and thereby and will include such recommendation in the Joint Proxy Statement. (c) Except as permitted by Section 6.10(g), the Company Board will recommend to the Company stockholders the adoption of this Agreement and the approval of the Merger and will include such recommendation in the Joint Proxy Statement. (d) Nothing set forth in this Section 6.3 shall limit the ability of Parent or the Company to enter into an agreement in connection with a Superior Proposal, so long as it first terminates this Agreement in accordance with Section 8.1(j) or 8.1(k), as the case may be. 6.4 Legal Conditions to Merger. (a) Each of Parent and the Company will, and will cause its Subsidiaries to, use their reasonable best efforts (i) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements that may be imposed on such party or its Subsidiaries with respect to the Merger and to consummate the transactions contemplated by this Agreement as soon as practicable after the date hereof and (ii) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity and any other third party that is required to be obtained by the Company or Parent or any of their respective Subsidiaries in connection with the Merger, the financing contemplated by the Financing Commitments and the other transactions contemplated by this Agreement, including all steps necessary to promptly identify any impediments to complying with all legal requirements or to obtaining such consents, authorizations, orders, approvals, or exemptions. Parent and Company will cooperate with one another and with Governmental Entities to resolve or settle any issues as early as possible and with a view to the Termination Date. Nothing in this Agreement will require, or be deemed to require, the parties to this Agreement to agree to take any of the following actions in order to obtain the consent, authorization, order, approval or exemption of any Governmental Entity in order to satisfy the condition set forth in Section 7.1(c) where such actions would have a Material Adverse Effect on the party taking the action or would result in a breach the obligations of Parent or any Parent Subsidiary under the agreements listed in Section 6.4(a) of the Parent Disclosure Schedule or of the Company or any Company Subsidiary under the agreements listed in Section 6.4(b) of the Company Disclosure Schedule: (i) sell, hold separate or otherwise dispose of assets of such party or its Subsidiaries or conduct its business in a specified manner; (ii) agree to sell, hold separate or otherwise dispose of assets of such party or its Subsidiaries or conduct its business in a specified manner; or (iii) permit assets of such party or its Subsidiaries to be sold, held separate or disposed of or permit its business to be conducted in a specified manner. This Section 6.4 does not require either the Parent or the Company to enter into any agreement with a third party to undertake any obligations or make any divestitures, unless such agreement is conditioned on the consummation of the transactions contemplated by this Agreement. (b) In furtherance and not in limitation of the covenants of the parties contained in Sections 6.1 or 6.4(a), if any administrative or judicial action or proceeding, including any proceeding by a private party, is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any applicable Law 47 or legal obligation or requirement, or if any statute, rule, regulation or Injunction is enacted, entered, promulgated or enforced by a Governmental Entity that would make the Merger or the other transactions contemplated hereby illegal or would otherwise prohibit or materially impair or materially delay the consummation of the Merger or the other transactions contemplated hereby, each of the Company and Parent will cooperate in all respects with each other and use its respective reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any judgment, Injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the Merger or the other transactions contemplated by this Agreement and to have such statute, rule, regulation or Injunction repealed, rescinded or made inapplicable so as to permit consummation of the transactions contemplated by this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, nothing in this Section 6.4(b) will limit either the Company's or Parent's right to terminate this Agreement pursuant to Article VIII so long as such party has up to the date of termination complied with its obligations under this Section 6.4. (c) Each party hereto and its Board of Directors will, if any Takeover Statute becomes applicable to this Agreement, the Merger or any other transactions contemplated hereby, take all action reasonably necessary to ensure that the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated hereby and otherwise to minimize the effect of such statute on this Agreement, the Merger and the other transactions contemplated hereby. (d) Immediately following the execution of this Agreement, Parent will adopt this Agreement as the sole stockholder of Merger Sub. 6.5 Affiliates. The Company will use its reasonable best efforts to cause each director, executive officer and other Person who is an "affiliate" (for purposes of Rule 145 under the Securities Act) of the Company to deliver to Parent, as soon as practicable after the date of this Agreement, and prior to the date of the Company Stockholders Meeting, a written agreement, in the form of Exhibit E. 6.6 Listing. Parent will use its reasonable best efforts to cause the shares of Parent Common Stock to be issued in the Merger to be authorized for listing on the NYSE, subject to official notice of issuance, prior to the Effective Time. 6.7 Indemnification; Directors' and Officers' Insurance. (a) From and after the Effective Time, Parent will indemnify and hold harmless, as and to the fullest extent permitted by applicable Law, each individual who is now, or has been at any time prior to the date of this Agreement, or who becomes prior to the Effective Time, a director or officer of the Company or any of the Company Subsidiaries or who is or was serving at the request of the Company or any of the Company Subsidiaries as a director or officer of another Person (the "Company Indemnified Parties") against any losses, claims, damages, liabilities, costs, expenses (including reimbursement for reasonable fees and expenses incurred in advance of the final disposition of any claim, suit, proceeding or investigation to each Company Indemnified Party), judgments, fines and, subject to approval by Parent, amounts paid in settlement in connection with any threatened or actual claim, action, suit, proceeding or investigation to 48 which such Company Indemnified Party is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that such individual is or was a director or officer of the Company or any of the Company Subsidiaries or (ii) this Agreement or any of the transactions contemplated by this Agreement, whether asserted or arising before or after the Effective Time. (b) Parent will cause to be maintained in effect for a period of six years from the Effective Time the directors' and officers' liability insurance policy maintained at the Effective Time by the Company (the "Company D&O Policy") (provided, that Parent may substitute therefor policies of at least the same coverage and amounts and may cause coverage to be extended under the Company D&O Policy by obtaining a six-year "tail" policy, in each case containing terms and conditions that are not less advantageous than the Company D&O Policy) with respect to claims arising from facts, events, acts or omissions occurring prior to the Effective Time; provided, however, that in no event will Parent be required to expend in the aggregate in excess of 300% of the annual aggregate premiums currently paid by the Company for such insurance (the "Maximum Premium"). If such insurance coverage cannot be obtained at all, or can only be obtained at an annual premium in excess of the Maximum Premium, Parent will cause to be maintained the most advantageous policies of directors' and officers' insurance obtainable for an annual premium equal to the Maximum Premium. (c) The provisions of this Section 6.7 will survive the Effective Time and are intended to be for the benefit of, and will be enforceable by, each Company Indemnified Party and his or her heirs and representatives. (d) If Parent or any of its successors or assigns (i) consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, to the extent necessary, proper provision will be made so that the successors and assigns of Parent, as the case may be, will assume the obligations set forth in this Section 6.7. 6.8 Advice of Changes. Each of Parent and the Company will promptly advise the other of any change or event (i) having or reasonably expected to result in a Material Adverse Effect on Parent or a Material Adverse Effect on the Company, as the case may be, or (ii) that it believes results or would be reasonably expected to result in a failure of any condition set forth in Sections 7.2(a), (b) and (c) and 7.3(a), (b) and (c); provided, however, that no such notification will affect the representations, warranties, covenants or agreements of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under this Agreement; provided, further, however, that a failure to comply with this Section 6.8 will not constitute the failure of any condition set forth in Article VII to be satisfied unless the underlying Material Adverse Effect or breach would independently result in the failure of a condition set forth in Article VII to be satisfied. 6.9 Exemption from Liability Under Section 16(b). Parent and the Company agree that, in order to most effectively compensate and retain Insiders in connection with the Merger, both prior to and after the Effective Time, it is desirable that Insiders be relieved of the risk of liability under Section 16(b) of the Exchange Act to the fullest extent permitted by applicable 49 Law in connection with the conversion of shares of Company Common Stock, Company Stock Options and Company Stock-Based Awards into shares of Parent Common Stock and Company Rollover Options and other awards denominated in shares of Parent Common Stock in the Merger, and for that compensatory and retentive purpose agree to the provisions of this Section 6.9. Following the delivery to Parent of the Section 16 Information in a timely fashion, the Parent Board, or a committee of "Non-Employee Directors" thereof (as such term is defined for purposes of Rule 16b-3(d) under the Exchange Act), will adopt a resolution providing that the receipt by Insiders of Parent Common Stock in exchange for or satisfaction of shares of Company Common Stock or Company Stock-Based Awards, and of Company Rollover Options upon conversion of Company Stock Options, in each case, pursuant to the transactions contemplated by this Agreement and to the extent such securities are listed in the Section 16 Information, are intended to be exempt from liability pursuant to Section 16(b) under the Exchange Act. "Section 16 Information" will mean information accurate in all material respects regarding Insiders, the number of shares of Company Common Stock held by each such Insider and expected to be exchanged for Parent Common Stock in the Merger, and the number and description of Company Stock Options and Company Stock-Based Awards held by each such Insider and expected to be converted into Company Rollover Options and exchanged for Parent Common Stock or awards denominated therein in connection with the Merger; provided, however, that the requirement for a description of any Company Stock Options and Company Stock-Based Awards will be deemed to be satisfied if copies of all Company Stock Plans and other Company Benefit Plans, and forms of agreements evidencing grants thereunder, under which such Company Stock Options and Company Stock-Based Awards, respectively, have been granted to Insiders, have been made available to Parent. "Insiders" will mean those officers and directors of the Company who are or are expected to become subject to the reporting requirements of Section 16(a) of the Exchange Act and who are listed in the Section 16 Information. 6.10 No Solicitation. (a) Parent will not, and will cause the Parent Subsidiaries and each officer, director, employee, agent or representative (including any financial or legal advisor or other retained representative) of Parent or any Parent Subsidiaries not to, directly or indirectly, (i) solicit, initiate or facilitate (including by way of furnishing information) or take any other action designed to facilitate any inquiries or proposals regarding any merger, share exchange, consolidation, sale of assets, sale of shares of capital stock (including by way of a tender offer or exchange offer) or similar transactions involving Parent or any of the Parent Subsidiaries that, if consummated, would constitute an Alternative Transaction (as defined in paragraph (c) below) (any of the foregoing inquiries or proposals being referred to herein as a "Parent Acquisition Proposal"), (ii) participate in any discussions or negotiations regarding, or furnish to any Person any information in connection with, or otherwise cooperate in any way with any Person in connection with, an Alternative Transaction, or (iii) enter into any agreement regarding any Alternative Transaction. (b) The Company will not, and will cause the Company Subsidiaries and each officer, director, employee, agent or representative (including any financial or legal advisor or other retained representative) of the Company or any Company Subsidiaries not to, directly or indirectly, (i) solicit, initiate or facilitate (including by way of furnishing information) or take any other action designed to facilitate any inquiries or proposals regarding any merger, share exchange, consolidation, sale of assets, sale of shares of capital stock (including by way of a 50 tender offer or exchange offer) or similar transactions involving the Company or any of the Company Subsidiaries that, if consummated, would constitute an Alternative Transaction (any of the foregoing inquiries or proposals being referred to herein as a "Company Acquisition Proposal" and, with a Parent Acquisition Proposal, an "Acquisition Proposal"), (ii) participate in any discussions or negotiations regarding, or furnish to any Person any information in connection with, or otherwise cooperate in any way with any Person in connection with, an Alternative Transaction, or (iii) enter into any agreement regarding any Alternative Transaction. (c) As used in this Agreement, "Alternative Transaction" means, with respect to the Company or Parent, as the case may be (for this purpose, the "Target Party"), any of (i) a transaction pursuant to which any third Person (or group of Persons) other than the other party to this Agreement (the "Non-Target Party") or its affiliates, directly or indirectly, acquires or would acquire more than 20% of the outstanding shares of common stock of the Target Party or of the outstanding voting power of the Target Party, whether from the Target Party or pursuant to a tender offer or exchange offer or otherwise, (ii) a merger, share exchange, consolidation, business combination, recapitalization or any other transaction involving the Target Party (other than the Merger) or any of its Subsidiaries pursuant to which any third Person or group of Persons (other than the Non-Target Party or its affiliates) party thereto, or its stockholders, owns or would own more than 20% of the outstanding shares of common stock or the outstanding voting power of the Target Party or, if applicable, the parent entity resulting from any such transaction immediately upon consummation thereof, or (iii) any transaction pursuant to which any third Person (or group of Persons) other than the Non-Target Party or its affiliates acquires or would acquire control of assets (including for this purpose the outstanding equity securities of the Subsidiaries of the Target Party and securities of the entity surviving any merger or business combination involving any of the Subsidiaries of the Target Party) of the Target Party or any of its Subsidiaries representing more than 20% of the fair market value of all the assets of the Target Party and its Subsidiaries, taken as a whole, immediately prior to such transaction. (d) The Target Party will notify the Non-Target Party promptly (but in no event later than 48 hours) after receipt of any Acquisition Proposal, or any material modification of or material amendment to any Acquisition Proposal, or any request for non-public information relating to the Target Party or any of its Subsidiaries or for access to the properties, books or records of the Target Party or any of its Subsidiaries by any Person that informs the Board of Directors of the Target Party (the "Target Board") or any of its Subsidiaries that it is considering making, or has made, an Acquisition Proposal. Such notice to the Non-Target Party will be made orally and in writing and will indicate the identity of the Person making the Acquisition Proposal or intending to make or considering making an Acquisition Proposal or requesting non-public information or access to the properties, books or records of the Target Party or any of its Subsidiaries, and the material terms of any such Acquisition Proposal or modification or amendment to an Acquisition Proposal. The Target Party will (i) keep the Non-Target Party informed, on a current basis (but in no event later than 48 hours) of any material changes in the status and any material changes or modifications in the terms of any such Acquisition Proposal, indication or request and (ii) provide to the Non-Target Party as soon as practicable after receipt or delivery thereof with copies of all correspondence and other written material sent or provided to the Target Party from any third party in connection with any Acquisition Proposal or sent or provided by the Target Party to any third party in connection with any Acquisition Proposal. 51 (e) Notwithstanding anything to the contrary in this Section 6.10, at any time prior to obtaining the Parent Stockholder Approval or the Company Stockholder Approval, as applicable, the Target Party may furnish or cause to be furnished information to, and enter or cause to be entered into discussions with, a Person who has made an unsolicited bona fide written proposal or offer regarding an Acquisition Proposal which did not result from a breach of Section 6.10(a) or 6.10(b), as applicable, if the Target Board has (i) determined in good faith (after consultation with its outside legal counsel and financial advisor or advisors) that such proposal or offer constitutes or is reasonably likely to lead to a Superior Proposal and, taking into account any revisions to the terms of the Merger or this Agreement proposed by the Non-Target Party after being notified pursuant to Section 6.10(g), that doing so is necessary for the Target Board to comply with its fiduciary duties to the Target Party's stockholders under applicable law, (ii) provided prior or contemporaneous notice to the Non-Target Party of its intent to furnish information to or enter into discussions with such Person, (iii) obtained from such Person an executed confidentiality agreement containing terms with respect to confidentiality that are determined by the Target Party to be substantially similar to and not less favorable to the Target Party in the aggregate than those contained in the Confidentiality Agreement (it being understood that such confidentiality agreement and any related agreements will not include any provision calling for any exclusive right to negotiate with such party or having the effect of prohibiting the Target Party from satisfying its obligations under this Agreement), and (iv) the Target Party complies with all of its obligations under Sections 6.10(a) or 6.10(b), as applicable, and Sections 6.3, 6.10(d) and 6.10(g). The Target Party will provide the Non-Target Party with all information regarding the Target Party with which the Non-Target Party has not previously been provided that is provided to any Person making any such Acquisition Proposal. (f) As used in this Agreement, "Superior Proposal" means a bona fide written proposal or offer made by a third Person (or group of Persons) to consummate any of the following transactions: (i) a merger, share exchange, consolidation, business combination or other similar transaction involving the Target Party pursuant to which the stockholders of the Target Party immediately preceding such transaction would hold less than 50% of the outstanding shares of common stock of, and less than 50% of the outstanding voting power of, the Target Party or the parent entity resulting from any such transaction immediately upon consummation thereof, (ii) the acquisition by any third Person or group of Persons (including by means of a tender offer or an exchange offer or a two-step transaction involving a tender offer followed with reasonable promptness by a cash-out merger involving the Target Party), directly or indirectly, of ownership of more than 50% of the outstanding shares of common stock of, and more than 50% of the outstanding voting power of, the Target Party, or (iii) the acquisition by any third Person (or group of Persons) of more than 50% of the fair market value of all the assets of the Target Party and its Subsidiaries, taken as a whole, immediately prior to such transaction, in each case that the Target Board determines in good faith (after consultation with its outside legal counsel and its financial advisor or advisors) to be more favorable from a financial point of view to the Target Party stockholders than the Merger, taking into account all relevant factors as well as any revisions to the terms of the Merger or this Agreement proposed by the Non-Target Party after being notified pursuant to Section 6.10(g). (g) Except as permitted by this Section 6.10(g), neither the Target Board nor any committee thereof will (A) withdraw, modify or qualify in a manner adverse to the Non-Target Party the recommendation by the Target Board, or any such committee, of this Agreement 52 and the Merger (in the case of the Company) or this Agreement, the Sponsor Stockholders Agreements and the transactions contemplated hereby and thereby (in the case of Parent), (B) recommend the approval or adoption of any Acquisition Proposal or fail to recommend against any Acquisition Proposal, or (C) resolve, agree or propose publicly to take any such actions (each such action set forth in this sentence of this Section 6.10(g) being referred to herein as an "Adverse Recommendation Change") or approve, adopt or recommend, or cause or permit the Target Party to enter into, any letter of intent, agreement or obligation with respect to, any Alternative Transaction (other than a confidentiality agreement as referred to in Section 6.10(e)). Notwithstanding anything to the contrary in this Section 6.10, if, at any time prior to obtaining the Parent Stockholder Approval or the Company Stockholder Approval, as applicable, (i) the Target Board, in the exercise of its fiduciary duties, determines in good faith, after consultation with outside legal counsel and financial advisor or advisors, that to do otherwise would be inconsistent with its fiduciary duties under applicable Law, (ii) before taking any such action, the Target Party promptly gives the Non-Target Party written notice advising the Non-Target Party of the decision of the Target Board to take such action, including the reasons therefor and, in the event that such decision relates to an Acquisition Proposal, such notice specifies the material terms and conditions of such Acquisition Proposal and identifies the Person making such Acquisition Proposal (and the Target Party will also promptly give the Non-Target Party such a notice with respect to any subsequent change in such proposal) as required by Section 6.10(d) and the Target Party has given the Non-Target Party at least three business days after delivery of each such notice to propose revisions to the terms of this Agreement (or to make another proposal) in response to such Acquisition Proposal and has negotiated in good faith with the Non-Target Party with respect to such proposed revisions or other proposal, if any, (iii) if such Adverse Recommendation Change relates to an Acquisition Proposal received by the Target Party or made directly to the Target Party's stockholders, such Acquisition Proposal constitutes a Superior Proposal, and (iv) the Target Party has complied with its obligations set forth in this Section 6.10, then the Target Board may make an Adverse Recommendation Change; provided, that if the Target Party makes an Adverse Recommendation Change, then, notwithstanding such Adverse Recommendation Change, the Target Company will nevertheless submit this Agreement and the Merger (in the case of the Company) or this Agreement, the Sponsor Stockholders Agreements and the transactions contemplated hereby and thereby (in the case of Parent) to its stockholders for the purpose of obtaining the Company Stockholder Approval or Parent Stockholder Approval, as applicable, and nothing contained herein will be deemed to relieve the Target Party of such obligation, unless this Agreement is terminated in accordance with its terms (including termination in connection with a Superior Proposal in accordance with Section 8.1(j) or 8.1(k), as the case may be) prior to the Company Stockholder Meeting or Parent Stockholder Meeting, as applicable. (h) Nothing contained in this Section 6.10 will prohibit the Target Party or its Subsidiaries from taking and disclosing to its stockholders a position required by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act; provided, however, that any such disclosure that relates to an Acquisition Proposal will be deemed to be an Adverse Recommendation Change unless the Target Board reaffirms its recommendation of this Agreement and the Merger (in the case of the Company) or this Agreement and the Merger, the Sponsor Stockholders Agreements and the transactions contemplated hereby and thereby (in the case of Parent), as applicable. Notwithstanding any other provision hereof, no disclosure that the Parent Board or the Company Board may determine (after consultation with counsel) that it or Parent or the 53 Company, as applicable, is required to make under applicable Law will constitute a violation of this Agreement. (i) Each of Parent and the Company and their respective Subsidiaries will immediately cease and cause to be terminated any existing discussions or negotiations with any Persons (other than the other party) conducted heretofore with respect to any Alternative Transaction, and will use reasonable best efforts to cause all Persons, other than the other party hereto, who have been furnished confidential information regarding such party in connection with the solicitation of or discussions regarding an Acquisition Proposal within the 12 months prior to the date hereof promptly to return or destroy such information. Each of Parent and the Company will, as soon as practicable after the date hereof, take all steps necessary to terminate any approval that may have been heretofore given under any provisions of any standstill or similar agreements authorizing any Person to make an Acquisition Proposal. (j) It is understood that any violation of the restrictions set forth in this Section 6.10 by any officer, director, employee, agent or representative (including financial or legal advisor or other retained representative) of either party or any of its Subsidiaries, at the direction or with the consent of such party or any of its Subsidiaries, will be deemed to be a breach of this Section 6.10 by such party. 6.11 FIRPTA. The Company shall furnish to Parent an affidavit dated as of the Closing Date, stating, under penalty of perjury, that the Company is not and has not been a US real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period described in Code Section 897(c)(1)(A)(ii). 6.12 Financing Commitments. (a) Parent will promptly notify the Company of (i) the expiration, termination, modification or amendment for any reason of the Financing Commitments and (ii) any proposal by any of the institutions party to a Financing Commitments to withdraw, terminate or make a material change in the amount or terms of such Financing Commitments that could reasonably be expected to adversely affect the ability of Parent to consummate the financing contemplated by such Financing Commitments in accordance with its terms. In addition, upon the Company's reasonable request, Parent will advise and update the Company, in a level of detail reasonably satisfactory to the Company, with respect to the status, proposed closing date, and material terms of the Financing Commitments. Parent will not consent to any amendment, modification or early termination of any Financing Commitments that could reasonably be expected to materially delay or adversely affect the ability of Parent to consummate the transactions contemplated by this Agreement. (b) Parent will, and will cause its Subsidiaries to, use reasonable best efforts to (i) maintain the effectiveness of the Financing Commitments in accordance with their terms, (ii) enter into definitive documentation with respect to the Financing Commitments on the terms contained in the Financing Commitments, (iii) satisfy all funding conditions to the Financing Commitments set forth in the definitive documentation with respect to the financing contemplated by the Financing Commitments, (iv) consummate the financing contemplated by the Financing Commitments (including by Parent's extension of the Financing Commitments on substantially equivalent or better terms or, if the Financing Commitments expire, obtaining alternative financing in an aggregate principal amount equal to the amounts set forth in, and on 54 terms substantially equivalent to or better than the terms of, the Financing Commitments if, in each case, the Company has consented to such extension or replacement) prior to the expiration of the Financing Commitments if the other conditions to Parent's obligations to close set forth in Sections 7.1 and 7.2 have been satisfied or waived, and (v) perform its obligations under the Financing Commitments. (c) The Company shall provide, and shall cause the Company Subsidiaries to provide, and shall use commercially reasonable efforts to cause the respective officers, employees, representatives and advisers of the Company and the Company Subsidiaries to provide, all cooperation reasonably requested by Parent in connection with the financings contemplated by the Financing Commitments (the "Debt Financing") and shall (i) cause appropriate officers and employees to be available on a customary basis (A) to meet with prospective lenders in presentations, meetings, road shows, due diligence sessions and sessions with ratings agencies, (B) to assist with the preparation of prospectuses, offering memoranda, private placement memoranda and other disclosure documents in connection therewith and the Debt Financing, including assistance with the preparation of projections to be used in connection therewith, as applicable, and (C) to execute and deliver any pledge and security documents, other definitive financing documents and other certificates or documents as may be required pursuant to the Financing Commitments, (ii) take all necessary corporate action to consummate the Debt Financing immediately prior to the Closing and (iii) use commercially reasonable efforts to cause its independent accountants to provide assistance to Parent, including providing consent, on a customary basis, to Parent to use their audit reports relating to the Company and the Company Subsidiaries and, at the cost of Parent, to provide any necessary customary "comfort letters." 6.13 Parent Board. Parent shall take all steps necessary or desirable to cause the satisfaction of the condition set forth in Section 7.3(e). 6.14 Employee Matters. (a) As of the Effective Time, Parent shall assume all of the employment agreements, as amended, set forth in Section 6.14(a) of the Company Disclosure Schedule, and Parent shall perform all obligations thereunder. (b) As of the Effective Time, Parent shall grant options to purchase an aggregate of 800,000 shares of Parent Common Stock to individuals employed by the Company immediately prior to the Effective Time. The individuals to whom such options are granted and the number of shares subject to such options shall be determined by the Parent taking into consideration the recommendation of the Company's Chief Executive Officer (or his delegate). All other terms of such options shall be substantially identical to the "Founders' Grant" options granted by Parent to its employees in connection with transactions contemplated by this Agreement. (c) If the Company and Parent determine in good faith that any payment (whether in cash or property or the vesting of property) that may be made to any Company employee who is a "disqualified individual" (within the meaning of Section 280G(c) of the Code) in connection with the Merger is reasonably likely to constitute an "excess parachute payment" (as defined in Section 280G(b)(1) of the Code), then the Company will use its reasonable best efforts to take such actions as it (in consultation with Parent, if Parent so requests) determines are necessary or appropriate to eliminate or mitigate the effect of such 55 excess parachute payment on the disqualified individual and the Company, including accelerating severance pay, bonus awards and options and other equity awards, encouraging employees to exercise options, and exercising and/or recommending that the Company Board or any committee thereof so exercise, any available discretion in respect of options and other equity awards; provided, however, that no such action may impair the rights of any disqualified individual without such disqualified individual's prior written consent. 6.15 GS Funds Redemption. At or prior to the Effective Time, Parent will consummate the purchase of all of the Parent Convertible Preferred Stock owned by the GS Funds in accordance with the terms and subject to the conditions of the Stock Purchase and Support Agreement, dated as of October 3, 2005, by and among Parent, R.H. Donnelley Inc. and the Stockholders of Parent listed on Schedule A attached thereto, as it may be amended from time to time (the "Redemption Agreement"). Notwithstanding anything to the contrary in this Agreement or the Redemption Agreement, no consent of the Company will be required for the consummation of such purchase or the performance of Parent's obligations under the Redemption Agreement. The prior written consent of the Company will be required for any material amendment to the Redemption Agreement. ARTICLE VII. CONDITIONS PRECEDENT 7.1 Conditions to Each Party's Obligation To Effect the Merger. The respective obligations of the parties to effect the Merger shall be subject to the satisfaction, or waiver by each of the parties, at or prior to the Effective Time of the following conditions: (a) Stockholder Approvals. The approval of the holders of capital stock of Parent and the Company required for the consummation of the Merger and the transactions contemplated hereby shall have been obtained. (b) Listing. The shares of Parent Common Stock to be issued to holders of Company Common Stock shall have been authorized for listing on the NYSE, subject to official notice of issuance. (c) HSR Approval. The waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been earlier terminated. (d) Form S-4. The Form S-4 shall have become effective under the Securities Act, and no stop order suspending the effectiveness of the Form S-4 shall have been issued and no proceedings for that purpose shall have been initiated or be threatened by the SEC. (e) No Injunctions or Restraints; Illegality. No Injunction preventing the consummation of the Merger shall be in effect. No statute, rule, regulation, order, Injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity that prohibits or makes illegal consummation of the Merger. 7.2 Conditions to Obligations of Parent. The obligation of Parent to effect the Merger is also subject to the satisfaction, or waiver by Parent, at or prior to the Effective Time of the following conditions: 56 (a) Representations and Warranties. (i) Each of the representations and warranties (other than as set forth in Sections 3.2(a), 3.8(a) and (c) and 3.19) of the Company set forth in this Agreement shall be true and correct on the date of this Agreement, and as of the Closing Date, as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect" set forth therein), individually or in the aggregate, does not have, and would not be reasonably expected to have, a Material Adverse Effect on the Company, (ii) the representations and warranties of the Company set forth in Sections 3.8(a) and (c) and 3.19 shall be true and correct on the date of this Agreement, and as of the Closing Date, as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such date), and (iii) the representations and warranties of the Company set forth in Section 3.2(a) shall be true and correct in all material respects on the date of this Agreement, and as of the Closing Date, as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such date), and Parent shall have received a certificate signed on behalf of the Company by the Chief Executive Officer or the Chief Financial Officer of the Company to the foregoing effects. (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Parent shall have received a certificate signed on behalf of the Company by the Chief Executive Officer or the Chief Financial Officer of the Company to such effect. (c) Parent Tax Opinion. Parent shall have received an opinion of Jones Day in form and substance reasonably satisfactory to Parent, on the basis of certain facts, representations and assumptions set forth in such opinion, dated as of the Closing Date, to the effect that (i) the Merger will be treated for federal income tax purposes as a "reorganization" under Section 368(a) of the Code, and (ii) each of the Company, Parent and Merger Sub will be a "party to the reorganization" within the meaning of Section 368(a) of the Code. In rendering such opinion, such advisor shall be entitled to rely upon representations of officers of the Company, Parent and Merger Sub described in Section 6.1(c). The condition set forth in this Section 7.2(c) shall not be waivable after receipt of the Parent Stockholder Approval unless further Parent Stockholder Approval is obtained with appropriate disclosure. (d) Dissenters. The number of shares of the Company Common Stock as to which holders thereof have exercised appraisal rights under Section 262 of the DGCL shall not exceed 5% of the issued and outstanding Company Common Stock immediately prior to the Effective Time. 7.3 Conditions to Obligations of the Company. The obligation of the Company to effect the Merger is also subject to the satisfaction, or waiver by the Company, at or prior to the Effective Time, of the following conditions: (a) Representations and Warranties. (i) Each of the representations and warranties (other than as set forth in Sections 4.2(a), 4.8(a) and 4.19) of Parent set forth in this Agreement shall be true and correct on the date of this Agreement, and as of the Closing Date, as 57 if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect" set forth therein), individually or in the aggregate, does not have, and would not be reasonably expected to have, a Material Adverse Effect on Parent, (ii) the representations and warranties of Parent set forth in Sections 4.8(a) and 4.19 shall be true and correct on the date of this Agreement, and as of the Closing Date, as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such date), and (iii) the representations and warranties of Parent set forth in Section 4.2(a) shall be true and correct in all material respects on the date of this Agreement, and as of the Closing Date, as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such date), and the Company shall have received a certificate signed on behalf of Parent by the Chief Executive Officer or the Chief Financial Officer of Parent to the foregoing effects. (b) Performance of Obligations of Parent. Parent shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on behalf of Parent by the Chief Executive Officer or the Chief Financial Officer of Parent to such effect. (c) Company Tax Opinion. The Company shall have received an opinion of Latham & Watkins LLP in form and substance reasonably satisfactory to the Company, on the basis of certain facts, representations and assumptions set forth in such opinion, dated as of the Closing Date, to the effect that (i) the Merger will be treated for federal income tax purposes as a "reorganization" under Section 368(a) of the Code, and (ii) that each of the Company, Parent and Merger Sub will be a "party to the reorganization" within the meaning of Section 368(a) of the Code. In rendering such opinion, such advisor shall be entitled to rely upon customary representations of officers of the Company, Parent and Merger Sub described in Section 6.1(c). The condition set forth in this Section 7.3(c) shall not be waivable after receipt of the Company Stockholder Approval unless further Company Stockholder Approval is obtained with appropriate disclosure. (d) Parent Board. The Parent Board composition contemplated by Section 1.10 shall have been implemented effective as of the Effective Date. ARTICLE VIII. TERMINATION AND AMENDMENT 8.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Merger by the stockholders of Parent or the Company, by action taken or authorized by the Board of Directors of the terminating party or parties: (a) by mutual consent of Parent and the Company in a written instrument, if the Board of Directors of each so determines; (b) by either the Parent Board or the Company Board if any Governmental Entity of competent jurisdiction shall have issued a final and nonappealable order permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by this 58 Agreement, except that no party may terminate this Agreement pursuant to this Section 8.1(b) if its breach of its obligations under this Agreement proximately contributed to the occurrence of such order; (c) by either the Parent Board or the Company Board if the Parent Stockholder Approval shall not have been obtained at a Parent Stockholders Meeting or any adjournment or postponement thereof at which the vote was taken; (d) by either the Parent Board or the Company Board if the Company Stockholder Approval shall not have been obtained at a Company Stockholders Meeting or any adjournment or postponement thereof at which the vote was taken; (e) by either the Parent Board or the Company Board if the Merger shall not have been consummated on or before June 30, 2006; provided, however, that the right to terminate this Agreement under this Section 8.1(e) shall not be available to any party whose failure to fulfill any obligation hereunder in any material respect has been the primary cause of or primarily resulted in the failure of the Closing to occur on or before June 30, 2006; (f) by the Parent Board if there shall have been a breach of any of the covenants or agreements or any of the representations or warranties set forth in this Agreement on the part of the Company, which breach, either individually or in the aggregate, would result in, if occurring or continuing on the Closing Date, the failure of the conditions set forth in Section 7.2(a) or (b) and which is not cured within 45 days following written notice to the Company or by its nature or timing cannot be cured within such time period; (g) by the Company Board if there shall have been a breach of any of the covenants or agreements or any of the representations or warranties set forth in this Agreement on the part of Parent, which breach, either individually or in the aggregate, would result in, if occurring or continuing on the Closing Date, the failure of the conditions set forth in Section 7.3(a) or (b) and which is not cured within 45 days following written notice to Parent or by its nature or timing cannot be cured within such time period; (h) by the Parent Board in the event of an Adverse Recommendation Change by the Company Board related to an Acquisition Proposal with respect to the Company; (i) by the Company Board in the event of an Adverse Recommendation Change by the Parent Board related to an Acquisition Proposal with respect to Parent; (j) by Parent, if prior to the Parent Stockholder Approval, Parent receives a Superior Proposal and the Parent Board determines in good faith, after consultation with outside legal counsel, to enter into an agreement to effect the Superior Proposal; provided, that Parent may not terminate this Agreement pursuant to this Section 8.1(j) unless (i) Parent has complied with its obligations under Section 6.10 and (ii) three (3) business days have elapsed following delivery to the Company of a written notice of such determination by the Parent Board and during such three (3) business day period the Company has not made a binding proposal to revise the terms of the Merger or this Agreement (or made another binding offer) that the Parent Board has determined in its good faith judgment to result in the Merger (or such other proposal or offer) 59 being at least as favorable to Parent's stockholders as the Superior Proposal; provided, further, that Parent fulfills its obligations pursuant to Section 9.3. (k) by the Company, if prior to the Company Stockholder Approval, the Company receives a Superior Proposal and the Company Board determines in good faith, after consultation with outside legal counsel, to enter into an agreement to effect the Superior Proposal; provided, that the Company may not terminate this Agreement pursuant to this Section 8.1(k) unless (i) the Company has complied with its obligations under Section 6.10 and (ii) three (3) business days have elapsed following delivery to Parent of a written notice of such determination by the Company Board and during such three (3) business day period Parent has not made a binding proposal to revise the terms of the Merger or this Agreement (or made another binding offer) that the Company Board has determined in its good faith judgment to result in the Merger (or such other proposal or offer) being at least as favorable to the Company's stockholders as the Superior Proposal; provided, further, that the Company fulfills its obligations pursuant to Section 9.3. 8.2 Effect of Termination. In the event of termination of this Agreement by either the Company or Parent as provided in Section 8.1, this Agreement will forthwith become void and have no effect, and none of the Company, Parent, any of their respective Subsidiaries or any of the officers or directors of any of them will have any liability of any nature whatsoever under this Agreement, or in connection with the transactions contemplated by this Agreement, except that (i) Sections 6.2(b), 8.2, 9.3, 9.4, 9.5, 9.7, 9.8, 9.9, 9.10 and 9.11 will survive any termination of this Agreement and (ii) notwithstanding anything to the contrary contained in this Agreement, neither the Company nor Parent will be relieved or released from any liabilities or damages arising out of its willful breach of any provision of this Agreement. 8.3 Amendment and Other Matters. Subject to Sections 7.2(c) and 7.3(c) and compliance with applicable Law, this Agreement may be amended by Parent (on behalf of itself and Merger Sub) and the Company, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the stockholders of the Company or Parent; provided, however, that after any approval of the transactions contemplated by this Agreement by the stockholders of the Company and Parent, there may not be, without further approval of such stockholders, any amendment of this Agreement that changes the amount or the form of the consideration to be delivered under this Agreement to the holders of Company Capital Stock, other than as contemplated by this Agreement, or which by applicable Law otherwise expressly requires the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. 8.4 Extension; Waiver. At any time prior to the Effective Time, Parent (on behalf of itself and Merger Sub) and the Company, by action taken or authorized by their respective Board of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties contained in this Agreement, and (c) waive compliance with any of the agreements or conditions contained in this Agreement provided, however, that after any approval of the transactions contemplated by this Agreement by the stockholders of the Company and Parent, there may not be, without further approval of such stockholders, any 60 extension or waiver which by applicable Law otherwise expressly requires the further approval of such stockholders. Any agreement on the part of a party to any such extension or waiver will be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. ARTICLE IX. GENERAL PROVISIONS 9.1 Closing. On the terms and subject to conditions set forth in this Agreement, the closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date and at a place to be specified by the parties, which date will be no later than five business days after the satisfaction or waiver (subject to applicable Law) of the latest to occur of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied or waived at the Closing), unless extended by mutual agreement of the Company and Parent (the "Closing Date"). 9.2 Nonsurvival of Representations, Warranties and Agreements. None of the representations, warranties, covenants and agreements set forth in this Agreement or in any instrument delivered pursuant to this Agreement will survive the Effective Time, except for those covenants and agreements contained in this Agreement that by their terms apply or are to be performed in whole or in part after the Effective Time. 9.3 Fees and Expenses. (a) Except as provided in this Section 9.3, all costs and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement will be paid by the party incurring such expense; provided, however, that the costs and expenses of printing and mailing the Joint Proxy Statement, and all filing and other fees paid to the SEC or under the HSR Act in connection with the Merger, will be borne equally by Parent and the Company. (b) In the event that this Agreement is terminated: (i) (x) by the Company Board or the Parent Board pursuant to Section 8.1(e), or by the Parent Board pursuant to Section 8.1(f), and (y) a proposal for an Alternative Transaction with respect to the Company has been made to the Company or its stockholders or such a proposal or an intention to make such a proposal has been publicly announced or has otherwise become publicly known after the date of this Agreement and prior to such termination (whether or not conditional and whether or not withdrawn) and (z) within 12 months after such termination, the Company or any of its Subsidiaries enters into any definitive agreement providing for any Alternative Transaction or any Alternative Transaction is consummated; (ii) by the Parent Board pursuant to Section 8.1(h) and a proposal for an Alternative Transaction with respect to the Company has been made to the Company or its stockholders or such a proposal or an intention to make such a proposal has been publicly announced or has otherwise become publicly known after the date of this 61 Agreement and prior to such termination (whether or not conditional and whether or not withdrawn); (iii) by the Parent Board or the Company Board pursuant to Section 8.1(d) and the Company Board is not at the time of the Company Stockholders Meeting entitled to terminate this Agreement pursuant to Section 8.1(g) (without giving effect to the notice and cure provisions thereof); or (iv) by the Company Board pursuant to Section 8.1(k); then, in the case of a termination pursuant to (1) Section 9.3(b)(i), the Company shall pay to Parent an amount equal to $150,000,000 (the "Company Termination Fee"), by wire transfer of same day funds to an account designated by Parent, upon the earlier to occur of the consummation of such Alternative Transaction and the execution of such agreement, as applicable, (2) Section 9.3(b)(ii) or Section 9.3(b)(iv), the Company shall pay to Parent an amount equal to the Company Termination Fee, which payment shall be made within two business days after such termination and (3) Section 9.3(b)(iii), the Company shall pay to Parent an amount equal to (A) $45,000,000 within two business days after such termination, by wire transfer of same day funds to an account designated by Parent and (B) $105,000,000, by wire transfer of same day funds to an account designated by Parent, if, within 12 months after such termination, the Company enters into any definitive agreement providing for any Alternative Transaction or any Alternative Transaction is consummated. For purposes of this Section 9.3(b), references to 20% in the definition of "Alternative Transaction" will be deemed to be references to 50%. (c) In the event that this Agreement is terminated: (i) (x) by the Parent Board or the Company Board pursuant to Section 8.1(e), or by the Company Board pursuant to Section 8.1(g), and (y) a proposal for an Alternative Transaction with respect to Parent has been made to Parent or its stockholders or such a proposal or an intention to make such a proposal has been publicly announced or has otherwise become publicly known after the date of this Agreement and prior to such termination (whether or not conditional and whether or not withdrawn) and (z) within 12 months after such termination, Parent enters into any definitive agreement providing for any Alternative Transaction or any Alternative Transaction is consummated; or (ii) by the Company Board pursuant to Section 8.1(i) and a proposal for an Alternative Transaction with respect to Parent has been made to Parent or its stockholders or such a proposal or an intention to make such a proposal has been publicly announced or has otherwise become publicly known after the date of this Agreement and prior to such termination (whether or not conditional and whether or not withdrawn); (iii) by the Parent Board or the Company Board pursuant to Section 8.1(c) and the Parent Board is not at the time of the Parent Stockholders Meeting entitled to terminate this Agreement pursuant to Section 8.1(f) (without giving effect to the notice and cure provisions thereof); or 62 (iv) by the Parent Board pursuant to Section 8.1(j); then, in the case of a termination pursuant to (1) Section 9.3(c)(i), Parent shall pay to the Company an amount equal to $90,000,000 (the "Parent Termination Fee"), by wire transfer of same day funds to an account designated by the Company, upon the earlier to occur of the consummation of such Alternative Transaction and the execution of such agreement, as applicable, (2) Section 9.3(c)(ii) or Section 9.3(c)(iv), Parent shall pay to the Company an amount equal to the Parent Termination Fee, which payment shall be made within two business days after such termination and (3) Section 9.3(c)(iii), Parent shall pay to the Company an amount equal to (A) $45,000,000 within two business days after such termination, by wire transfer of same day funds to an account designated by the Company and (B) $45,000,000, by wire transfer of same day funds to an account designated by the Company, if, within 12 months after such termination, Parent or any of its Subsidiaries enters into any definitive agreement providing for any Alternative Transaction or any Alternative Transaction is consummated. For purposes of this Section 9.3(c), references to 20% in the definition of "Alternative Transaction" will be deemed to be references to 50%. (d) Each party acknowledges that the agreements contained in this Section 9.3 are an integral part of the transactions contemplated by this Agreement and that, without these agreements, the other party would not enter into this Agreement. Accordingly, if a party fails promptly to pay the amounts due pursuant to this Section 9.3 and, in order to obtain such payment, the other party commences a suit that results in a judgment against the first party for the amounts set forth in this Section 9.3, the first party will pay to the other party interest on the amounts set forth in this Section 9.3 at a rate per annum equal to the three-month LIBOR (as reported in The Wall Street Journal (Northeast edition) or, if not reported therein, in another authoritative source selected by the party entitled to such amounts) on the date such payment was required to be made (or if no quotation for three-month LIBOR is available for such date, on the next preceding date for which such a quotation is available) plus 250 basis points, and including reasonable fees and related expenses of collection. 9.4 Notices. All notices and other communications in connection with this Agreement will be in writing and will be deemed given (and will be deemed to have been duly given upon receipt) if delivered personally, sent via facsimile (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as will be specified by like notice): (a) if to the Company, to: Dex Media, Inc. 198 Inverness Drive West Englewood, CO 80112 Attention: Frank M. Eichler Senior Vice President, General Counsel Facsimile: (303) 784-1915 63 with a copy to: Latham & Watkins LLP 885 Third Avenue, Suite 1000 New York, NY 10022 Attention: R. Ronald Hopkinson Facsimile: (212) 751-4864 (b) if to Parent or Merger Sub, to: R.H. Donnelley Corporation 1001 Winstead Drive Cary, NC 27531 Attention: Robert J. Bush Vice President, General Counsel and Corporate Secretary Facsimile: (919) 279-1518 with a copy to: Jones Day 222 East 41st Street New York, NY 10017 Attention: John J. Hyland Facsimile: (212) 755-7306 9.5 Interpretation. When a reference is made in this Agreement to Articles, Sections, Exhibits or Schedules, such reference will be to an Article or Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Agreement, they will be deemed to be followed by the words "without limitation." Unless the context otherwise requires (i) "or" is disjunctive but not necessarily exclusive, (ii) words in the singular include the plural and vice versa, (iii) the use in this Agreement of a pronoun in reference to a party hereto includes the masculine, feminine or neuter, as the context may require, and (iv) terms used herein that are defined in GAAP have the meanings ascribed to them therein. "Knowledge" of any Person, whether capitalized or not, means, with respect to any specific matter, the actual knowledge of such Person's executive officers and other officers having primary responsibility for such matter, and "business day" means any day on which banks are not required or authorized to close in the City of New York. No provision of this Agreement will be interpreted in favor of, or against, any of the parties to this Agreement by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof, and no rule of strict construction will be applied against any party hereto. The Company Disclosure Schedule and the Parent Disclosure Schedule, as well as all other schedules and all exhibits hereto, will be deemed part of this Agreement and included in any reference to this Agreement. This Agreement will not be interpreted or construed to require any Person to take any action, or fail to take any action, if to 64 do so would violate any applicable Law. References to the "other party" or "either party" will be deemed to refer to the Company and Merger Sub collectively, on the one hand, and Parent, on the other hand. 9.6 Counterparts. This Agreement may be executed in two or more counterparts, all of which will be considered one and the same agreement and will become effective when counterparts have been signed by each of the parties and delivered to the other party, it being understood that each party need not sign the same counterpart. 9.7 Entire Agreement. This Agreement (including the documents and the instruments referred to in this Agreement), together with the Confidentiality Agreement, constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement, other than the Confidentiality Agreement. 9.8 Governing Law. This Agreement will be governed and construed in accordance with the internal laws of the State of Delaware applicable to contracts made and wholly performed within such state, without regard to any applicable conflict of laws principles. 9.9 Jurisdiction. Each of the parties hereto hereby agrees that any claim, suit, action or other proceeding, directly or indirectly, arising out of, under or relating to this Agreement will be heard and determined in the Chancery Court of the State of Delaware (and each agrees that no such claim, action, suit or other proceeding relating to this Agreement will be brought by it or any of its affiliates except in such court), and the parties hereto hereby irrevocably and unconditionally submit to the exclusive jurisdiction of any such court in any such claim, suit, action or other proceeding and irrevocably and unconditionally waive the defense of an inconvenient forum to the maintenance of any such claim, suit, action or other proceeding. Each of the parties hereto further agrees that, to the fullest extent permitted by applicable Law, service of any process, summons, notice or document by U.S. registered mail to such Person's respective address set forth in Section 9.4 will be effective service of process for any claim, action, suit or other proceeding in Delaware with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. The parties hereto hereby agree that a final judgment in any such claim, suit, action or other proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Law. 9.10 Publicity. Neither the Company nor Parent will, and neither the Company nor Parent will permit any of its Subsidiaries to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement concerning, the transactions contemplated by this Agreement without the prior consent (which consent will not be unreasonably withheld) of Parent, in the case of a proposed announcement or statement by the Company, or the Company, in the case of a proposed announcement or statement by Parent; provided, however, that either party may, without the prior consent of the other party, (i) issue or cause the publication of any press release or other public announcement to the extent it determines that so doing is or may be required by Law or by the rules and regulations of the NYSE and (ii) make public statements (but may not publish any press 65 release) that are consistent with the parties' prior (but after the date of this Agreement) public disclosures regarding the transactions contemplated by this Agreement. 9.11 Assignment; Third Party Beneficiaries. Neither this Agreement nor any of the rights, interests or obligations under this Agreement will be assigned by any of the parties (whether by operation of law or otherwise) without the prior written consent of the other party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by each of the parties and their respective successors and assigns. Except as otherwise specifically provided in Section 6.7, this Agreement (including the documents and instruments referred to in this Agreement) is not intended to and does not confer upon any Person other than the parties hereto any rights or remedies under this Agreement. 9.12 Specific Performance. The parties acknowledge and agree that any breach of the terms of this Agreement would give rise to irreparable harm for which money damages would not be an adequate remedy, and, accordingly, the parties agree that, in addition to any other remedies, each will be entitled to enforce the terms of this Agreement by a decree of specific performance without the necessity of proving the inadequacy of money damages as a remedy and without the necessity of posting bond. 9.13 Severability. If any term or other provision of this Agreement is declared invalid, illegal or unenforceable, all other conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the maximum extent possible. 9.14 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING DIRECTLY INVOLVING ANY MATTERS (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. [Remainder of Page Intentionally Left Blank] 66 IN WITNESS WHEREOF, the Company, Parent and Merger Sub have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. DEX MEDIA, INC. By: /s/ Frank M. Eichler --------------------------------- Name: Frank M. Eichler Title: Senior Vice President and General Counsel R.H. DONNELLEY CORPORATION By: /s/ Robert J. Bush --------------------------------- Name: Robert J. Bush Title: Vice President, General Counsel and Corporate Secretary FORWARD ACQUISITION CORP. By: /s/ Robert J. Bush --------------------------------- Name: Robert J. Bush Title: Authorized Person [Signature Page to Agreement and Plan of Merger] EX-2.5 3 d33980exv2w5.htm CERTIFICATE OF MERGER exv2w5

I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF MERGER, WHICH MERGES:

WITH AND INTO “FORWARD ACQUISITION CORP.” UNDER THE NAME OF “FORWARD ACQUISITION CORP.”, A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE THIRTY-FIRST DAY OF JANUARY, A.D. 2006, AT 7:30 O’CLOCK A.M.

A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.

Pursuant to Title 8, Section 251(c) of the General Corporation Law of the State of Delaware (the “DGCL”), the undersigned corporation executed the following Certificate of Merger:

FIRST: R H Donnelley Corporation, a Delaware corporation (“Donnelley”), and Dex Media, Inc., a Delaware corporation (“Dex Media”), have entered into an Agreement and Plan of Merger (the “Agreement and Plan of Merger”), dated as of October 3, 2005, by and among Donnelley, Dex Media and Forward Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Donnelley (“Merger Sub”), pursuant to which Dex Media will be merged with and into Merger Sub.

SECOND: In accordance with Section 251 of the DGCL, the Agreement and Plan of Merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations and their respective stockholders.

FOURTH: The certificate of incorporation of the surviving corporation shall be the certificate of incorporation of Merger Sub

FIFTH: The merger is to become effective upon the filing of this Certificate of Merger with the Secretary of State of the State of Delaware (the “Effective Time”).

SIXTH: The Agreement and Plan of Merger is on file at the corporate offices of Merger Sub, located at 1001 Winstead Drive, Cary, North Caroling 27531

SEVENTH: A copy of the Agreement and Plan of Merger will be furnished by the surviving corporation on request, without cost, to any stockholder of the constituent corporations.


PART I
Cautionary Note Regarding Forward-Looking Statements		1
Item 1.	Business	3
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	21
Item 4.	Submission of Matters to a Vote of Security Holders*	21

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data**	22
Item 7.	Management’s Narrative Analysis of Results of Operations***	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 8.	Financial Statements and Supplementary Data	F-1
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	32
Item 9A.	Controls and Procedures	32
Item 9B.	Other Information	32

PART III
Item 10.	Directors and Executive Officers of the Registrant*	32
Item 11.	Executive Compensation*	32
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*	32
Item 13.	Certain Relationships and Related Transactions*	32
Item 14.	Principal Accounting Fees and Services	33

PART IV
Item 15.	Exhibits and Financial Statement Schedules	33
Signatures		38
Agreement and Plan of Merger
Certificate of Merger
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302


*		Omitted pursuant to General Instructions I(2)(c) of Form 10-K.

**		Omitted pursuant to General Instructions I(2)(a) of Form 10-K.

***		Pursuant to General Instructions I(2)(a) of Form 10-K: (i) the information called for by Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, has been omitted and (ii) the registrant is providing a management’s narrative analysis of results of operations.


	•	our indebtedness limits our ability to borrow money or sell stock to fund our working capital, capital expenditures, acquisitions and debt service requirements;

	•	our interest expense could increase if interest rates in general increase because a substantial portion of our indebtedness bears interest at floating rates;

	•	our indebtedness may limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities;

	•	we are more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;

	•	our indebtedness may make us more vulnerable to a downturn in our business or the economy;

	•	the debt service requirement of our indebtedness could make it more difficult for us to make payments on all our indebtedness;

	•	a substantial portion of our cash flow from operations is dedicated to the repayment of our indebtedness, including indebtedness we may incur in the future, and will not be available for other purposes; and

	•	there would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing, as needed.


	•	incur additional indebtedness;

	•	issue preferred stock;

	•	pay dividends or make distributions in respect of our capital stock or to make certain other restricted payments or investments;

	•	sell assets, including capital stock of future restricted subsidiaries;

	•	agree to payment restrictions affecting our future restricted subsidiaries;

	•	consolidate, merge, sell or otherwise dispose of all or substantially all our assets;

	•	enter into transactions with our affiliates;

	•	incur liens;

	•	designate any of our future subsidiaries as unrestricted subsidiaries; and

	•	enter into new lines of business.


ITEM 4.	*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*


ITEM 5.	*MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES*


ITEM 7.	*MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS*


ITEM 8.	*FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*


	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2005 and 2004		F-3
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003		F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		F-5
Consolidated Statements of Changes in Owner’s Equity and Comprehensive Income (Loss) for the years ended December 31, 2005, 2004 and 2003		F-6
Notes to Consolidated Financial Statements		F-7


Number			Description

	2	.1+	Agreement of Merger of Dex Media East LLC and SGN LLC, dated November 8, 2002.
	2	.2+	Purchase Agreement, dated as of August 19, 2002, by and between Qwest Dex, Inc., Qwest Services Corporation, and Qwest Communications International Inc., on the one hand, and Dex Holdings LLC, on the other hand.
	2	.3+	Amendment No. 1 dated November 8, 2002 to Purchase Agreement, dated as of August 19, 2002, by and between Qwest Dex, Inc., Qwest Services Corporation, and Qwest Communications International Inc., on the one hand, and Dex Holdings LLC, on the other hand.
	2	.4	Agreement and Plan of Merger, dated as of October 3, 2005, by and among Dex Media, Inc., and R.H. Donnelley Corporation and Forward Acquisition Corp.
	2	.5	Certificate of Merger of Dex Media, Inc. into Forward Acquisition Corp.
	3	.1++	Certificate of Formation of Dex Media East LLC (f/k/a SGN LLC), filed July 15, 2002.
	3	.2+	Amendment to Certificate of Formation of Dex Media East LLC, filed November 12, 2002.
	3	.3++	Certificate of Merger of SGN LLC and Dex Media East LLC, filed November 12, 2002.
	3	.4++	Amendment to Certificate of Formation of Dex Media East LLC, filed October 8, 2003.
	3	.5+	Certificate of Incorporation of Dex Media East Finance Co., filed October 8, 2002.
	3	.6+	Second Amended and Restated Certificate of Incorporation of LCI International, Inc., filed December 19, 2000 (Dex Media International, Inc.).
	3	.7+	Amendment No. One to the Amended and Restated Certificate of Incorporation of LCI International, Inc. (Dex Media International, Inc.).
	3	.8+	Amended and Restated Limited Liability Company Agreement of Dex Media East LLC, dated November 8, 2002.
	3	.9+	By-laws of Dex Media East Finance Co.
	3	.10+	Amended and Restated By-laws of LCI International, Inc. (Dex Media International, Inc.).
	4	.1+	Senior Note Indenture with respect to the 97/8% Senior Notes due 2009, among Dex Media East LLC, Dex Media East Finance Co., LCI International, Inc., and U.S. Bank National Association, as trustee, dated November 8, 2002.
	4	.2+	Form of 97/8% Senior Notes due 2002 (included in exhibit 4.1)
	4	.3+	Senior Subordinated Note Indenture with respect to the 121/8% Senior Subordinated Notes due 2012, among Dex Media East LLC, Dex Media East Finance Co., LCI International, Inc., and U.S. Bank National Association, as trustee, dated November 8, 2002.
	4	.4+	Form of 121/8% Senior Subordinated Notes due 2012 (included in exhibit 4.3)
	10	.1++	Second Amendment and Restatement of Credit Agreement, dated as of October 31, 2003, by and among Dex Media, Inc., Dex Media East, Inc., Dex Media East LLC, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Europe, Limited, as London Agent, and Bank of America, N.A., Lehman Commercial Paper Inc., Wachovia Bank, National Association and Deutsche Bank Trust Company Americas, as co-syndication agents.
	10	.2+	Guarantee and Collateral Agreement, dated November 8, 2002, by and among Dex Media East, Inc., Dex Media East LLC (f/k/a/ SGN LLC), Dex Media East Finance Co., LCI International, Inc. (Dex Media International, Inc.) and JPMorgan Chase Bank, as administrative agent.
	10	.3++	Reaffirmation Agreement, dated November 10, 2003, by and among Dex Media East Finance Co., Dex Media International, Inc. and JP Morgan Chase Bank, as administrative agent.


+		Incorporated by reference to our Registration Statement on Form S-4 (File No. 333-102395) and amendments thereto, declared effective on April 4, 2003.

++		Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2003.

*		Identifies each management contract or compensatory plan or arrangement.



	Harriet Smith Windsor, Secretary of State
	AUTHENTICATION: 4487369


ITEM 1B.	*UNRESOLVED STAFF COMMENTS*


ITEM 2.	*PROPERTIES*


ITEM 3.	*LEGAL PROCEEDINGS*



	/s/ GEORGE A. BURNETT
	George A. Burnett
	President and Chief Executive Officer (Principal Executive Officer)