-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWPsFsdCUyFEN3TNtaZ16AxBeUB8PH7ypdibG0IhgO1DXXDJjNo4jRK1TFCWpSGp nWht9pDcayAOaf6a7bmQYw== 0000950123-01-002774.txt : 20010329 0000950123-01-002774.hdr.sgml : 20010329 ACCESSION NUMBER: 0000950123-01-002774 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: R H DONNELLEY CORP CENTRAL INDEX KEY: 0000030419 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 132740040 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-07155 FILM NUMBER: 1582522 BUSINESS ADDRESS: STREET 1: ONE MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9149336800 MAIL ADDRESS: STREET 1: 1 DIAMOND HILL RD CITY: MURRAY HILL STATE: NJ ZIP: 07974 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET COMPANIES INC DATE OF NAME CHANGE: 19790429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNELLEY R H INC CENTRAL INDEX KEY: 0001065310 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 362467635 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-59287 FILM NUMBER: 1582523 BUSINESS ADDRESS: STREET 1: 1 MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9149336400 MAIL ADDRESS: STREET 1: 1 MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 10-K405 1 y46667e10-k405.txt R.H. DONNELLEY CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (Mark one) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR ( ) 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 001-07155 R.H. DONNELLEY CORPORATION -------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2740040 - ---------------------------------------- --------------------------------- (State of Incorporation) (IRS Employer Identification No.) One Manhattanville Road, Purchase, N.Y. 10577 - ---------------------------------------- --------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (914) 933-6400 ---------------- Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on Which Registered -------------- ------------------------------------ Common Stock, par value $1 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ X ] The aggregate market value at March 2, 2001 of shares of the Registrant's common stock (based upon the closing price per share of $28.35 of such stock on The New York Stock Exchange) held by non-affiliates of the Registrant was approximately $873,229,000. For purposes of this calculation, only those shares held by directors and executive officers of the Registrant have been excluded as held by affiliates. Such exclusion should not be deemed a determination or an admission by the Registrant that such individuals are, in fact, affiliates of the Registrant. At March 2, 2001, there were 30,878,433 outstanding shares of the Registrant's common stock. (continued) 2 Commission file number 333-59287 R.H. DONNELLEY INC. * (Exact name of registrant as specified in its charter) Delaware 36-2467635 - ---------------------------------------- --------------------------------- (State of Incorporation) (IRS Employer Identification No.) One Manhattanville Road, Purchase, N.Y. 10577 - ---------------------------------------- --------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (914) 933-6400 -------------- * R.H. Donnelley Inc. is a wholly owned subsidiary of R.H. Donnelley Corporation. R.H. Donnelley Inc. became subject to the filing requirements of Section 15(d) on October 1, 1998 in connection with the public offer and sale of its 9 1/8% Senior Subordinated Notes. As of March 2, 2001, 100 shares of R.H. Donnelley Inc. common stock, no par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE
Part III - --------------------------------------------------------------------------------------- Item 10 Directors and Executive Officers of the Information pertaining to the Registrant Company's Directors can be found on pages 13 - 15 of the Company's Proxy Statement dated March 16, 2001. Item 11 Executive Compensation Pages 17 - 28 of the Company's Proxy Statement dated March 16, 2001. Item 12 Security Ownership of Certain Beneficial Pages 29 - 30 of the Company's Owners and Management Proxy Statement dated March 16, 2001. Item 13 Certain Relationships and Related Pages 13 - 15 of the Company's Transactions Proxy Statement dated March 16, 2001.
3 PART I ITEM 1. BUSINESS Except where otherwise indicated, the terms "Company," "we," "us" and "our" refer to R.H. Donnelley Corporation and its direct and indirect wholly owned subsidiaries. The Company's only direct subsidiary is R.H. Donnelley, Inc. ("Donnelley"). Our executive offices are located at One Manhattanville Road, Purchase, NY 10577 and our telephone number is (914) 933-6400. THE COMPANY Together with our partners, we are one of the largest independent marketers of yellow pages advertising in the United States, selling advertising for more than 175 directories with a total circulation of over 15 million yellow pages directories. In 2000, we sold over $850 million of yellow pages advertising, of which over $600 million came from our DonTech and Sprint operations described below. We also provide pre-press publishing services for more than 240 yellow pages directories, including all of the directories for which we currently sell advertising. Together with our partners, we have a diversified customer base of approximately 200,000 small to medium-sized businesses, many of which rely on yellow pages directories as their principal or sole form of advertising. We are strategically aligned on a long-term basis with the established, leading telephone service provider in each of our major markets. We provide yellow pages advertising sales in Illinois (including Chicago) and northwest Indiana under a 50/50 perpetual partnership (called "DonTech") with an affiliate of SBC Communications Inc. ("SBC"), and in Nevada (primarily Las Vegas) and Florida (primarily Tallahassee and Orlando), under long-term contractual agreements with affiliates of Sprint Corporation ("Sprint"). These agreements allow SBC and Sprint to gain the benefits of our long-term presence in these markets, our yellow pages marketing and pre-press publishing expertise and an established infrastructure and performance-focused, non-union sales force. We benefit from these agreements as SBC and Sprint publish the leading directories in terms of numbers of advertisers, utilization rates and distribution in the Illinois and Nevada markets. In the Florida markets, Sprint publishes one of the two leading directories in terms of numbers of advertisers, utilization rates and distribution. Prior to July 1, 1998, we operated as part of The Dun & Bradstreet Corporation (in the context of specifically describing the Distribution, referred to as "Old D&B," otherwise "D&B"). The Board of Directors of Old D&B approved in principle a plan to separate into two publicly traded companies -- the Company and The New Dun & Bradstreet Corporation ("New D&B"). The distribution ("Distribution") was the method by which Old D&B distributed to its shareholders shares of New D&B common stock. On July 1, 1998, as part of the Distribution, Old D&B distributed to its shareholders shares of New D&B stock and Old D&B changed its name to R.H. Donnelley Corporation. STRATEGIC TRANSACTIONS In 2000, we entered into a number of transactions designed to enhance shareholder value, sharpen strategic focus and create a more efficient cost structure. These transactions included (i) the early termination of our sales agency agreements with Bell Atlantic Corporation ("Bell Atlantic") and the sale of our Cincinnati proprietary operations, (ii) the restructuring and extension of our CenDon Partnership with Sprint, (iii) the restructuring of our role with respect to our investment in ChinaBig.com (previously known as Unicom Media Limited, "ChinaBig"), and (iv) the shutdown of our Get Digital Smart business. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Strategic Transactions" for a more detailed description of these transactions. OPERATING SEGMENTS Our business is organized into three operating segments at December 31, 2000: DonTech Partnership ("DonTech"), Directory Advertising Services ("DAS") and Get Digital Smart ("GDS"). Although DonTech provides advertising sales of yellow pages and other directory products similar to DAS, it is considered a separate operating segment since, among other things, the employees of DonTech, including its officers and managers, are not our employees. As a result of the strategic transactions referred to above, in 2000 we restructured our reportable operating segments to better reflect the Company's current operations and the way we view our businesses. DAS now includes our pre-press publishing operations formerly reported separately as Directory Publishing Services. Also, information technology costs (a portion of which were previously allocated to and included in Other) are now included entirely in DAS. All prior period amounts have been restated in accordance with the new reporting structure. See Note 11 to the Consolidated Financial Statements in Item 8 for further information regarding our business segments. 1 4 DONTECH PARTNERSHIP DonTech is our 50/50 perpetual partnership with SBC. DonTech acts as the exclusive sales agent for yellow pages directories published by Ameritech Corporation ("Ameritech"), a wholly owned subsidiary of SBC, in Illinois and northwest Indiana. Our relationship with telephone companies presently owned by SBC began in 1908 with the Chicago Telephone Company. Since then, we have maintained a variety of contractual relationships with these telephone companies, including a series of partnerships. The current partnership agreement, signed in August 1997, changed the structure of the then-existing DonTech partnership ("DonTech I"). A new partnership was formed ("DonTech") and DonTech was appointed the exclusive sales agent in perpetuity for Ameritech's Illinois and northwest Indiana yellow pages directories, and Ameritech became the publisher. Under the new sales agency agreement, DonTech provides advertising sales services for the directories and earns a commission. We have a 50% interest in the profits of DonTech and also receive direct fees ("revenue participation"), which are tied to advertising sales, from our partner. We account for DonTech under the equity method and our share of DonTech's profits and revenue participation income are recorded as income from partnerships and related fees. Our share of the profits of DonTech and revenue participation income accounted for 72% of operating income before GDS loss and unallocated corporate expenses in 2000. The reported results from DonTech include only our share of DonTech's profits and revenue participation income and do not include any allocation for certain shared general and administrative expenses incurred to support this business. DIRECTORY ADVERTISING SERVICES Within our DAS segment, we provide advertising sales and marketing services for yellow pages and other directory products for affiliated entities of Sprint and perform pre-press publishing services for yellow pages directories. We are the exclusive sales agent in Central Florida for an operating unit of Sprint and the exclusive sales agent in Nevada, Florida, Virginia and North Carolina for CenDon LLC ("CenDon"), a joint venture with Centel Directory Company ("Centel"), a subsidiary of Sprint. We provide pre-press publishing services for yellow pages directories to publishers for whom we serve as sales agent as well as for an otherwise unaffiliated independent yellow pages publisher under separately negotiated contracts. DAS also includes all information technology costs. In addition, the results of our DAS segment include the operating results of our Bell Atlantic and Cincinnati businesses and our investment in ChinaBig through the dates of transactions that caused changes to the reporting of each respective business. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Strategic Transactions." For 2000, the DAS segment accounted for approximately 28% of operating income before GDS loss and unallocated corporate expenses in 2000. Operating income includes the revenues and direct costs incurred by each business plus an allocation of certain shared operating and general and administrative expenses based on estimated business usage. Sprint Our relationship with Sprint began in 1980 when we began publishing directories for predecessors or affiliates of Central Telephone Company and United Telephone Company of Florida, both of which have since been acquired by Sprint. Today, we are the exclusive sales agent in Nevada, Florida, Virginia and North Carolina for CenDon and the exclusive sales agent in the greater Orlando, Florida market ("Central Florida") for an operating unit of Sprint. The sales agency agreement with CenDon extends through 2010 and the sales agency agreement for Central Florida extends through 2004. Effective for directories that published after June 30, 2000, we entered into a series of agreements with Centel that effectively restructured the existing CenDon Partnership as a limited liability company ("LLC") and extended the sales agency arrangement through 2010. Both the partnership agreement and sales agency agreement were set to expire in 2004. The new arrangement focuses our responsibilities on sales and certain pre-press publishing services (the latter through 2003) and establishes us as the exclusive sales agent for Centel's print and electronic / Internet directory products in the markets previously covered by the partnership agreement. Centel assumed responsibility for the printing and delivery of directories and related support services such as marketing, customer service and collections. We receive sales commissions on all advertising sold (subject to adjustment, based on contractual provisions, for sales allowances and bad debts) and receive a priority distribution on our membership interest in the LLC, which is tied to advertising sales. Sales commissions are recorded as revenue and the priority distribution is recorded as income from partnerships and related fees. Revenue from the CenDon agency agreement represented 39%, 18% and 19% of consolidated revenue for the year ended December 31, 2000, 1999 and 1998, respectively. 2 5 Pre-press Publishing Services We provide pre-press publishing services for yellow pages directories to publishers for whom we serve as sales agent as well as for an otherwise unaffiliated independent yellow pages publisher under separately negotiated contracts. We provide certain pre-press publishing services for Ameritech's Illinois and northwestern Indiana yellow pages directories and Sprint's Central Florida and CenDon yellow pages directories, under separate agreements that individually extend through 2003. Our agreement with the unaffiliated independent yellow pages publisher extends through 2002. Our publishing center in Raleigh, North Carolina utilizes digital technology and custom designed relational databases to support the entire yellow pages advertising sales and publishing process on an integrated basis, from lead generation and sales presentation, to advertisement creation and printer-ready final output. We also have a graphics center in Dunmore, Pennsylvania that produces artwork for the majority of advertisements and specialty pages included in the directories for which we provide publishing services. The Dunmore graphics center is electronically integrated with the Raleigh publishing center. Revenue from pre-press publishing services provided to DonTech represented 12%, 10% and 11% of consolidated net revenue for the year ended December 31, 2000, 1999 and 1998, respectively. ChinaBig Investment We have an 18% interest in ChinaBig, which publishes yellow pages directories and offers Internet directory services in the People's Republic of China. During 2000, management of ChinaBig made a decision to focus more of its time and resources on the Internet aspect of its business plan, known as ChinaBiG.com. In connection with an equity investment by an unaffiliated third party and in order to facilitate the raising of additional capital and provide greater flexibility, on June 15, 2000, ChinaBig and each existing investor (including the Company), restructured the existing joint venture agreement of ChinaBig to, among other things, significantly reduce our influence on the daily operations of ChinaBig. As a result of the restructured agreement, we are a passive investor in ChinaBig and account for this investment under the cost method. Prior to June 15, 2000, we accounted for this investment under the equity method. Therefore, subsequent to June 15, 2000, our share of the losses of ChinaBig is no longer recognized in the consolidated statement of operations. GET DIGITAL SMART In February 2000, we launched an initiative, known as "Get Digital Smart(SM)", in the Miami/Ft. Lauderdale market to test the economic viability of providing a variety of products and services designed to deliver a comprehensive package of Internet marketing and e-commerce capabilities to small and medium-sized local businesses. While the test demonstrated that there was a demand for the products and services we offered, the business was not broadly capable of providing an adequate return on investment. In December 2000, we ceased operations of GDS and entered into an agreement pursuant to which Innuity Inc., a provider of e-commerce services to small and medium-sized businesses, assumed all of the rights and obligations under our GDS customer contracts. Accordingly, GDS will not be one of our operating segments in 2001. GDS incurred an operating loss of $8.9 million for the year ended December 31, 2000 and we also recorded one-time costs of $2.9 million related to the shutdown of the business. COMPETITION Yellow Pages Advertising Sales We experience competition for yellow pages advertising sales in our current markets to varying degrees from the sales forces of yellow pages publishers with which we are either not affiliated or with divisions of such companies for which we do not provide sales agency services. All of the telephone companies with which we are affiliated currently market yellow pages advertising with internal sales forces in many of the markets in which we do not provide sales agency services. In addition, our competitors include other local telephone companies, independent publishers (publishers that are not affiliated with any telephone company) and national yellow pages sales agents. We believe we have a competitive advantage in that we can offer our clients our long-term presence in our current markets, our yellow pages marketing and pre-press publishing expertise and an established infrastructure and performance-focused, non-union sales force. Our long-term contractual relationships with the largest or one of the largest, potential competitors in our major markets also represents a competitive advantage for us. The market position of local telephone companies, 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. There is also competition for advertising sales from other media, including newspapers, magazines, radio, direct mail, online information services, television and cable television. Additionally, advances in technology have brought to the industry new participants, new products and new channels, including increasing use of the Internet as an advertising medium. 3 6 Pre-press Publishing Services With respect to the pre-press publishing services we provide, yellow pages publishers that are not our customers typically derive such services from internal divisions or through independent providers of such services or some combination of both. Many telephone companies and many of the significant independent yellow pages publishers are making investments to acquire publishing services technology similar to the technology used at our Raleigh publishing center. We compete based upon breadth of services offered, price and turn-around time. Electronic / Internet Directory Products We are also the exclusive sales agent for electronic / Internet directory products offered by Ameritech and Sprint in the markets covered by our sales agency agreements. We face competition in our sales of electronic / Internet directory products in these markets from other local telephone companies, Internet yellow pages companies, Internet advertising agencies and Internet service providers. Competition for these sales is based upon product offerings and price. EMPLOYEES As of December 31, 2000, we had approximately 700 full-time employees. This number does not include the employees of DonTech, whom are not our employees. None of our employees are covered by collective bargaining agreements, and we consider relations with our employees to be good. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information concerning the individuals who serve as executive officers of the Company as of March 15, 2001.
NAME AGE POSITION(S) - ---- --- ----------- Frank R. Noonan 58 Chairman of the Board and Chief Executive Officer David C. Swanson 46 President and Chief Operating Officer Philip C. Danford 57 Senior Vice President and Chief Financial Officer Robert J. Bush 35 Vice President, General Counsel and Corporate Secretary Frank M. Colarusso 43 Vice President and Treasurer William C. Drexler 47 Vice President and Controller
FRANK R. NOONAN has served as Chairman and Chief Executive Officer of the Company and Donnelley since June 30, 1998. Mr. Noonan served as President of Donnelley from August 1991 to December 2000 and has been a director of Donnelley since February 1995. Mr. Noonan was a director of D&B from April 1998 to June 1998. Mr. Noonan was Senior Vice President Finance of Dun & Bradstreet Information Services from 1989 to August 1991. Prior to joining D&B, Mr. Noonan served as Senior Vice President and Chief Financial Officer of UNUM Corporation and in various financial positions for the General Electric Company. Mr. Noonan is Vice Chairman of the Board of Trustees for New York United Hospital Medical Center, a member of the Boards of Trustees of Manhattanville College and the University of New Hampshire Foundation, and Vice Chairman of the Board of Governors for the Buick Classic. DAVID C. SWANSON has served as President and Chief Operating Officer since December 2000 and as Senior Vice President of the Company since June 1998. Prior to this appointment, Mr. Swanson served as President of Donnelley Directory Services, a division of the Company, since March 1999. Upon the spin-off of the Company from D&B in June 1998, Mr. Swanson was appointed Donnelley's Executive Vice President-Corporate Strategy. Prior thereto, Mr. Swanson served as Executive Vice President and General Manager for Proprietary Operations from July 1997, Executive Vice President Sales for Donnelley from October 1995 and Donnelley's Vice President and General Manager of Cincinnati Operations from September 1993. PHILIP C. DANFORD has served as Senior Vice President and Chief Financial Officer since June 1998 and a director of Donnelley since March 1998. Previously, Mr. Danford served as Vice President and Treasurer for D&B from September 1992. Mr. Danford joined D&B as Assistant Treasurer in 1988. Before joining D&B, Mr. Danford served as Vice President and Treasurer at The Perkin-Elmer Corporation and as Assistant Vice President and Manager at W.R. Grace & Co. 4 7 ROBERT J. BUSH was appointed General Counsel in January 2001, Vice President in October 2000 and Corporate Secretary in July 2000. Mr. Bush joined the Company in October 1999 as Assistant Vice President and Assistant General Counsel. Prior to joining the Company, Mr. Bush was Assistant General Counsel and Assistant Secretary at MIM Corporation from May 1998 to October 1999 and an Associate at the New York offices of Jones, Day, Reavis & Pogue from August 1993 to May 1998. FRANK M. COLARUSSO has served as Vice President and Treasurer since June 1998. Prior to that, he was Assistant Treasurer of D&B since 1996. Mr. Colarusso joined D&B in 1986 and was named Manager, International Treasury Services in 1989 and Director of Corporate Finance in 1992. Prior to joining D&B, Mr. Colarusso held management positions at Texaco Inc. and Sperry Corporation. WILLIAM C. DREXLER has served as Vice President and Controller since June 1999. Prior to that, Mr. Drexler served as Assistant Vice President of Finance for the Company since 1996. Mr. Drexler joined the Company in 1992 as Director of Accounting Operations. In 1995, he was named Director of Financial Planning for publishing and information services. Prior to joining D&B, Mr. Drexler held financial management positions with a number of manufacturing firms. ITEM 2. PROPERTIES Within our DAS segment, we lease five sales offices and conduct our publishing operations from two leased facilities. Our sales offices are between 2,000 and 15,000 square feet and are located in Florida, Nevada and Virginia. Our main publishing facility center is located in a 55,000 square foot building in Raleigh, North Carolina and our graphics center is located in a 20,000 square foot building in Dunmore, Pennsylvania. We also lease 35,000 square feet for our administrative headquarters and offices in Purchase, New York. ITEM 3. LEGAL PROCEEDINGS Rockland Yellow Pages In April 1999, Sandy Goldberg, Dellwood Publishing, Inc. and Rockland Yellow Pages initiated a lawsuit against the Company and Bell Atlantic in the United States District Court of the Southern District of New York. The Rockland Yellow Pages is a proprietary directory that competes against a Bell Atlantic directory in the same region, for which the Company served as Bell Atlantic's sales agent through June 30, 2000. The complaint alleged that the defendants disseminated false information concerning the Rockland Yellow Pages, which has resulted in damages to the Rockland Yellow Pages. The plaintiffs alleged a variety of claims including RICO violations, antitrust violations and Lanham Act violations. They sought damages in excess of $30 million, which amount plaintiffs sought to have trebled under the antitrust laws. In addition, the plaintiffs also sought punitive damages in an unspecified amount. In February 2000, Yellow Book USA, Inc., one of the Company's primary competitors, acquired Dellwood Publishing, Inc., but this matter was not part of the assets acquired by Yellow Book. In June 1999, the defendants filed a motion to dismiss this complaint. In September 2000, the Court dismissed the complaint in its entirety, but gave plaintiffs 30 days leave to amend the complaint to replead any claims, other than the RICO claims. In October 2000, plaintiffs filed an amended complaint alleging substantially the same facts, claims and damages as set forth in the original complaint, other than the RICO claims. In November 2000, the defendants again filed a motion to dismiss the amended complaint. While at this preliminary stage in the proceedings management is unable to predict the outcome of this matter, it presently believes that the resolution of the action will not have a material adverse effect on the Company's financial position or results of operations. Information Resources In July 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming as defendants the Company (as successor of Old D&B), ACNielsen Company and IMS International Inc., each former subsidiaries of D&B ("IRI Action"). The complaint alleges, among other things, various violations of the antitrust laws and seeks damages in excess of $350 million, which IRI is seeking to have trebled under the antitrust laws. IRI also seeks punitive damages of an unspecified amount. Under the definitive agreement entered into in connection with the Distribution (the "Distribution Agreement"), New D&B has assumed the defense and will indemnify the Company against any payments to be made by the Company in respect of the IRI Action, under the Indemnity and Joint Defense Agreement entered into in connection with the Distribution or otherwise, including any ongoing legal fees and expenses related thereto. Management presently believes that New D&B has sufficient financial resources and/or borrowing capacity to satisfy all such liabilities and to reimburse the Company for all costs and expenses incurred. Management does not believe that the recent separation of Moody's from New D&B will have a 5 8 material adverse impact on these indemnity rights of the Company because, as required by the Distribution Agreement, Moody's has agreed to be jointly and severally liable with New D&B for those indemnity obligations to the Company. Tax Matters Certain tax planning strategies entered into by Old D&B are currently subject to review by tax authorities. Pursuant to a series of agreements, IMS Health Incorporated ("IMS") and Nielsen Media Research, Inc. ("NMR") (both of which are former subsidiaries of D&B) are each jointly and severally liable to pay 50%, and Old D&B is liable for the remaining 50% of any payments for taxes and accrued interest arising from this matter and certain other potential tax liabilities after Old D&B pays the first $137 million of tax liability. As explained above, as a result of the form of the Distribution, the Company is the corporate successor of, and the taxpayer referred to herein as, Old D&B. However, pursuant to the terms of the Distribution Agreement and the Tax Allocation Agreement executed in connection with the Distribution, New D&B has assumed the defense and will indemnify the Company against any payments to be made by the Company in respect of any tax liability that may be assessed and any costs and expenses relating thereto, including any ongoing legal fees and expenses related thereto. In May 2000, the Internal Revenue Service (the "IRS") issued a summary report with respect to these tax-planning strategies. In connection with the summary report, New D&B filed an amended tax return for 1989 and 1990, which reflected $561.6 million of tax and interest due and paid the IRS approximately $349.3 million of this amount and IMS paid approximately $212.3 million. The Company understands that these payments were funded with short-term borrowings and were paid under dispute in order to stop additional interest from accruing. Management presently believes that New D&B, IMS and NMR have sufficient financial resources and/or borrowing capacity to satisfy all such liabilities and to reimburse the Company for all costs and expenses relating thereto. Management does not believe that the recent separation of Moody's from New D&B will have a material adverse impact on these indemnity rights of the Company because, as required by the Distribution Agreement, Moody's has agreed to be jointly and severally liable with New D&B for those indemnity obligations to the Company. Other than the matters described above, the Company is involved in legal proceedings, claims and litigation arising in the ordinary conduct of its business. Although there can be no assurances, management presently believes that the outcome of such legal proceedings will not have a material adverse effect on the Company's financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 2000. 6 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on the New York Stock Exchange under the symbol "RHD." The table below indicates the high and low sales price of the Company's common stock for each quarter of the last two years.
Price Per Share --------------- High Low ---- --- 2000 1st Quarter $18.94 $15.25 2nd Quarter $21.00 $14.88 3rd Quarter $21.94 $18.38 4th Quarter $24.94 $19.38 1999 1st Quarter $17.69 $14.38 2nd Quarter $19.75 $15.13 3rd Quarter $20.25 $16.63 4th Quarter $19.50 $17.25
At March 2, 2001, there were approximately 7,200 holders of record of the Company's common stock. The Company did not pay any cash dividends during the last two years and does not expect to pay dividends for the foreseeable future. The Company's Credit Agreement and the indenture governing the Notes contain various financial restrictions that may place limitations on the ability of the Company to pay dividends in the future (see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources"). 7 10 ITEM 6. SELECTED FINANCIAL DATA The selected financial data (except for advertising sales data) of the Company at December 31, 2000 and for each of the five years then ended are derived from the audited consolidated financial statements of the Company. The Company's audited consolidated financial statements are presented as if the Company was a stand-alone entity for all periods and include allocations through the date of Distribution (June 30, 1998) of certain D&B assets, liabilities and general and administrative expenses related to the business. Management believes these allocations were reasonable; however, the amounts below do not include additional costs that management believes the Company would have incurred if it were a stand-alone entity for all periods prior to the Distribution. The information below also includes operating results of businesses that were sold during 2000, 1997 and 1996 and certain one-time items in 2000. Amounts related to these businesses and one-time items are presented below in footnote (1). The information set forth below should be read in conjunction with the audited Consolidated Financial Statements and related notes in Item 8 and with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------ (in thousands, except per share data) 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA (1): Net revenue (2) ................................ $ 141,287 $ 181,905 $ 166,249 $ 233,735 $ 263,208 Income from partnerships and related fees ...... 147,693 139,181 135,854 130,171 132,945 Operating income ............................... 147,375 129,906 125,235 134,470 166,658 Net income before extraordinary item ........... 125,462 55,151 61,268 84,743 77,645 Net income after extraordinary item (3) ........ 124,758 55,151 61,268 84,743 77,645 EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM: Basic .......................................... $ 3.93 $ 1.64 $ 1.79 $ 2.48 $ 2.28 Diluted ........................................ $ 3.85 $ 1.61 $ 1.77 $ 2.48 $ 2.28 EARNINGS PER SHARE AFTER EXTRAORDINARY ITEM (3): Basic .......................................... $ 3.91 $ 1.64 $ 1.79 $ 2.48 $ 2.28 Diluted ........................................ $ 3.83 $ 1.61 $ 1.77 $ 2.48 $ 2.28 SHARES USED IN COMPUTING EARNINGS PER SHARE Basic .......................................... 31,947 33,676 34,237 34,153 34,003 Diluted ........................................ 32,594 34,159 34,522 34,213 34,058 DIVIDENDS PER SHARE ............................ -- -- $ 0.35 -- -- BALANCE SHEET DATA (1): Total assets ................................... $ 365,284 $ 395,406 $ 385,841 $ 377,507 $ 497,683 Long-term debt ................................. 347,526 435,000 464,500 -- -- Shareholders' (deficit) equity ................. (108,510) (192,811) (224,770) 255,807 376,478 ADVERTISING SALES DATA (UNAUDITED) (1, 4): Calendar cycle ................................. $ 897,670 $ 1,066,728 $ 991,575 $ 1,064,745 $ 1,110,597 Publication cycle .............................. 860,523 1,045,132 989,282 1,082,572 1,076,937
8 11 (1) Amounts above include the results of the Bell Atlantic, Cincinnati and Get Digital Smart businesses sold in 2000 and one-time items from the restructuring of the CenDon relationship. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Strategic Transactions" for a discussion of these items. In addition, the amounts shown for 1997 and 1996 also include the results of the P-East (sold in 1997) and P-West (sold in 1996) businesses. To facilitate comparison of the financial data, the amounts related to these sold businesses and one-time items are as follows:
2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Net revenue (2) .......................... $ 63,994 $106,986 $ 92,319 $175,210 $207,678 Income from partnerships and related fees 5,422 -- -- 1,724 1,710 Operating income ......................... 13,191 7,538 6,531 22,873 48,151 Total assets ............................. -- 64,193 61,678 65,437 165,862 Publication cycle advertising sales (4) .. 238,131 436,870 405,929 527,549 551,539 Calendar cycle advertising sales (4) ..... 277,768 453,971 388,299 492,816 553,209
(2) Beginning in 2000, revenue is reported net of estimated claims and allowances. Previously, the Company recorded estimated claims and allowances as a provision for bad debts. All prior period amounts have been restated to conform to the 2000 presentation. (3) In 2000, the Company recognized an extraordinary after-tax loss of $704 related to the write-off of deferred financing costs in connection with the early repayment of debt. (4) Advertising sales represent the billing value of advertisements sold for an annual directory by the Company and DonTech. Calendar cycle advertising sales represent the billing value of advertisements sold for an annual directory stated on the same basis as revenue is recognized (that is, when a sales contract is signed where the Company acts as a sales agent and when a directory was published where the Company acted as the publisher). Publication cycle sales represent sales for directories that published in the current period which are compared against sales for the same directories published in the prior period, regardless of when the advertising for that directory was sold. If a directory publication date changes from one year to the next, the prior year publication date is adjusted to conform to the present year to maintain comparability. 9 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained in this Form 10-K regarding R.H. Donnelley's future operating results or performance or business plans or prospects and any other statements not constituting historical fact are "forward-looking statements" subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, the words "believe," "expect," "anticipate," "should," "planned," "estimated," "potential," "goal," "outlook," and similar expressions, as they relate to R.H. Donnelley or its management, have been used to identify such forward-looking statements. Regardless of any identifying phrases, these statements and all other forward-looking statements reflect only R.H. Donnelley's current beliefs and specific assumptions with respect to future business plans, prospects, decisions and results, and are based on information currently available to R.H. Donnelley. Accordingly, the statements are subject to significant risks, uncertainties and contingencies which could cause R.H. Donnelley's actual operating results, performance or business plans or prospects to differ from those expressed in, or implied by, these statements. Such risks, uncertainties and contingencies include, without limitation, the following: (1) loss of market share through competition; (2) uncertainties caused by the consolidation of the telecommunications industry; (3) introduction of competing products or technologies by other companies; (4) complexity and uncertainty regarding the development and/or deployment of new high technology products, and uncertainty regarding the acceptance rate of such products; (5) pricing pressures from competitors and/or customers; (6) changes in the yellow pages industries and markets; (7) a sustained economic downturn in the United States; (8) failure to appropriately remedy the previously disclosed billing and collections problems with respect to DonTech; and (9) share repurchases will be subject to market conditions and compliance with legal restrictions and the Company's debt covenants. This Item should be read in conjunction with the audited, consolidated financial statements and notes thereto included in Item 8 of this Form 10-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update any forward-looking statements. THE COMPANY R.H. Donnelley Corporation is a leading marketer of yellow pages and other marketing and advertising services tailored for small and medium-sized businesses. Unless otherwise indicated, the terms "Company," "we," "us" and "our" refer to R.H. Donnelley Corporation and its direct and indirect wholly owned subsidiaries. Unless otherwise specified, all tabular amounts are presented in millions of dollars. Prior to July 1, 1998, we operated as part of The Dun & Bradstreet Corporation (in the context of specifically describing the Distribution, referred to as "Old D&B," otherwise "D&B"). The Board of Directors of Old D&B approved in principle a plan to separate into two publicly traded companies - R.H. Donnelley Corporation and The New Dun & Bradstreet Corporation ("New D&B"). The distribution ("Distribution") was the method by which Old D&B distributed to its shareholders shares of New D&B common stock. On July 1, 1998, as part of the Distribution, Old D&B distributed to its shareholders shares of New D&B stock and Old D&B changed its name to R.H. Donnelley Corporation. Our business is organized into three operating segments as of December 31, 2000: DonTech Partnership ("DonTech"), Directory Advertising Services ("DAS") and Get Digital Smart ("GDS"). As a result of the transactions described below under " - Strategic Transactions," we restructured our reportable operating segments in 2000 to better reflect the Company's current operations and the way we view our businesses. DAS now includes our pre-press publishing operations formerly reported separately as Directory Publishing Services. Also, information technology costs (a portion of which were previously allocated to and included in Other) are now included entirely in DAS. All prior period amounts have been restated in accordance with the new reporting structure. DonTech is our 50/50 partnership with an operating unit of SBC Communications Inc. ("SBC"). DonTech acts as the exclusive sales agent for yellow pages directories published by Ameritech Corporation, a wholly owned subsidiary of SBC ("Ameritech"), in Illinois and northwest Indiana. In addition to our 50% interest in the profits of DonTech, we receive direct fees ("revenue participation"), which are tied to advertising sales, from our partner. Although DonTech provides advertising sales of yellow pages and other directory products similar to DAS, the partnership is considered a separate operating segment since, among other things, the employees of DonTech, including its officers and managers, are not our employees. Within our DAS segment, we provide advertising sales and marketing services for yellow pages and other directory products for affiliated entities of Sprint Corporation ("Sprint") and perform pre-press publishing services for yellow pages directories. We are the exclusive sales agent in Central Florida for an operating unit of Sprint and the exclusive sales agent in Nevada, Florida, Virginia and North Carolina for CenDon LLC ("CenDon"), a joint venture with Centel Directory Company ("Centel"), a subsidiary of Sprint. We provide pre-press publishing services for yellow pages directories to publishers for whom we serve as 10 13 sales agent as well as for an otherwise unaffiliated independent yellow pages publisher under separately negotiated contracts. DAS also includes all information technology costs. In addition, the results of our DAS segment include the operating results of our Cincinnati and Bell Atlantic businesses and our investment in ChinaBig.com Limited (previously known as Unicom Media Limited, "ChinaBig") through the dates of transactions that caused changes to the reporting of each respective business (see " - Strategic Transactions" below). Where we serve as a sales agent, we recognize revenue from sales commissions at the time an advertising contract is executed with a customer. This includes sales commission revenue realized from Sprint, including CenDon (for directories that published after June 30, 2000), and Bell Atlantic (through June 30, 2000). Where we were the publisher, we recognized revenue when a directory was published. This included revenue realized from publication of directories by CenDon before June 30, 2000 and from the publication of our Cincinnati proprietary directory in 1999. There was no revenue recognized in 2000 from our Cincinnati proprietary operation as the business was sold prior to the scheduled directory publication date. We recognize revenue from our pre-press publishing services on a straight-line basis throughout the year as the services are performed. Our GDS segment includes our "Get Digital Smart" business, which began operations in the first quarter of 2000 to test the economic viability of offering Internet marketing and e-commerce services to small and medium-sized businesses in the Miami/Ft. Lauderdale market. We ceased operations of this business in December 2000. STRATEGIC TRANSACTIONS In 2000, we entered into a number of transactions designed to enhance shareholder value, sharpen strategic focus and create a more efficient cost structure. These transactions included the following: - - We executed an agreement with Bell Atlantic for the early termination of our sales agency agreements, which were set to expire in 2003 and 2005, and sold our Cincinnati proprietary operations. Net cash generated from these transactions was over $100 million. - - We restructured and extended our CenDon relationship through 2010. The original relationship was set to expire in 2004. - - In connection with the investment by an unaffiliated third party in ChinaBig, we became a passive investor, and as such, no longer recognize our share of the losses of ChinaBig. - - We ceased operations of our GDS business in December 2000. As a result of the proceeds from these transactions, we strengthened our financial position by prepaying $90.0 million of debt. Net debt (total debt less cash) at the end of 2000 was $296.3 million compared to $442.4 million at the end of 1999. Additionally, we spent $53.6 million to repurchase 2.8 million shares of our common stock. This represented over 8% of the outstanding shares at the beginning of the year. DISPOSITION OF BUSINESSES AND RELATED COST CUTTING ACTIONS On April 27, 2000, we sold our Cincinnati proprietary directory business to Yellow Book USA, Inc. for $8 million. On June 30, 2000, we entered into an agreement (the "Agreement") with an affiliate of Bell Atlantic Corporation (now known as Verizon Communications, "Bell Atlantic") for the early termination of the directory services agreements between the Company and Bell Atlantic dated September 5, 1985 and May 5, 1998, as amended (the "Agency Agreements"). Pursuant to the Agency Agreements, the Company had served as exclusive sales agent for Bell Atlantic directories covering substantially all of New York State. The Agency Agreements had been scheduled to expire in 2005 and 2003, respectively. In 1999, the Agency Agreements accounted for approximately 41% of total publication cycle advertising sales, 54% of consolidated net revenue and 10% of consolidated operating income. Under the terms of the Agreement, we received cash proceeds of $114 million, which were reduced by approximately $3 million for liabilities assumed by Bell Atlantic related to the pre-closing period. We also received commissions of approximately $42 million for sales which occurred prior to the closing, but which were not yet payable under the terms of the Agency Agreements. In addition, we received commissions of approximately $15 million for sales of certain directories that published during the pre-closing period. 11 14 In December 2000, we ceased operations of our Get Digital Smart business. GDS was launched in February 2000 in the Miami/Ft. Lauderdale market to test the economic viability of providing a variety of products and services designed to deliver a comprehensive package of Internet marketing and e-commerce capabilities to small and medium-sized local businesses. While the test demonstrated that there was a demand for the products and services we offered, the business was not broadly capable of providing an adequate return on investment. In December 2000, we entered into an agreement pursuant to which Innuity Inc., a provider of e-commerce services to small and medium-sized businesses, assumed all of the rights and obligations under our GDS customer contracts. We recognized one-time costs of $2.9 million for severance and other related costs. We also implemented cost-cutting measures in 2000, including headcount reductions, at our Raleigh, N.C. facility and corporate headquarters consistent with our new operating structure. We recognized a net, pretax gain from the above transactions of approximately $86.5 million ($53.5 million after taxes). CENDON RESTRUCTURING AND EXTENSION Effective for directories that published after June 30, 2000, the Company and Centel entered into a series of agreements that effectively restructured the existing CenDon partnership as a limited liability company ("LLC") and extended the sales agency arrangement through 2010. Both the partnership agreement and sales agency agreement were set to expire in 2004. The new arrangement focuses our responsibilities on sales and certain pre-press publishing services (the latter through 2003) and establishes us as the exclusive sales agent for Centel's print and electronic / Internet directory products in the markets previously covered by the partnership agreement. Centel assumed responsibility for the printing and delivery of directories and related support services such as marketing, customer service and collections. We receive sales commissions on all advertising sold (subject to adjustment, based on contractual provisions, for sales allowances and bad debts) and receive a priority distribution on our membership interest in the LLC, which is tied to advertising sales. Sales commissions are recorded as revenue and the priority distribution is recorded as partnership income and related fees. Under the new agreement, revenue and related costs are recognized at the time of sale, rather than at the time of directory publication as had historically been the case for CenDon. Accordingly, 2000 results include a one-time operating income benefit of $15.8 million relating to advertising sales made and related costs incurred prior to the effective date of the agreement for directories that published subsequent to the effective date of the agreement. CHINABIG INVESTMENT We have an 18% interest in ChinaBig, which publishes yellow pages directories and offers Internet directory services in the People's Republic of China. During 2000, management of ChinaBig made a decision to focus more of its time and resources on the Internet aspect of its business plan, known as ChinaBiG.com. In connection with an equity investment by an unaffiliated third party and in order to facilitate the raising of additional capital and provide greater flexibility, on June 15, 2000, ChinaBig and each existing investor (including the Company), restructured the existing joint venture agreement of ChinaBig to, among other things, significantly reduce our influence on the daily operations of ChinaBig. As a result of the restructured agreement, we are a passive investor in ChinaBig and account for this investment under the cost method. Prior to June 15, 2000, we accounted for this investment under the equity method. Therefore, subsequent to June 15, 2000, our share of the losses of ChinaBig is no longer recognized in the consolidated statement of operations. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 VS. YEAR ENDED DECEMBER 31, 1999 Due to the numerous strategic transactions referred to above, we do not believe that the reported results for 2000 are indicative of our underlying ongoing operations nor do we believe that comparisons to 1999 would be meaningful. Accordingly, the information below is presented on both a reported, audited basis and an as adjusted, unaudited basis. Therefore, this "Results of Operations" discussion ignores as no longer relevant or material, changes between 2000 and 1999 in the disposed operations (Bell Atlantic, Cincinnati and GDS) and does not discuss in detail the other one-time items described above under "-- Strategic Transactions." For period over period comparisons of the Bell Atlantic and Cincinnati operations during the periods prior to disposition, see Management's Discussion and Analysis of Financial Condition and Results of Operations in each of our Quarterly Reports on Form 10-Q for the first and second quarters of 2000. Because GDS did not begin active operations until 2000, no period over period comparison would be meaningful. The as adjusted amounts assume the transactions described above had occurred on January 1, 1999 and are derived by excluding from the reported amounts the advertising sales, revenue and expenses of the Bell Atlantic, Cincinnati and GDS operations, as well as the one-time items from the restructuring of the CenDon 12 15 relationship and the disposition of businesses. While we believe that, as compared to the reported, audited results of operations, the as adjusted, unaudited information is more indicative of our underlying financial and operational performance during 2000 and may better reflect our future performance, the as adjusted, unaudited information does not purport to represent what our actual results would have been had the transactions occurred as of the assumed dates or project the financial condition or results of operations for any future period. ADVERTISING SALES Calendar Cycle Basis Calendar cycle advertising sales represent the billing value of advertisements sold for an annual directory stated on the same basis as revenue is recognized (that is, when a sales contract is signed where the Company acts as a sales agent and when a directory was published where the Company acted as the publisher). The selling of advertising for a specific directory is managed as a sales campaign. The typical sales campaign begins approximately six to eight months prior to the scheduled publication date. As a result, the amount of calendar sales can fluctuate from the prior year due to various factors, including changes in the actual commencement date of the sales campaign and the timing of sales during the sales campaign. Reported and as adjusted calendar advertising sales by segment are presented below:
2000 1999 $ Change % Change -------- -------- -------- -------- REPORTED DonTech $ 428.2 $ 432.3 $ (4.1) (0.9)% DAS 469.5 634.4 (164.9) (26.0) -------- -------- -------- -------- Total $ 897.7 $1,066.7 $ (169.0) (15.8)% ======== ======== ======== ======== AS ADJUSTED DonTech $ 428.2 $ 432.3 $ (4.1) (0.9)% DAS (a) 191.7 180.4 11.3 6.3 -------- -------- -------- -------- Total $ 619.9 $ 612.7 $ 7.2 1.2% ======== ======== ======== ========
(a) Excludes Bell Atlantic sales of $182.0 million and one-time sales benefit from the CenDon restructuring of $95.8 million in 2000 and Bell Atlantic sales of $444.0 million and Cincinnati sales of $10.0 million in 1999. Reported calendar advertising sales were $897.7 million for 2000 compared to $1,066.7 million for 1999. On an as adjusted basis, calendar advertising sales for 2000 were $619.9 million compared to $612.7 million for 1999. Sales at DonTech declined to $428.2 million from the prior year amount of $432.3 million. Calendar sales at DonTech for the entire year 2000 and latter part of 1999 were adversely affected by issues related to the administration of billing and collection functions at Ameritech that resulted in a loss of customers who were significantly delinquent and withdrawn from directories, as well as the timing of certain sales campaigns in 2000 compared to 1999. As adjusted sales for DAS increased to $191.7 million from the prior year amount of $180.4 million primarily due to growth in the Sprint markets of Las Vegas and Central Florida. Publication Cycle Basis We believe that an additional useful measure of sales performance is publication cycle sales. Publication cycle sales represent sales for directories that published in the current period which are compared against sales for the same directories published in the prior year period, regardless of when the advertising for that directory was sold. If a directory publication date changes from one year to the next, the prior year publication date is adjusted to conform to the present year to maintain comparability. There were no changes to directory publication dates in 2000 that would require adjustments to the prior year publication sales amounts. 13 16 Reported and as adjusted publication cycle advertising sales by segment are presented below:
2000 1999 $ Change % Change -------- -------- -------- -------- REPORTED DonTech $ 430.8 $ 427.6 $ 3.2 0.7% DAS 429.7 617.5 (187.8) (30.4) -------- -------- -------- -------- Total $ 860.5 $1,045.1 $ (184.6) (17.7)% ======== ======== ======== ======== AS ADJUSTED DonTech $ 430.8 $ 427.6 $ 3.2 0.7% DAS (a) 191.6 180.7 10.9 6.0 -------- -------- -------- -------- Total $ 622.4 $ 608.3 $ 14.1 2.3% ======== ======== ======== ========
(a) Excludes Bell Atlantic sales of $238.1 million in 2000 and Bell Atlantic and Cincinnati sales of $426.8 million and $10.0 million, respectively, in 1999. Reported publication cycle advertising sales were $860.5 million for 2000 compared to $1,045.1 million for 1999. As adjusted publication cycle sales for 2000 were $622.4 million compared to $608.3 million for 1999. Publication cycle sales at DonTech were $430.8 million, up slightly from the prior year amount of $427.6 million. The absence of growth in DonTech publication cycle sales was due to the previously discussed billing and collections issues at Ameritech that adversely impacted sales throughout the year. SBC began administrative improvements during the second half of 2000, and as part of these improvements, is expected to complete the process of integrating DonTech's customers into its accounts receivable management system by the end of the first quarter of 2001. As adjusted publication cycle sales for DAS increased to $191.6 million from the prior year amount of $180.7 million. The increase was primarily driven by growth in the Las Vegas and Central Florida markets. NET REVENUE Net revenue consists principally of sales commissions earned on the value of advertising sold, less an estimate for potential claims and allowances, and fees for pre-press publishing services. Effective January 1, 2000, revenue is reported net of estimated claims and allowances. Previously, estimated claims and allowances were recorded as provision for bad debts. Reported and as adjusted net revenue by segment is as follows:
2000 1999 $ Change % Change ---- ---- -------- -------- REPORTED DAS $141.1 $181.9 $(40.8) (22.4)% GDS 0.2 -- 0.2 n/m ------ ------ ------ ------ Total $141.3 $181.9 $(40.6) (22.3)% ====== ====== ====== ====== AS ADJUSTED DAS (a) $ 77.3 $ 74.9 $ 2.4 3.2% GDS (b) -- -- -- -- ------ ------ ------ ------ Total $ 77.3 $ 74.9 $ 2.4 3.2% ====== ====== ====== ======
(a) Excludes Bell Atlantic revenue of $42.8 million and one-time revenue benefit of $21.0 million from the CenDon restructuring in 2000 and revenue from Bell Atlantic and Cincinnati of $97.4 million and $9.6 million, respectively, in 1999. (b) Excludes revenue for GDS in 2000. Reported revenue was $141.3 million for 2000 compared to $181.9 million for 1999. As adjusted revenue for 2000 was $77.3 million compared to $74.9 million for 1999. This increase was primarily due to higher commission revenues of $2.3 million from Sprint resulting from the increase in sales. Revenue from our pre-press publishing operations was approximately $0.9 million higher, but was offset by a decrease in revenue from our Yellow Pages Television (YPTV(R)) operation of $0.7 million. 14 17 EXPENSES Reported and as adjusted expenses were as follows:
2000 1999 $ Change % Change ---- ---- -------- -------- REPORTED Operating expenses $ 96.7 $138.4 $(41.7) (30.1)% G&A expenses 25.2 29.2 (4.0) (13.7) Provision for bad debts 4.3 5.3 (1.0) (18.9) D&A expense 15.4 18.3 (2.9) (15.8) ------ ------ ------ ------ Total $141.6 $191.2 $(49.6) (25.9)% ====== ====== ====== ====== AS ADJUSTED Operating expenses (a) $ 47.2 $ 53.0 $ (5.8) (10.9)% G&A expenses (b) 22.5 22.5 -- -- Provision for bad debts (c) 3.1 3.3 (0.2) (6.1) D&A expense (d) 12.7 12.8 (0.1) (0.8) ------ ------ ------ ------ Total $ 85.5 $ 91.6 $ (6.1) (6.7)% ====== ====== ====== ======
(a) As adjusted operating expenses in 2000 exclude expenses for Bell Atlantic of $30.4 million, Cincinnati expenses of $0.7 million, one-time expenses in connection with the CenDon restructuring of $9.4 million and GDS expenses of $9.0 million. As adjusted operating expenses for 1999 exclude Bell Atlantic and Cincinnati expenses of $75.4 million and $10.0 million, respectively. (b) Excludes general and administrative expenses for Bell Atlantic of $2.4 million and Cincinnati of $0.3 million in 2000 and general and administrative expenses for Bell Atlantic of $4.0 million, Cincinnati of $1.4 million and expenses of $1.3 million related to the start-up of GDS in 1999. (c) Excludes one-time provision in connection with the CenDon restructuring of $1.2 million in 2000 and provision for Cincinnati of $1.9 million and Bell Atlantic of $0.1 million in 1999. (d) Excludes depreciation and amortization expense of $2.6 million for Bell Atlantic and $0.1 million for Cincinnati in 2000 and depreciation and amortization expense of $5.3 million for Bell Atlantic and $0.2 million for Cincinnati in 1999. Reported operating expenses were $96.7 million for 2000 compared to $138.4 million for 1999. As adjusted operating expenses for 2000 were $47.2 million compared to $53.0 million for 1999. The decrease is primarily due to reduced costs in our pre-press publishing operations and information technology function due to improvements in operational efficiency and lower salaries and benefit costs as a result of headcount reductions. Reported general and administrative expenses were $25.2 million for 2000 compared to $29.2 million for 1999. As adjusted general and administrative expenses for 2000 and 1999 were $22.5 million. As a result of cost cutting actions and the strategic initiatives taken in 2000, we obtained savings in our corporate planning and development functions. These savings were offset by costs, such as investment banking and legal fees, incurred in connection with the previously announced process to explore the possible sale of the Company. Reported provision for bad debts was $4.3 million in 2000 compared to $5.3 million in 1999. As adjusted provision for bad debts in 2000 declined slightly to $3.1 million from $3.3 million in 1999. As a percentage of net revenue, as adjusted provision for bad debts of 4.0% in 2000 compared favorably to 4.4% in 1999. Reported depreciation and amortization expense was $15.4 million in 2000 compared to $18.3 million in 1999. As adjusted depreciation and amortization expense of $12.7 million in 2000 was comparable to $12.8 million in 1999. INCOME FROM PARTNERSHIPS AND RELATED FEES Income from partnerships and related fees ("partnership income") includes our share of the results from DonTech (including revenue participation), CenDon (including the priority distribution) and ChinaBig (through June 15, 2000). 15 18 Reported and as adjusted partnership income by relationship was as follows:
2000 1999 $ Change % Change ---- ---- -------- -------- REPORTED DonTech $124.0 $123.5 $ 0.5 0.4% CenDon 24.8 16.9 7.9 46.7 ChinaBig (1.1) (1.2) 0.1 8.3 ------ ------ ------ ------ Total $147.7 $139.2 $ 8.5 6.1% ====== ====== ====== ====== AS ADJUSTED DonTech $124.0 $123.5 $ 0.5 0.4% CenDon (a) 19.4 16.9 2.5 14.8 ChinaBig (1.1) (1.2) 0.1 8.3 ------ ------ ------ ------ Total $142.3 $139.2 $ 3.1 2.2% ====== ====== ====== ======
(a) Excludes one-time benefit from the restructuring of the CenDon relationship of $5.4 million in 2000. Reported partnership income was $147.7 million for 2000 compared to $139.2 million for 1999. As adjusted partnership income was $142.3 million in 2000 compared to $139.2 million for 1999. Partnership income from DonTech was $124.0 million in 2000 compared to $123.5 million in 1999. Growth in DonTech partnership income was held down by the previously mentioned billing and collections issues at Ameritech that adversely impacted sales throughout the year. As adjusted partnership income from CenDon was $19.4 million in 2000 compared to $16.9 million in 1999. The increase in CenDon partnership income was primarily due to the growth in sales in the CenDon markets, especially Las Vegas. As previously mentioned, effective June 15, 2000, we are a passive investor in ChinaBig and no longer recognize our share of its losses. OPERATING INCOME Operating income for the reportable segments (except DonTech) includes those costs directly incurred by each business unit plus an allocation of certain shared operating and general and administrative expenses based on estimated business usage. Other operating loss represents corporate and general overhead costs that are not allocated to the business segments. Reported and as adjusted operating income by segment was as follows:
2000 1999 $ Change % Change ---- ---- -------- -------- REPORTED DonTech $124.0 $123.5 $ 0.5 0.4% DAS 48.1 24.8 23.3 94.0 GDS (8.9) (1.3) (7.6) n/m Other (15.8) (17.1) 1.3 7.6 ------ ------ ------ ------ Total $147.4 $129.9 $ 17.5 13.5% ====== ====== ====== ====== AS ADJUSTED DonTech $124.0 $123.5 $ 0.5 0.4% DAS (a) 26.0 16.0 10.0 62.5 GDS (b) -- -- -- -- Other (15.8) (17.1) 1.3 7.6 ------ ------ ------ ------ Total $134.2 $122.4 $ 11.8 9.6% ====== ====== ====== ======
(a) Excludes one-time operating income benefit of $15.8 million from the CenDon restructuring, operating income for Bell Atlantic of $7.3 million and operating loss for Cincinnati of $1.0 million in 2000 and operating income for Bell Atlantic of $12.7 million and operating loss for Cincinnati of $3.9 million in 1999. (b) Excludes the operating loss for GDS in 2000 and 1999. Reported operating income was $147.4 million in 2000 compared to $129.9 million in 1999. As adjusted operating income for 2000 was $134.2 million compared to $122.4 million in 1999. See "-- Income from Partnerships and Related Fees" above for an explanation of the increase in DonTech operating income. As adjusted DAS operating income increased to $26.0 million in 2000 16 19 from $16.0 million in 1999 primarily due to strong growth in Sprint and lower costs in our pre-press publishing operations. As adjusted Other operating loss decreased to $15.8 million in 2000 from $17.1 million in 1999 primarily due to lower corporate personnel, depreciation and occupancy costs. INTEREST AND TAXES Interest expense for 2000 was $34.8 million compared to $37.2 million for 1999. The decrease was driven by a reduction in our average outstanding debt balance due to the prepayment of $90.0 million of debt in the third quarter. Interest income increased in 2000 to $3.9 million compared to $0.4 million in 1999 due to interest earned on the proceeds from the Bell Atlantic and Cincinnati transactions. The effective tax rate for 2000 decreased to 38.2% compared to 40.8% for 1999. The decrease in the effective rate is due to various actions taken during 2000 and the restructuring of our investment in ChinaBig. Our share of the losses in ChinaBig (which were recognized through June 15, 2000) could not be offset against our domestic source income when recognized, which increased our effective tax rate in 1999. EXTRAORDINARY LOSS In connection with the prepayment of debt in 2000, we recognized an extraordinary loss of $0.7 million (after taxes of $0.4 million) from the write-off of related deferred financing costs. The extraordinary loss had the effect of reducing diluted earnings per share by $0.02 in 2000. NET INCOME AND EARNINGS PER SHARE Reported net income in 2000 was $124.8 million, or $3.83 per diluted share, compared to $55.2 million, or $1.61 per diluted share in 1999. As previously stated, due to the numerous strategic initiatives undertaken during the year, we do not believe that reported earnings per share in 2000 are indicative of the underlying ongoing operations of the Company. Accordingly, we disclosed diluted earnings per share for 2000 of $1.89, which excludes the one-time operating income benefit from the CenDon restructuring, the gain on the disposition of businesses and the one-time costs associated with the shutdown of GDS, but includes the results of Bell Atlantic, Cincinnati and GDS operations during the relevant portion of 2000. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 VS. YEAR ENDED DECEMBER 31, 1998 The historical consolidated financial statements for 1998 include allocations through the date of the Distribution of certain D&B general and administrative expenses related to our business. We believe these allocations were reasonable; however, we believe that these costs were not indicative of the costs that would have been incurred had we performed or provided these functions as a separate entity. Accordingly, we estimate that general and administrative expenses would have been approximately $4.4 million higher than the amounts allocated from D&B during the first six months of 1998. We also estimate that additional interest expense of $18.4 million would have been incurred in 1998 assuming the debt was outstanding as of January 1, 1998. The information below has not been presented on an as adjusted basis as the years ended December 31, 1999 and 1998 are comparable in that each include a full year of results from the Bell Atlantic and Cincinnati operations. As previously described, we restructured our reportable operating segments in 2000. All 1999 and 1998 amounts have been restated in accordance with the new reporting structure. 17 20 ADVERTISING SALES Calendar Cycle Basis Advertising sales were $1,066.7 million for 1999 compared to $991.6 million for 1998. Calendar cycle sales for DonTech and DAS were as follows:
1999 1998 $ Change % Change ---- ---- -------- -------- DonTech $ 432.3 $ 429.2 $ 3.1 0.7% DAS 634.4 562.4 72.0 12.8 -------- -------- -------- -------- Total $1,066.7 $ 991.6 $ 75.1 7.6% ======== ======== ======== ========
Calendar sales at DonTech in 1999 were adversely affected by billing and collection problems at Ameritech, whereby the sales force for the Chicago 2000 directory campaign continued to sell to customers which they believed were paying on a timely basis but which were actually past due and ultimately withdrawn from the Chicago directory. Calendar cycle sales for DAS increased in 1999 compared to 1998 primarily due to an increase of 17.2% in the Bell Atlantic markets and 3.6% in the Sprint markets. Approximately half of the increase in Bell Atlantic sales was due to the addition of Bell Atlantic's Buffalo market and the remaining increase was due to improving performance in some directories and higher sales in other directories as a result of timing. We started selling advertising in the Buffalo market in October 1998; therefore, calendar cycle sales of $6.3 million in 1998 represented only three months of operations. The increase in the Sprint markets in 1999 was primarily due to growth in the Las Vegas, Tallahassee and Central Florida directories. Calendar sales for the Cincinnati directory decreased $0.6 million in 1999 compared to 1998. Publication Cycle Basis Publication cycle sales in 1998 have been adjusted from the amounts originally reported to reduce DAS by $0.5 million and increase DonTech by $5.8 million to conform to the 1999 publication dates. In 1999, Sprint assumed responsibility for national advertising sales for Central Florida in consideration for an annual fee payable to us. Consequently, there were no national advertising sales in 1999 and accordingly, to conform to the 1999 presentation, national sales of $6.1 million have been excluded from 1998 DAS publication cycle sales. Publication cycle sales were $1,045.1 million for 1999 compared to $989.3 million for 1998. Publication cycle sales for DonTech and DAS were as follows:
1999 1998 $ Change % Change ---- ---- -------- -------- DonTech $ 427.6 $ 408.9 $ 18.7 4.6% DAS 617.5 580.4 37.1 6.4 -------- -------- -------- -------- Total $1,045.1 $ 989.3 $ 55.8 5.6% ======== ======== ======== ========
Sales at DonTech increased due to overall growth in the DonTech markets. The increase in DAS publication cycle sales in 1999 compared to 1998 was primarily due to sales in the Buffalo market. NET REVENUE As a result of the restructuring of our reportable operating segments, all revenue for 1999 and 1998 was earned in our DAS segment. Net revenue for 1999 increased $15.7 million, or 9.4% to $181.9 million compared to $166.2 million in 1998. The increase was primarily due to higher revenue from Bell Atlantic ($14.8 million) as a result of higher sales, approximately half of which came from the addition of the Buffalo markets, and higher fees earned from the sale of our YPTV product ($2.2 million) due to an increase in volume. These increases were partially offset by a decrease in revenue from the Cincinnati directory ($0.6 million) and slightly lower revenue in our pre-press publishing operations ($0.5 million). 18 21 EXPENSES Operating expenses in 1999 of $138.4 million were $15.0 million, or 12.2% higher than operating expenses of $123.4 million in 1998. This increase was due to an increase in sales costs and commissions of $8.8 million due to the increase in sales and enhancements to our commission plans. Costs associated with the sale of our YPTV product increased $1.7 million corresponding to the increase in fees earned, and software related costs increased $1.1 million due to a shift from developmental type expenditures in 1998 (which are capitalized) to maintenance type expenditures (which are expensed when incurred) in 1999. General and administrative expenses in 1999 of $29.2 million were $0.8 million, or 2.8% higher than general and administrative expenses of $28.4 million in 1998. During 1999, we incurred additional finance, human resources and other costs of approximately $2.5 million as a result of being a stand-alone entity for the entire year and $1.3 million of start-up expenses relating to our Internet marketing and e-commerce initiative. These increases were partially offset by a reduction in employee benefits costs of $2.5 million. Provision for bad debts for 1999 of $5.3 million was comparable to the provision for bad debts of $5.4 million in 1998. As a percentage of net revenue, the 1999 provision for bad debts decreased to 2.9% compared to 3.3% in 1998. This decrease was primarily due to relatively higher revenue in 1999 related to YPTV operations, which generally have lower bad debt losses. INCOME FROM PARTNERSHIPS AND RELATED FEES Partnership income in 1999 was $139.2 million, a $3.3 million, or 2.4% increase over $135.9 million in 1998. Income from DonTech increased $3.4 million and income from CenDon increased $1.2 million, in each case due to growth in advertising sales. During 1999, ChinaBig received the necessary regulatory approvals and commenced directory operations. Our share of the losses from the start-up of the venture's directory operations totaled $0.6 million in 1999. In addition, we recorded $0.7 million of amortization expense to amortize the difference between the book value of our investment and our share of the net assets of ChinaBig. This difference of approximately $13.2 million is being amortized over 10 years. OPERATING INCOME Operating income for 1999 of $129.9 million was $4.7 million, or 3.8% higher than operating income of $125.2 million in 1998. Operating income by segment was as follows:
1999 1998 $ Change % Change ---- ---- -------- -------- DonTech $123.5 $120.1 $ 3.4 2.8% DAS 24.8 23.4 1.4 6.0 GDS (1.3) -- (1.3) -- Other (17.1) (18.3) 1.2 6.6 ------ ------ ------ ------ Total $129.9 $125.2 $ 4.7 3.8% ====== ====== ====== ======
See "-- Income from Partnerships and Related Fees" above for an explanation of the increase in DonTech operating income. The increase in DAS operating income in 1999 of $1.4 million was driven by increases in Bell Atlantic and Sprint (including CenDon) due to increases in advertising sales and revenue that exceeded corresponding increases in costs. Also contributing to the increase was a slightly lower operating loss at Cincinnati and slightly higher operating profit from our YPTV operations. These increases were partially offset by higher operating loss in our pre-press publishing operation due to higher software maintenance costs and our share of losses of ChinaBig and the related amortization expense. GDS operating loss represents start-up expenses relating to our Internet marketing and e-commerce initiative. Other operating loss increased as higher costs of being a stand-alone entity were partially offset by lower employee benefits costs. INTEREST AND TAXES Interest expense for 1999 of $37.2 million increased $13.8 million compared to $23.4 million in 1998. This increase was due to a full year's interest being incurred in 1999 whereas the 1998 amount included interest expense only from the issuance of debt in June 1998. The increase was partially offset by a reduction in the average outstanding debt balance, due to lower borrowings 19 22 under the Revolver (as defined in "Liquidity and Capital Resources" below) as a result of strong cash flows and scheduled principal repayments. Interest income increased slightly to $0.4 million in 1999 compared to $0.3 million in 1998. The effective tax rate for 1999 was 40.8% compared to 40.0% in 1998. The increase in the effective tax rate was primarily due to non-deductible losses relating to ChinaBig. NET INCOME Net income in 1999 was $55.2 million, or $1.61 per diluted share, compared to $61.3 million, or $1.77 per diluted share, in 1998. However, as previously stated, the historical results for 1998 do not include additional general and administrative expenses of $4.4 million and interest expense of $18.4 million that we estimate would have been incurred had we been a stand-alone entity for the entire year. Adjusting the 1998 reported results for the above amounts, net income would have been $47.6 million, or $1.38 per diluted share. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, we had outstanding debt of $351.8 million. The debt consisted of $150 million of outstanding Senior Subordinated Notes (the "Notes") and $201.8 million outstanding under our Senior Secured Term Facilities ("Term Facilities"). We also have additional borrowing capacity of $100 million available under our $100 million Senior Revolving Credit Facility (the "Revolver," and together with the Term Facilities, the "Credit Agreement"). The Notes pay interest semi-annually at an annual rate of 9.125%, and are due in June 2008. The Credit Agreement provides for a floating interest rate based on a spread over London interbank offered rate (LIBOR) or the greater of either the Prime rate or the Fed Funds rate plus 50 basis points, at the election of the Company. The Term Facilities mature between June 2004 and December 2006 and require quarterly principal repayments through 2006. Our obligations under the Credit Agreement are secured by security interests granted to the lenders in substantially all of our assets, including capital stock in our existing and newly formed subsidiaries. The Credit Agreement and the Indenture governing the Notes each contain various financial and other restrictive covenants, including restrictions on asset dispositions and similar transactions, indebtedness, capital expenditures, dividends and commitments. Cash flows from operations in 2000 increased $20.2 million, or 32.3% to $82.8 million from the prior year amount of $62.6 million. The increase was driven by higher net income (excluding the after-tax net gain from disposition of businesses) and collections of accounts receivable, mainly due to the buyout of the Agency Agreements and collection of all outstanding Bell Atlantic receivables. Partially offsetting this increase was higher payments of accrued liabilities, mainly due to severance and taxes related to the Bell Atlantic and Cincinnati transactions. We believe that cash flows from operations and available borrowing capacity under the Revolver will be sufficient to fund our operations and meet our anticipated investment, capital expenditure and debt service requirements for the foreseeable future. Cash flows from operations in 1999 of $62.6 million decreased $36.3 million, or 36.7% compared to 1998 cash flow from operations of $98.9 million. In 1999, we made interest payments and estimated quarterly income tax payments for the full year whereas in 1998 we made payments only for the periods subsequent to the Distribution. These additional payments negatively affected cash flows in 1999 by approximately $34.3 million. Higher accounts receivable at December 31, 1999 as a result of higher sales also adversely affected cash flows by $4.5 million compared to 1998. The timing of cash distributions from our partnerships during 1999 had a positive effect on cash flows of approximately $2.5 million. Cash flows from investing activities in 2000 were $109.4 million and consisted primarily of the net proceeds received from the buyout of the Bell Atlantic Agency Agreements and sale of our Cincinnati operations. These proceeds were partially offset by capital spending of $7.7 million and investments in ChinaBig of $4.9 million. We will make our final required investment in ChinaBig of $1.6 million by June 2001. Cash used in investing activities totaled $15.4 million in 1999 and $14.0 million in 1998 and consisted of capital expenditures and contributions to ChinaBig. We anticipate that capital expenditures in 2001 for equipment and software will be approximately $8 million to $10 million. Other than the contribution to ChinaBig, we have no material commitments for investment spending. Cash used in financing activities for 2000 was $139.1 million compared to $47.1 million in 1999. The significant increase is due to the use of the proceeds from the Bell Atlantic and Cincinnati transactions, as well as cash flow from operations, to repay $93.0 million of debt and repurchase $53.6 million of our common stock under both our systematic share repurchase plan and our open market share repurchase plan (collectively, "Share Repurchase Plans"). These amounts were partially offset by $7.6 million of 20 23 proceeds from employee stock option exercises. In 2001, scheduled principal repayments under the Term Facilities are $4.2 million. Cash used in financing activities in 1999 was $47.1 million and consisted principally of the repurchase of common stock under our Share Repurchase Plans and the scheduled repayment of debt. Cash used in financing activities in 1998 totaled $82.7 million and included net proceeds of $490.4 million from the issuance of debt, which was distributed to D&B in connection with the Distribution. Also, prior to the Distribution, all cash deposits were transferred to D&B on a daily basis and D&B funded our disbursement bank accounts as required. The net amount transferred was approximately $38.9 million and is included in the net distributions to D&B amount of $529.3 million. During 1998, we repaid $31.4 million of debt and paid $12.0 million in dividends. We ceased paying dividends after the payment of the fourth quarter 1998 cash dividend. The repurchase of shares of our common stock under the Share Repurchase Plans in 2001 will be funded from cash on hand at December 31, 2000 and 2001 operating cash flows. At the end of 2000, we had available authorization to repurchase up to $75.7 million of stock under our $100 million open market share repurchase plan through April 2002, and to repurchase up to 2.3 million shares under the systematic share repurchase plan to offset the dilutive impact on earnings of the exercise of employee stock options. RISK MANAGEMENT We are exposed to interest rate risk through our Credit Agreement, under which we borrow at prevailing short-term variable rates. To reduce our exposure to changes in interest rates on our floating rate debt, we entered into interest rate swap agreements having a total notional principal amount of $175 million, which expire between June 2001 and June 2003. These agreements effectively change the interest rate on $175 million of floating rate borrowings to fixed rates. The notional amount of the swap agreements is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. We are exposed to credit risk in the event of nonperformance by the counterparty to the interest rate swap agreements. However, we do not currently anticipate the nonperformance by the counterparty. We view these derivative financial instruments as risk management tools that are entered into for hedging purposes only. We do not use derivative financial instruments for trading or speculative purposes. In June 2001, an interest rate swap agreement with a notional value of $50 million will expire. Due to the reduced level of indebtedness, at this time, management does not intend to replace the expiring interest rate swap agreement. A discussion of our accounting policies for derivative financial instruments is included in Note 2, and further disclosure relating to these financial instruments is included in Note 10 to the Consolidated Financial Statements in Item 8. MARKET RISK SENSITIVE INSTRUMENTS Interest Rate Risk The fair value of interest rate risk is an estimate of the termination value of the interest rate swaps based on quoted market interest rates. At December 31, 2000, the unrealized fair value of the interest rate swaps was a loss of $0.1 million. However, assuming an instantaneous parallel upward shift in the yield curve of 10% from the year-end level of 5.9%, the unrealized fair value of the interest rate swaps would equal a gain of $0.4 million. Assuming an instantaneous parallel downward shift in the yield curve of 10% from the December 31, 2000 level, the unrealized fair value of the interest rate swaps would equal a loss of $0.6 million. Foreign Exchange Risk We do not have any material foreign exchange risk. We currently have a commitment to contribute an additional $1.6 million to ChinaBig by June 2001, and this amount is subject to adjustment if the exchange rate of the People's Republic of China currency (RMB) on the date of payment is more than 10% higher or lower than the specified exchange rate of RMB8.2778. However, the exchange rate has been relatively stable over the last five years, ranging from RMB8.277 to RMB8.336. Additionally, assuming a 10% appreciation or depreciation of the RMB, the U.S. dollar amount of our contribution would decrease or increase by no more than $0.2 million, respectively. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The requirements of this Item are discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations " - Risk Management" and " - Market Risk Sensitive Instruments." 21 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- R.H. DONNELLEY CORPORATION Report of Independent Accountants......................................................................... 23 Consolidated Statements of Operations for the three years ended December 31, 2000......................... 24 Consolidated Balance Sheets at December 31, 2000 and 1999................................................. 25 Consolidated Statements of Cash Flows for the three years ended December 31, 2000......................... 26 Consolidated Statement of Changes in Shareholders' Equity (Deficit) for the three years ended December 31, 2000........................................................... 27 Notes to Consolidated Financial Statements................................................................ 28 DONTECH Report of Independent Accountants......................................................................... 43 Combined Statements of Operations for the three years ended December 31, 2000............................. 44 Combined Balance Sheets at December 31, 2000 and 1999..................................................... 45 Combined Statements of Cash Flows for the three years ended December 31, 2000............................. 46 Combined Statements of Partners' Capital for the three years ended December 31, 2000...................... 47 Notes to Combined Financial Statements.................................................................... 48
22 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of R.H. Donnelley Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows present fairly, in all material respects, the financial position of R.H. Donnelley Corporation (the "Company") and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP New York, New York February 16, 2001 23 26 R.H. DONNELLEY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 (in thousands, except per share data) Gross revenue ........................................ $ 148,109 $ 185,154 $ 169,090 Less: sales allowances ............................... (6,822) (3,249) (2,841) --------- --------- --------- Net revenue ..................................... 141,287 181,905 166,249 Expenses Operating expenses ................................ 96,723 138,354 123,420 General and administrative expenses ............... 25,143 29,185 28,447 Provision for bad debts ........................... 4,306 5,322 5,423 Depreciation and amortization ..................... 15,433 18,319 19,578 --------- --------- --------- Total expenses .................................. 141,605 191,180 176,868 Income from partnerships and related fees ............ 147,693 139,181 135,854 --------- --------- --------- Operating income ................................ 147,375 129,906 125,235 Interest income ...................................... 3,912 443 265 Interest expense ..................................... (34,764) (37,187) (23,406) Net gain on disposition of businesses ................ 86,495 -- -- --------- --------- --------- Income before income taxes and extraordinary loss 203,018 93,162 102,094 Provision for income taxes ........................... 77,556 38,011 40,826 --------- --------- --------- Income before extraordinary loss ................ 125,462 55,151 61,268 Extraordinary loss (net of taxes of $440) ............ 704 -- -- --------- --------- --------- Net income ...................................... $ 124,758 $ 55,151 $ 61,268 ========= ========= ========= Earnings per share before extraordinary loss Basic ........................................... $ 3.93 $ 1.64 $ 1.79 Diluted ......................................... $ 3.85 $ 1.61 $ 1.77 Earnings per share after extraordinary loss Basic ........................................... $ 3.91 $ 1.64 $ 1.79 Diluted ......................................... $ 3.83 $ 1.61 $ 1.77 Shares used in computing earnings per share Basic ........................................... 31,947 33,676 34,237 Diluted ......................................... 32,594 34,159 34,522
The accompanying notes are an integral part of the consolidated financial statements. 24 27 R.H. DONNELLEY CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------ 2000 1999 ---- ---- (in thousands, except share and per share data) ASSETS CURRENT ASSETS Cash and cash equivalents .......................................................... $ 55,437 $ 2,390 Accounts receivable: Billed ........................................................................... 2,322 8,478 Unbilled ......................................................................... 29,461 68,213 Other ............................................................................ 5,863 10,011 Allowance for doubtful accounts .................................................. (7,355) (7,992) --------- --------- Total accounts receivable - net ............................................... 30,291 78,710 Deferred contract costs ............................................................ -- 9,728 Income tax refund .................................................................. -- 6,000 Other current assets ............................................................... 4,821 5,448 --------- --------- Total current assets .......................................................... 90,549 102,276 Property and equipment - net ....................................................... 10,647 17,626 Computer software - net ............................................................ 10,986 24,225 Partnership investments and related receivables .................................... 213,834 215,655 Investment in ChinaBig.com Limited ................................................. 13,432 14,550 Prepaid pension .................................................................... 19,457 13,358 Other non-current assets ........................................................... 6,379 7,716 --------- --------- Total Assets .................................................................. $ 365,284 $ 395,406 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable and accrued liabilities ........................................... $ 34,598 $ 45,582 Accrued interest payable ........................................................... 6,490 9,253 Investment obligation to ChinaBig.com Limited ...................................... 1,550 3,978 Current portion of long-term debt .................................................. 4,224 9,750 --------- --------- Total current liabilities ..................................................... 46,862 68,563 Long-term debt ..................................................................... 347,526 435,000 Deferred income taxes .............................................................. 60,913 63,024 Postretirement and postemployment benefits ......................................... 8,598 9,380 Other liabilities .................................................................. 9,895 12,250 Commitments and contingencies SHAREHOLDERS' DEFICIT Preferred stock, par value $1 per share, authorized -- 10,000,000 shares; outstanding - none ............................................ -- -- Common stock, par value $1 per share, authorized -- 400,000,000 shares; issued - 51,621,894 shares for 2000 and 1999, respectively ... 51,622 51,622 Additional paid-in capital ......................................................... 18,373 5,172 Unamortized restricted stock ....................................................... (232) (152) Equity options outstanding ......................................................... 242 66 Retained deficit ................................................................... (78,685) (203,443) Treasury stock, at cost, 20,682,293 shares for 2000 and 18,578,996 shares for 1999 . (99,830) (46,076) --------- --------- Total shareholders' deficit ................................................... (108,510) (192,811) --------- --------- Total Liabilities and Shareholders' Deficit ................................... $ 365,284 $ 395,406 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 25 28 R.H. DONNELLEY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ---- ---- ---- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income ............................................................... $ 124,758 $ 55,151 $ 61,268 Reconciliation of net income to net cash provided by operating activities: Net gain on disposition of businesses (net of taxes of $33,041) ...... (53,454) -- -- Extraordinary loss (net of taxes of $440) ............................ 704 -- -- Depreciation and amortization ........................................ 15,433 18,319 19,578 Deferred income tax .................................................. (2,111) 12,115 2,800 Provision for bad debts .............................................. 4,306 5,321 5,423 Other noncash charges ................................................ 2,158 1,961 793 Cash received in excess of (less than) income from partnerships and related receivables .............................. 2,252 1,402 (1,061) Decrease (increase) in accounts receivable ........................... 41,304 (9,490) (5,007) Decrease in deferred contract costs .................................. 1,552 1,018 227 Decrease (increase) in income tax refund receivable .................. 6,000 (6,000) -- Increase in other assets ............................................. (1,326) (1,524) (4,067) (Decrease) increase in accounts payable, accrued and other current liabilities ..................................... (60,657) (15,406) 12,908 Increase (decrease) in other liabilities ............................. 1,847 (268) 6,026 --------- --------- --------- Net cash provided by operating activities ......................... 82,766 62,599 98,888 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposition of businesses .................................. 122,009 -- -- Additions to property and equipment ...................................... (4,230) (4,030) (5,207) Additions to computer software ........................................... (3,487) (3,405) (7,443) Investment in ChinaBig.com Limited ....................................... (4,938) (8,000) (1,300) --------- --------- --------- Net cash provided by (used in) investing activities ............... 109,354 (15,435) (13,950) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of debt ........................................................ (93,000) (23,875) (31,375) Purchase of treasury stock ............................................... (53,627) (27,957) (1,017) Proceeds from employee stock option exercises ............................ 7,554 4,756 144 Net proceeds from long-term borrowings ................................... -- -- 490,408 Net distribution to D&B .................................................. -- -- (529,306) Payment of dividend ...................................................... -- -- (12,016) Other, net ............................................................... -- -- 494 --------- --------- --------- Net cash used in financing activities ............................. (139,073) (47,076) (82,668) --------- --------- --------- Increase in cash and cash equivalents .................................... 53,047 88 2,270 Cash and cash equivalents, beginning of year ............................. 2,390 2,302 32 --------- --------- --------- Cash and cash equivalents, end of year ................................... $ 55,437 $ 2,390 $ 2,302 ========= ========= ========= SUPPLEMENTAL INFORMATION Cash interest paid ....................................................... $ 36,750 $ 38,218 $ 15,866 Income taxes paid ........................................................ $ 82,698 $ 37,450 $ 16,362
The accompanying notes are an integral part of the consolidated financial statements. 26 29 R.H. DONNELLEY CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Additional Unamortized Equity Retained Total Common Paid-in Restricted Options Earnings Treasury Shareholders' Stock Capital Stock Outstanding (Deficit) Stock Equity (Deficit) -------- ---------- ----------- ----------- ---------- --------- ---------------- (in thousands, except per share data) Balance, December 31, 1997 .......... $51,967 $ 221,694 $(17,854) $ 255,807 Net income .......................... 61,268 61,268 Dividends paid ($0.35 per share) .... (12,016) (12,016) Net distribution to D&B ............. (529,306) (529,306) Net change due to treasury stock activity prior to the Distribution (345) $ 274 (234) 799 494 Stock acquired for treasury ......... (1,017) (1,017) ------- --------- --------- -------- --------- Balance, December 31, 1998 .......... 51,622 274 (258,594) (18,072) (224,770) Net income .......................... 55,151 55,151 Treasury stock issued for stock option exercises ................. 4,662 471 5,133 Issuance of restricted stock ........ 236 $ (236) -- Restricted stock amortization ....... 84 84 Compensatory stock options issued ... $ 66 66 Stock acquired for treasury ......... (28,475) (28,475) ------- --------- --------- --------- --------- -------- --------- Balance, December 31, 1999 .......... 51,622 5,172 (152) 66 (203,443) (46,076) (192,811) Net income .......................... 124,758 124,758 Treasury stock issued for stock option exercises and employee bonus plans ...................... 9,210 756 9,966 Issuance of restricted stock ........ 204 (204) -- Restricted stock amortization ....... 124 124 Compensatory stock options issued ... 176 176 Stock acquired for treasury ......... (54,510) (54,510) Tax benefit of stock option exercises 3,787 3,787 ------- --------- --------- --------- --------- -------- --------- Balance, December 31, 2000 .......... $51,622 $ 18,373 $ (232) $ 242 $ (78,685) $(99,830) $(108,510) ======= ========= ========= ========= ========= ======== =========
The accompanying notes are an integral part of the consolidated financial statements. 27 30 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNLESS OTHERWISE NOTED) 1. BASIS OF PRESENTATION Prior to July 1, 1998, R.H. Donnelley Corporation (the "Company") operated as part of The Dun & Bradstreet Corporation (in the context of specifically describing the Distribution, referred to as "Old D&B," otherwise "D&B"). The Board of Directors of Old D&B approved in principle a plan to separate into two publicly traded companies - R.H. Donnelley Corporation and The New Dun & Bradstreet Corporation ("New D&B"). The distribution ("Distribution") was the method by which Old D&B distributed to its shareholders shares of New D&B common stock. On July 1, 1998, as part of the Distribution, Old D&B distributed to its shareholders shares of New D&B stock and Old D&B changed its name to R.H. Donnelley Corporation. The consolidated financial statements reflect the results of operations and cash flows of the Company as if it were a separate entity for all periods presented. Prior to the Distribution, D&B provided certain centralized services to the Company, the cost of which was allocated to the Company. The allocations totaled $11,570 for the six months ended June 30, 1998 and are included in operating expenses and general and administrative expenses in the Consolidated Statements of Operations. Management believes these allocations were reasonable; however, it believes that the costs of these services are not indicative of the costs that would have been incurred had the Company performed or provided these services as a separate entity. In connection with the Distribution, R.H. Donnelley Inc., the Company's only direct subsidiary ("Donnelley"), obtained a Senior Revolving Credit Facility of $100,000 and Senior Secured Term Facilities in the aggregate amount of $300,000, of which Donnelley initially borrowed $350,000 from the combined facilities. In addition, Donnelley issued $150,000 of Senior Subordinated Notes. The net proceeds were distributed to D&B in connection with the Distribution, but repayment of such indebtedness remains an obligation of Donnelley, as guaranteed by the Company. Net distributions to D&B include net cash transfers, third-party liabilities paid on behalf of the Company by D&B and amounts due to/from D&B for services and other charges. No interest was charged on these intercompany transactions. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. See Note 4 - Partnership and Joint Venture Investments for the consolidation policy for each of the Company's partnership and joint venture investments. Revenue Recognition. Where the Company serves as a sales agent, sales commission revenue is recognized at the time an advertising contract is executed with a customer. This includes sales commission revenue realized from Sprint, including CenDon (for directories that published after June 30, 2000), and Bell Atlantic (through June 30, 2000). Where the Company was the publisher, revenue was recognized when a directory was published. This included revenue realized from publication of directories by CenDon before June 30, 2000 and from the publication of the Company's Cincinnati proprietary directory in 1999. There was no revenue recognized in 2000 from the Cincinnati proprietary operation as the business was sold prior to the scheduled directory publication date. Revenue from the Company's pre-press publishing operations is recognized on a straight-line basis throughout the year as the services are performed. Cash and Cash Equivalents. Cash equivalents include highly liquid investments with a maturity of less than three months at the time of acquisition. Unbilled Receivables. Unbilled receivables represent commission revenue earned from the sale of advertising in directories that are scheduled to be published by the publisher. These receivables will be billed to the publisher upon directory publication in accordance with contractual provisions. At December 31, 1999, unbilled receivables also included revenue earned from the publication of the Cincinnati directory that had not yet been billed to advertisers. Advertisers were billed ratably over the 12-month life of the directory. Deferred Contract Costs. Where the Company was a publisher, direct costs incurred were deferred until the related directory was published. Direct costs incurred where the Company is a sales agent are expensed in the period incurred. 28 31 Property and Equipment. Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of depreciable assets using the straight-line method. Estimated useful lives are five years for machinery and equipment, ten years for furniture and fixtures and three to five years for computer equipment. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful life of the improvement. Depreciation expense was $5,532, $7,104, and $9,561 for the year ended December 31, 2000, 1999 and 1998, respectively. Property and equipment at December 31, 2000 and 1999, consisted of the following:
2000 1999 ---- ---- Computer equipment..................................................... $41,442 $43,218 Machinery and equipment................................................ 3,879 5,492 Furniture and fixtures................................................. 4,945 8,233 Leasehold improvements................................................. 3,746 7,210 ----- ----- Total cost....................................................... 54,012 64,153 Less accumulated depreciation.......................................... (43,365) (46,527) ------- ------- Net property and equipment....................................... $10,647 $17,626 ====== ======
Capitalized Software Costs. Certain direct costs incurred for computer software to meet the needs of the Company and its customers are capitalized. These costs are amortized on a straight-line basis over five years. Effective January 1, 1999, the Company adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires that certain costs incurred in connection with developing or obtaining software for internal use be capitalized. Amortization expense was $9,901, $11,215 and $10,017 for the year ended December 31, 2000, 1999 and 1998, respectively. Computer software costs capitalized at December 31, 2000 and 1999, consisted of the following:
2000 1999 ---- ---- Computer software, at cost............................................. $59,478 $63,669 Less accumulated amortization.......................................... (48,492) (39,444) ------- ------- Net computer software............................................ $10,986 $24,225 ======= =======
Income Taxes. The Company accounts for income taxes under the liability method in accordance with SFAS 109, "Accounting for Income Taxes." The provision for income taxes for the year ended December 31, 1998 was calculated on a separate-company basis. Prior to the Distribution, the Company was included in the Federal and certain state income tax returns of D&B and the income taxes paid on behalf of the Company through June 30, 1998 by D&B have been included in equity. Concentration of Credit Risk. The Company maintains significant receivable balances with operating units of SBC Communications Inc. ("SBC"), Sprint Corporation ("Sprint") and Bell Atlantic Corporation (now known as Verizon Communications, "Bell Atlantic"), prior to the early termination of the Agency Agreements (see Note 3 - Disposition of Businesses). The ultimate remittance of these receivables is subject to adjustment, up to specified maximums under contractual provisions, based on collections by these companies from the individual advertisers. The Company does not currently foresee a credit risk associated with these receivables due to the high credit ratings of it counterparties. The Company establishes a sales allowance and an allowance for doubtful accounts based on the expected collectibility of receivables from advertisers principally based upon historical trends. Derivative Financial Instruments. The Company uses interest rate swap agreements to manage market risk and reduce its exposure to fluctuations in interest rates on its variable rate debt. The Company makes fixed-rate payments and receives variable-rate payments. These periodic payments and receipts are recorded as part of interest expense. The related amount payable to, and receivable from, the counterparty at the end of a period is included in accrued interest payable and other current assets. The fair value of the interest rate swaps is not recognized in the consolidated financial statements as they are accounted for as hedges. If the interest rate swaps cease to qualify as a hedge, any subsequent gains and losses would be recognized in income. The Company is subject to credit risk in the event of nonperformance by the counterparty to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparty. The Company does not use derivative financial instruments for trading or speculative purposes. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities" and in September 2000, the FASB issued Statement No. 138 "Accounting for Certain 29 32 Derivative Instruments and Hedging Activities - an amendment to FAS 133." FAS 133, as amended, requires companies to recognize all derivative instruments in the balance sheet at fair value regardless of the purpose or intent for holding them. Subsequent changes in the fair value would be recognized either in earnings or shareholders' equity (as a component of comprehensive income), depending on the purpose of the derivative instrument. FAS 133, as amended, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Management has determined that the adoption of FAS 133 will not have a material adverse effect on the Company's earnings or financial position. The interest rate swap instruments have been designated as cash flow hedges and subsequent changes in the fair value of the derivative instruments will be recognized through comprehensive income. Earnings Per Share. Basic earnings per share is calculated by dividing net income by the weighted average common shares outstanding during the year. Diluted earnings per share is calculated by dividing net income by the weighted average common shares outstanding plus potentially dilutive common shares, primarily stock options, calculated using the treasury stock method. The table below provides a reconciliation of basic weighted average shares outstanding to diluted weighted average shares outstanding.
2000 1999 1998 ---- ---- ---- (in thousands) Weighted average shares outstanding - basic.................... 31,947 33,676 34,237 Potentially dilutive shares.................................... 647 483 285 ------ ------ ------ Weighted average shares outstanding - diluted.................. 32,594 34,159 34,522 ====== ====== ======
At December 31, 2000, 1999 and 1998, options to purchase 12,800, 32,700 and 2,026,740 shares of common stock, respectively, were not included in the computation of diluted weighted average shares outstanding because the effect would have been antidilutive. During 1998, the Company executed a one-for-five split of its outstanding common stock. All share and per share data provided herein have been adjusted to reflect such reverse stock split. Treasury Stock Activity. The Company has an open market share repurchase plan and a systematic share repurchase plan. The systematic share repurchase plan is intended to offset the dilutive impact on earnings of the exercise of employee stock options. In April 2000, the Board of Directors authorized the Company to acquire up to $100,000 of common stock under the open market share repurchase plan over the following 18 - 24 months. Purchases of common stock are accounted for using the cost method whereby the total cost of the shares reacquired is charged to treasury stock, a contra equity account. When treasury stock is reissued, the cost of the shares reissued (determined based on the first-in, first-out cost flow assumption) is charged against treasury stock and the excess of the reissuance price over cost is credited to additional paid-in capital. At December 31, 2000, the Company has the authority to repurchase up to $75,724 of its common stock under the $100,000 open market share repurchase plan and to repurchase up to 2,281,300 shares under the systematic share repurchase plan. Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Actual results could differ materially from those estimates and assumptions. Estimates and assumptions are used in the determination of sales allowances, allowances for bad debts, depreciation and amortization and employee benefit plans, among others. Reclassifications. Certain prior year amounts have been reclassified to conform to the current year's presentation. These reclassifications had no impact on previously reported results of operations or shareholders' deficit. 3. DISPOSITION OF BUSINESSES On April 27, 2000, the Company sold its Cincinnati proprietary directory business to Yellow Book USA, Inc. for $8,000. On June 30, 2000, the Company entered into an agreement ("Agreement") with an affiliate of Bell Atlantic for the early termination of the directory services agreements between the Company and Bell Atlantic dated September 5, 1985 and May 5, 1998, as amended (the "Agency Agreements"). Pursuant to the Agency Agreements, the Company had served as exclusive sales agent for Bell Atlantic directories covering substantially all of New York State. The Agency Agreements had been scheduled to expire in 2005 and 2003, respectively. Under the terms of the Agreement, the Company received cash proceeds of $114,000, which were reduced by approximately $3,000 for liabilities assumed by Bell Atlantic related to the pre-closing period. The Company also received commissions of approximately $42,000 for sales which occurred prior to the closing, but which were not 30 33 yet payable under the terms of the Agency Agreements. In addition, commissions of approximately $15,000 were received for sales of certain directories that published during the pre-closing period. The Agency Agreements accounted for approximately 10% and 8% of consolidated operating income for 1999 and 1998, respectively. In December 2000, the Company ceased operations of its Get Digital Smart ("GDS") business. GDS was launched in February 2000 in the Miami/Ft. Lauderdale market to test the economic viability of providing a variety of products and services designed to deliver a comprehensive package of Internet marketing and e-commerce capabilities to small and medium-sized local businesses. In December 2000, the Company entered into an agreement pursuant to which Innuity Inc., a provider of e-commerce services to small and medium-sized businesses, assumed all of the rights and obligations under the GDS customer contracts. The Company recognized one-time costs of $2,940 for severance and other related costs. The Company also implemented cost-cutting measures in 2000, including headcount reductions, at its Raleigh, N.C. facility and corporate headquarters consistent with the current operating structure. A pretax gain from the above transactions of $86,495 ($53,454 after taxes) was recognized. 4. PARTNERSHIP AND JOINT VENTURE INVESTMENTS DonTech. In 1991, the Company formed a general partnership with an operating unit of Ameritech Corporation ("Ameritech"), the DonTech Partnership ("DonTech I"). Prior to August 1997, DonTech I published various directories in Illinois and northwest Indiana. In August 1997, the Company signed a series of agreements with Ameritech changing the structure of the existing partnership. A new partnership was formed ("DonTech") and DonTech was appointed the exclusive sales agent in perpetuity for Ameritech's Illinois and northwest Indiana yellow pages directories and Ameritech became the publisher. Under the new sales agency arrangement, DonTech performs the advertising sales function for the directories and earns a commission. The Company has a 50% interest in the profits of DonTech. The Company also receives direct fees ("revenue participation"), which are tied to advertising sales, from SBC (now parent company of Ameritech). The Company accounts for its investment in DonTech under the equity method of accounting. The Company's share of partnership results and the revenue participation fees from SBC are reflected in income from partnerships and related fees. Income and related fees from DonTech totaled $124,025, $123,524 and $120,087 for 2000, 1999 and 1998, respectively. These amounts included revenue participation income of $103,354, $103,755 and $99,727 for 2000, 1999 and 1998, respectively. The Company's investment in DonTech, including the revenue participation receivable from SBC, was $197,822 and $197,307 at December 31, 2000 and 1999, respectively. CenDon. The Company received commissions from, and served as the exclusive sales agent for, the CenDon Partnership ("CenDon"), a 50/50 partnership between the Company and Centel Directory Company ("Centel"), a subsidiary of Sprint that was formed to publish directories in Florida, Nevada, Virginia and North Carolina. Effective for directories that published after June 30, 2000, the Company and Centel entered into a series of agreements that effectively restructured the existing CenDon partnership as a limited liability company ("CenDon LLC" and together with CenDon, the "CenDon Relationship"). Prior to the restructuring, the Company accounted for its investment in CenDon under the equity method of accounting and recognized its share of the profits as income from partnerships and related fees. Under the CenDon LLC agreement, the Company continues to receive commissions and also receives a priority distribution on its membership interest in CenDon LLC, which is tied to advertising sales. Commissions are recorded as revenue and the priority distribution is recorded as income from partnerships and related fees. The CenDon agency relationship extends through December 2010. Under the CenDon LLC agreement, revenue and related costs are recognized at the time of sale, rather than at the time of directory publication as had historically been the case for CenDon. Accordingly, 2000 results include a one-time operating income benefit of $15,771 relating to advertising sales made and related costs incurred prior to the effective date of the agreement for directories that published subsequent to the effective date of the agreement. The Company recognized income and related fees from the CenDon Relationship of $24,747, $16,935 and $15,767 during 2000, 1999 and 1998, respectively. The income and related fees amount for 2000 includes a one-time benefit of $5,422 from the restructuring of the partnership agreement. The Company's investment in CenDon, or CenDon LLC, as the case may be, including the priority distribution receivable, was $16,012 and $18,348 at December 31, 2000 and 1999, respectively. 31 34 The Company provided sales and pre-press publishing services to CenDon and continues to provide similar services to CenDon LLC. Net revenue from the CenDon Relationship was $62,179, $39,240 and $39,068 for 2000, 1999 and 1998, respectively. The amount for 2000 includes one-time sales commission revenue of $20,956 from the restructuring of the partnership agreement. ChinaBig.com Limited. The Company has an 18% interest in ChinaBig.com Limited (previously known as Unicom Media Limited, "ChinaBig"), which publishes yellow pages directories and offers Internet directory services in the People's Republic of China. The Company was actively involved in the daily operations of ChinaBig's yellow pages business and due to the Company's ability to influence the daily operations of ChinaBig, accounted for this investment under the equity method. However, during 2000, management of ChinaBig made a decision to focus more of its time and resources on the Internet aspect of its business plan, known as ChinaBiG.com. In connection with an equity investment by an unaffiliated third party and in order to facilitate the raising of additional capital and provide greater flexibility, ChinaBig and each existing investor (including the Company), restructured the existing joint venture agreement of ChinaBig to, among other things, significantly reduce the Company's ability to influence the daily operations of ChinaBig. As a result of the restructured agreement, effective June 15, 2000, the Company became a passive investor and now accounts for this investment under the cost method. Therefore, the Company no longer recognizes its share of the losses of ChinaBig. The Company recognized a loss from ChinaBig of $1,078 in 2000 (through June 15, 2000) and $1,278 in 1999. 5. LONG-TERM DEBT AND CREDIT FACILITIES Long-term debt at December 31, 2000 and 1999, consisted of the following:
2000 1999 ---- ---- Senior Subordinated 9.125% Notes....................................... $150,000 $150,000 Senior Secured Term Facilities......................................... 201,750 294,750 -------- -------- Total............................................................ 351,750 444,750 Less current portion................................................... 4,224 9,750 -------- -------- Net long-term debt............................................... $347,526 $435,000 ======== ========
The Senior Subordinated Notes (the "Notes") pay interest semi-annually and mature in June 2008. The indenture governing the Notes contains covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur certain additional debt and liens and engage in mergers, consolidations and asset sales. The Notes are callable at the option of the Company at any time on or after June 1, 2003. The Company's committed bank facilities consist of an aggregate $300,000 Senior Secured Term Facilities ("Term Facilities") and a $100,000 Senior Revolving Credit Facility (the "Revolver," and together with the Term Facilities, the "Credit Agreement"). The Term Facilities require quarterly principal repayments and mature between June 2004 and December 2006. The Revolver matures in June 2004. These facilities bear interest at a floating rate based on a spread over London interbank offered rate (LIBOR) or the greater of either the Prime rate or the Fed Funds rate plus 50 basis points, at the election of the Company. The Company's obligations under the Credit Agreement are secured by security interests granted to the lenders in substantially all of the Company's assets, including capital stock of its existing and newly formed subsidiaries. The Credit Agreement contains covenants that, among other things, restrict the ability of the Company and its subsidiaries to engage in mergers, consolidations and asset sales, incur additional indebtedness, pay dividends or create liens and require the Company to maintain certain financial ratios. The weighted average annual interest rate for the outstanding debt under the Credit Agreement at December 31, 2000 and 1999 was 7.2% and 7.4%, respectively. At December 31, 2000, the Company had available borrowing capacity of $100,000 under the Revolver. During 2000, the Company prepaid $90,000 of outstanding Term Facilities. In connection with the prepayment, the Company recognized an extraordinary loss of $704 (net of taxes of $440) from the write-off of related deferred financing costs. 32 35 Aggregate maturities of long-term debt at December 31, 2000, were: 2001................................................................... $4,224 2002................................................................... 9,278 2003................................................................... 11,768 2004................................................................... 22,087 2005................................................................... 79,641 Thereafter............................................................. 224,752 ------- Total.............................................................. $351,750 =======
6. COMMITMENTS AND CONTINGENCIES The Company leases office facilities and computer and other equipment under operating leases with terms expiring at various dates through 2006. Rent expense under real estate operating leases for 2000, 1999 and 1998 was $5,896, $7,543 and $6,948, respectively. Lease expense under computer and other equipment leases was $1,169, $2,298 and $2,032 for 2000, 1999 and 1998, respectively. The noncancelable minimum rental payments applicable to operating leases at December 31, 2000, were: 2001................................................................... $2,735 2002................................................................... 2,863 2003................................................................... 2,791 2004................................................................... 2,772 2005................................................................... 1,429 Thereafter............................................................. 657 ------ Total.............................................................. $13,247 ======
In April 1999, Sandy Goldberg, Dellwood Publishing, Inc. and Rockland Yellow Pages initiated a lawsuit against the Company and Bell Atlantic in the United States District Court of the Southern District of New York. The Rockland Yellow Pages is a proprietary directory that competes against a Bell Atlantic directory in the same region, for which the Company served as Bell Atlantic's sales agent through June 30, 2000. The complaint alleged that the defendants disseminated false information concerning the Rockland Yellow Pages, which has resulted in damages to the Rockland Yellow Pages. The plaintiffs alleged a variety of claims including RICO violations, antitrust violations and Lanham Act violations. They sought damages in excess of $30,000, which amount plaintiffs sought to have trebled under the antitrust laws. In addition, the plaintiffs also sought punitive damages in an unspecified amount. In February 2000, Yellow Book USA, Inc., one of the Company's primary competitors, acquired Dellwood Publishing, Inc., but this matter was not part of the assets acquired by Yellow Book. In June 1999, the defendants filed a motion to dismiss this complaint. In September 2000, the Court dismissed the complaint in its entirety, but gave plaintiffs 30 days leave to amend the complaint to replead any claims, other than the RICO claims. In October 2000, plaintiffs filed an amended complaint alleging substantially the same facts, claims and damages as set forth in the original complaint, other than the RICO claims. In November 2000, the defendants again filed a motion to dismiss the amended complaint. While at this preliminary stage in the proceedings management is unable to predict the outcome of this matter, it presently believes that the resolution of the action will not have a material adverse effect on the Company's financial position or results of operations. In July 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming as defendants the Company (as successor of Old D&B), ACNielsen Company and IMS International Inc., each former subsidiaries of D&B ("IRI Action"). The complaint alleges, among other things, various violations of the antitrust laws and seeks damages in excess of $350,000, which IRI is seeking to have trebled under the antitrust laws. IRI also seeks punitive damages of an unspecified amount. Under the definitive agreement entered into in connection with the Distribution (the "Distribution Agreement"), New D&B has assumed the defense and will indemnify the Company against any payments to be made by the Company in respect of the IRI Action, under the Indemnity and Joint Defense Agreement entered into in connection with the Distribution or otherwise, including any ongoing legal fees and expenses related thereto. Management presently believes that New D&B has sufficient financial resources and/or borrowing capacity to satisfy all such liabilities and to reimburse the Company for all costs and expenses incurred. Management does not believe that the recent separation of Moody's from New D&B will have a 33 36 material adverse impact on these indemnity rights of the Company because, as required by the Distribution Agreement, Moody's has agreed to be jointly and severally liable with New D&B for those indemnity obligations to the Company. Certain tax planning strategies entered into by Old D&B are currently subject to review by tax authorities. Pursuant to a series of agreements, IMS Health Incorporated ("IMS") and Nielsen Media Research, Inc. ("NMR") (both of which are former subsidiaries of D&B) are each jointly and severally liable to pay 50%, and Old D&B is liable for the remaining 50% of any payments for taxes and accrued interest arising from this matter and certain other potential tax liabilities after Old D&B pays the first $137,000 of tax liability. As explained above, as a result of the form of the Distribution, the Company is the corporate successor of, and the taxpayer referred to herein as, Old D&B. However, pursuant to the terms of the Distribution Agreement and the Tax Allocation Agreement executed in connection with the Distribution, New D&B has assumed the defense and will indemnify the Company against any payments to be made by the Company in respect of any tax liability that may be assessed and any costs and expenses relating thereto, including any ongoing legal fees and expenses related thereto. In May 2000, the Internal Revenue Service (the "IRS") issued a summary report with respect to these tax-planning strategies. In connection with the summary report, New D&B filed an amended tax return for 1989 and 1990, which reflected $561,600 of tax and interest due and paid the IRS approximately $349,300 of this amount and IMS paid approximately $212,300. The Company understands that these payments were funded with short-term borrowings and were paid under dispute in order to stop additional interest from accruing. Management presently believes that New D&B, IMS and NMR have sufficient financial resources and/or borrowing capacity to satisfy all such liabilities and to reimburse the Company for all costs and expenses relating thereto. Management does not believe that the recent separation of Moody's from New D&B will have a material adverse impact on these indemnity rights of the Company because, as required by the Distribution Agreement, Moody's has agreed to be jointly and severally liable with New D&B for those indemnity obligations to the Company. Other than the matters described above, the Company is involved in legal proceedings, claims and litigation arising in the ordinary conduct of its business. Although there can be no assurances, management presently believes that the outcome of such legal proceedings will not have a material adverse effect on the Company's financial position, results of operations or cash flows. 7. BENEFIT PLANS Retirement Plans. Prior to the Distribution, substantially all employees of the Company were eligible to participate in D&B's defined benefit and defined contribution pension plans, which were accounted for as multi-employer plans. Benefits under the defined benefit pension plan were determined based on the participant's average compensation and years of service ("final average pay benefit"). Under the terms of the Distribution Agreement, the Company assumed responsibility for the pension benefits for active employees of the Company with vested benefits under the D&B defined benefit pension plan. The responsibility for retirees and vested terminated employees prior to the Distribution remained with D&B. The Company's financial statements include allocated costs from D&B relating to the defined benefit pension plan of $1,121 for the six months ended June 30, 1998. Subsequent to the Distribution, the Company established a defined benefit pension plan covering substantially all employees. The benefits to be paid to employees are based on years of service and a percentage of total annual compensation. The percentage of compensation allocated to a retirement account ranges from 3.0% to 12.5% depending on age and years of service ("cash balance benefit"). Benefits to be paid to certain employees who were participants in the prior D&B defined benefit pension plan will equal the greater of the final average pay benefit or the cash balance benefit. Pension costs are determined using the projected unit credit actuarial cost method. The Company's funding policy is to contribute an amount at least equal to the minimum legal funding requirement. No contributions were made to the plan in 2000 or 1999. Due to the overfunded status of the plan, the Company would not be entitled to a current tax deduction for any contributions made and would be required to pay annual excise taxes. The underlying pension plan assets are invested in diversified portfolios consisting primarily of equity and debt securities. The Company also has two unfunded non-qualified defined benefit pension plans, the Pension Benefit Equalization Plan ("PBEP") and the Supplemental Executive Benefit Plan ("SEBP"). Senior executives and certain key employees are entitled to participate in these plans which provide retirement benefits based on years of service and compensation (including compensation not permitted to be taken into account under the previously mentioned defined benefit pension plan). The Company also maintains a defined contribution savings plan for substantially all its employees. The Company makes a contribution of 50 cents for each dollar contributed by a participating employee, up to a maximum of 6% of each participating employee's salary. The Company made contributions under this plan of $1,287, $1,662 and $1,626 for the year ended December 31, 2000, 1999 and 1998, respectively. 34 37 Other Postretirement Benefits. Prior to the Distribution, D&B provided certain health care and life insurance benefits for retired employees of the Company and accounted for this plan as a multi-employer plan. Under the terms of the Distribution Agreement, the Company assumed responsibility for postretirement benefits for active employees of the Company. The Company's financial statements include allocated costs from D&B relating to postretirement benefits of $893 for the six months ended June 30, 1998. Subsequent to the Distribution, the Company established an unfunded postretirement benefit plan that provides certain health care and life insurance benefits to those full-time employees who reach retirement age while working for the Company. As a result of the disposition of businesses during 2000 and the resulting reduction in headcount, the Company recognized a curtailment gain of $4,756 and $2,450 for the retirement plans and postretirement plan, respectively. These amounts were reported as a component of the net gain on disposition of businesses in the consolidated statement of operations. A summary of the funded status of the benefit plans at December 31, 2000 and 1999, is as follows:
Retirement Plans Postretirement Plan ---------------- ------------------- 2000 1999 2000 1999 ---- ---- ---- ---- CHANGE IN BENEFIT OBLIGATION Benefit obligation, beginning of period.............. $48,029 $45,249 $6,660 $6,760 Service cost......................................... 2,336 2,666 330 560 Interest cost........................................ 3,790 3,096 430 450 Plan participant contributions....................... -- -- 40 10 Actuarial loss (gain)................................ 2,415 (2,247) 100 (1,020) Curtailment gain..................................... (4,981) -- (2,450) -- Benefits paid........................................ (2,921) (735) (150) (100) ------ ------ ----- ----- Benefit obligation, end of period.................... 48,668 48,029 4,960 6,660 ------ ------ ----- ----- CHANGE IN PLAN ASSETS Fair value of plan assets, beginning of period....... 75,015 63,376 -- -- Return on plan assets................................ (2,325) 12,369 -- -- Employer contributions............................... 134 -- 110 90 Plan participant contributions....................... -- 5 40 10 Actuarial gain....................................... (1,440) -- -- -- Benefits paid........................................ (2,921) (735) (150) (100) ------ ------ ---- ---- Fair value of plan assets, end of period............. 68,463 75,015 -- -- ------ ------ ---- ---- Funded status of plans............................... 19,795 26,986 (4,960) (6,660) Unrecognized net gain................................ (3,192) (15,485) (210) (310) Unrecognized prior service costs..................... 235 392 -- -- Unrecognized transition asset ....................... -- (477) -- -- ------ ------ ------ ------ Prepaid (accrued) benefit cost....................... $16,838 $11,416 $(5,170) $(6,970) ====== ====== ====== ======
The PBEP and SEBP are unfunded plans. The projected benefit obligation for the PBEP and SEBP was $840 and $3,628 at December 31, 2000 and $782 and $3,072 at December 31, 1999, respectively. The accumulated benefit obligation for the PBEP and SEBP was $391 and $1,359 at December 31, 2000 and $320 and $1,200 at December 31, 1999, respectively. 35 38 The net periodic benefit (income) expense of the benefit plans is as follows:
Retirement Plans Postretirement Plan ---------------- ------------------- Year Year Year Year Ended Ended Ended Ended Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 2000 Dec. 31, 1999 ------------- ------------- ------------- ------------- Service cost......................................... $2,336 $2,666 $330 $560 Interest cost........................................ 3,790 3,096 430 450 Return on plan assets................................ (6,397) (5,304) -- -- Net amortization and deferral........................ (259) (185) -- (80) ----- ----- --- --- Net periodic benefit (income) expense................ $ (530) $ 273 $760 $930 ===== ===== === ===
The following assumptions were used in determining the benefit obligation and net periodic benefit (income) expense:
Retirement Plans Postretirement Plan ---------------- ------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Weighted average discount rate....................... 7.50% 7.75% 7.50% 7.75% Rate of increase in future compensation.............. 4.66% 4.91% -- -- Expected return on plan assets....................... 9.75% 9.75% -- --
For measurement purposes, a 6.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001. The rate was assumed to decrease gradually to 5.0% through 2021 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point increase would increase the accumulated postretirement benefit obligation at December 31, 2000 by $430 and the service and interest cost components of the postretirement benefit expense for the year then ended by $60. A one-percentage-point decrease would decrease the accumulated postretirement benefit obligation at December 31, 2000 by $370 and the service and interest cost components of the postretirement benefit expense for the year then ended by $50. 8. STOCK OPTION PLANS Under the Company's 1991 Key Employees' Stock Option Plan, as amended (the "Stock Option Plan"), certain employees are eligible to receive stock options, stock appreciation rights and limited stock appreciation rights in tandem with stock options. Immediately after the Distribution, outstanding stock options under the Stock Option Plan at June 30, 1998 held by Company employees were adjusted to have the same ratio of the exercise price per option to the market value per share, the same aggregate difference between market value and exercise price and the same vesting provisions, option periods and other terms and conditions applicable prior to the Distribution. Options may not be granted at less than fair market value of the Company's common stock at the date of the grant. The vesting period for awards under the Stock Option Plan is determined by the Board at the date of the grant, but typically become exercisable in equal annual installments over four years and expire not more than ten years from the grant date. The Company has never granted stock appreciation rights or limited stock appreciation rights. 36 39 Changes in stock options under the Stock Option Plan for the six months ended June 30, 1998 shown in the following table are based on historical D&B prices after giving retroactive effect for the reverse one-for-five stock split in August 1998.
Weighted Average Exercise Price Shares Per Share ------ --------- Options outstanding, December 31, 1997.............................. 282,017 $121.15 Granted........................................................ 1,808 159.53 Exercised...................................................... (16,436) 108.36 Canceled or expired............................................ (25,992) 126.71 --------- ------- Options outstanding, June 30, 1998.................................. 241,397 123.76 --------- ------- Options converted, July 1, 1998..................................... 2,473,354 12.08 Granted........................................................ 2,043,250 15.31 Exercised...................................................... (12,868) 10.89 Canceled or expired............................................ (118,743) 12.65 --------- ------- Options outstanding, December 31, 1998.............................. 4,384,993 13.55 Granted (1).................................................... 83,025 16.49 Exercised...................................................... (456,137) 11.15 Canceled or expired............................................ (465,904) 14.49 --------- ------- Options outstanding, December 31, 1999.............................. 3,545,977 13.80 Granted (2).................................................... 673,058 16.60 Exercised...................................................... (631,727) 12.58 Canceled or expired............................................ (725,975) 15.40 --------- ------- Options outstanding, December 31, 2000.............................. 2,861,333 $14.32 ========= =======
(1) Includes 12,725 options granted to employees of DonTech. Compensation expense of $66 relating to these options was recognized in 1999. (2) Includes 16,278 options granted to employees of DonTech. Compensation expense of $176 related to options granted to DonTech employees was recognized in 2000. The following table summarizes information about stock options outstanding and exercisable under the Stock Option Plan at December 31, 2000:
Stock Options Outstanding Stock Options Exercisable ------------------------- ------------------------- Weighted Weighted Weighted Average Average Average Remaining Exercise Exercise Contractual Price Per Price Per Range of Exercise Prices Shares Life Share Shares Share ------------------------ ------ ---- ----- ------ ----- $ 9.36 - $ 14.75 1,103,277 5.3 years $12.18 1,002,591 $11.94 $15.22 - $18.66 1,758,056 8.0 years $15.66 355,012 $15.37 --------- ----- ------- ----- 2,861,333 6.9 years $14.32 1,357,603 $12.84 ========= ===== ========= =====
There were 1,367,777 shares exercisable at December 31, 1999 and 1,456,610 shares exercisable at December 31, 1998. The weighted average fair value of options granted during 2000, 1999 and 1998 was $5.36, $7.06 and $4.91, respectively, based on the Black-Scholes option pricing model under certain assumptions set forth below. At December 31, 2000, 4,572,889 shares were available for future grants under the Stock Option Plan. Under the terms of the plan, no grants are permitted after February 2001. Under the 1998 Directors' Stock Option Plan (the "Directors' Plan"), the Company grants non-employee directors an annual award of 1,500 deferred shares and an option to purchase 1,500 shares of the Company's common stock. Additionally, non-employee directors receive an option to purchase 1,500 shares upon election to the Board. Non-employee directors may also elect to receive additional options to purchase shares of the Company's common stock in lieu of their annual cash retainer fee. All such option grants and deferred shares vest equally over a three-year period. Stock options and deferred shares granted in 2000, 1999 and 1998 were 23,300 shares, 22,000 shares and 17,677 shares, respectively. At December 31, 2000 and 1999, 16,677 and 7,789 stock options were exercisable. There were no shares exercisable at December 31, 1998. At December 31, 2000, 87,023 shares were available for 37 40 future grants under the Directors' Plan. The weighted average fair value of options granted during 2000, 1999 and 1998 was $6.13, $4.37 and $3.62, respectively, based on the Black-Scholes option pricing model under certain assumptions set forth below. The Company follows Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its Stock Option Plan and Directors' Plan, and, accordingly, no compensation expense related to the issuance of stock option grants to employees or non-employee directors has been recognized. The following table reflects the pro forma net income and diluted earnings per share assuming the Company applied the fair value method of SFAS No. 123 "Accounting for Stock-Based Compensation." The pro forma disclosures shown are not representative of the effects on income and diluted earnings per share in future years.
2000 1999 1998 ---- ---- ---- Net income As reported....................................................... $124,758 $55,151 $61,268 Pro forma......................................................... $123,045 $53,532 $59,809 Diluted earnings per share As reported....................................................... $3.83 $1.61 $1.77 Pro forma......................................................... $3.78 $1.57 $1.73
The fair value of stock options used to compute the pro forma disclosures is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
2000 1999 1998 ---- ---- ---- Dividend yield....................................................... 0% 0% 0% Expected volatility.................................................. 35% 35% 35% Risk-free interest rate.............................................. 6.60% 5.45% 5.46% Expected holding period.............................................. 3.9 years 4.8 years 4.7 years
9. INCOME TAXES Provision for income taxes consisted of:
2000 1999 1998 ---- ---- ---- Current provision U.S. Federal.................................................... $67,475 $20,665 $31,006 State and local................................................. 11,752 5,231 7,020 ------ ----- ----- Total current provision.............................................. 79,227 25,896 38,026 Deferred (benefit) provision U.S. Federal.................................................... (1,795) 10,298 2,261 State and local................................................. (316) 1,817 539 ------ ------ ----- Total deferred (benefit) provision................................... (2,111) 12,115 2,800 ------ ------ ----- Provision for income taxes........................................... $77,116 $38,011 $40,826 ====== ====== ======
The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company's effective tax rate.
2000 1999 1998 ---- ---- ---- Statutory Federal tax rate........................................... 35.0% 35.0% 35.0% State and local taxes, net of U.S. Federal tax benefit............... 2.5 5.0 4.7 Non-deductible expense............................................... 0.7 0.8 0.3 --- --- --- Effective tax rate................................................... 38.2% 40.8% 40.0% ==== ==== ====
38 41 Deferred tax assets and liabilities consisted of the following at December 31, 2000 and 1999:
2000 1999 ---- ---- Deferred tax assets Postretirement benefits......................................... $1,977 $2,973 Postemployment benefits......................................... -- 171 Reorganization and restructuring costs.......................... 1,551 454 Bad debts....................................................... 2,812 3,211 Various accrued liabilities..................................... 3,025 6,908 ----- ----- Total deferred tax asset........................................ 9,365 13,717 ----- ------ Deferred tax liabilities Revenue recognition............................................. 57,667 62,384 Pension......................................................... 6,437 4,586 Capitalized project costs and fixed assets...................... 4,227 9,734 Other........................................................... 1,947 37 ----- ----- Total deferred tax liabilities.................................. 70,278 76,741 ------ ------ Net deferred tax liability........................................... $60,913 $63,024 ====== ======
10. FINANCIAL INSTRUMENTS The Company's financial instruments at December 31, 2000 and 1999, consisted of the following:
December 31, 2000 December 31, 1999 ----------------- ----------------- Carry Value Fair Value Carry Value Fair Value Cash and cash equivalents............................ $55,437 $55,437 $2,390 $2,390 Long-term debt, including current maturities......... 351,750 347,250 444,750 441,375 Interest rate swaps.................................. (2,094) (2,161) (2,602) 1,638
The carrying amount of cash and cash equivalents approximates fair value due to the short-term nature of these instruments. Long-term debt consists of borrowings under the Credit Agreement and the Notes. The carrying amount of the Company's borrowings under the Credit Agreement at December 31, 2000 and 1999 of $201,750 and $294,750, respectively, approximates fair value as these obligations bear interest at floating rates. The carrying amount of the Notes at December 31, 2000 and 1999, was $150,000. The fair value of the Notes, determined based on the quoted market price at December 31, 2000 and 1999 was $145,500 and $146,625, respectively. The Company enters into interest rate swap agreements to manage market risk and reduce its exposure to fluctuations in interest rates on its variable rate debt. The interest rate swaps effectively change the interest rate on a portion of the Company's variable rate debt to fixed rates. At December 31, 2000 and 1999, the Company had outstanding interest rate swaps with a notional value of $175,000 and expiration dates from June 2001 through June 2003. The Company makes fixed-rate payments at rates ranging from 5.86% to 5.90% (weighted average pay rate 5.88%) and receives floating-rate payments based on rates tied to prevailing short-term interest rates. The weighted average receive rate for 2000 and 1999 was 6.4% and 5.2%, respectively. The fair value is the estimated amount the Company would receive or pay to terminate the agreements and was determined based on quoted market interest rates. If the Company terminates a swap agreement, the gain or loss is amortized over the shorter of the remaining original life of the debt or the swap. 11. BUSINESS SEGMENTS As a result of the transactions described in Note 3 - Disposition of Businesses, the Company restructured its reportable operating segments in 2000 to better reflect the current operations and the way management views the businesses. The Company is organized into three business segments as of December 31, 2000: DonTech Partnership, Directory Advertising Services ("DAS") and Get Digital Smart. All prior period amounts have been restated in accordance with the new reporting structure. 39 42 The DonTech segment includes the Company's 50% interest in the profits of DonTech and revenue participation income, but does not include an allocation of certain operating and general and administrative expenses incurred to support this business. Although DonTech provides advertising sales of yellow pages and other directory products similar to DAS, the partnership is considered a separate operating segment since, among other things, the employees of DonTech, including officers and managers, are not employees of the Company. Within the DAS segment, the Company provides advertising sales and marketing services for yellow pages and other directory products for affiliated entities of Sprint and performs pre-press publishing services for yellow pages directories. DAS now includes the Company's pre-press publishing operations, which were formerly reported separately as Directory Publishing Services and all information technology costs, a portion of which were previously allocated to and included in Other. The Company is the exclusive sales agent in Central Florida for an operating unit of Sprint and the exclusive sales agent in Nevada, Florida, Virginia and North Carolina for CenDon. The Company also provides pre-press publishing services for yellow pages directories to publishers for whom the Company serves as sales agent as well as for an otherwise unaffiliated, independent yellow pages publisher under separately negotiated contracts. DAS also includes the operating results of the Bell Atlantic and Cincinnati businesses and the investment in ChinaBig through the dates of transactions that caused changes to the reporting of each respective business (see Note 3 - Disposition of Businesses and Note 4 - Partnership and Joint Venture Investments). The GDS segment includes the Get Digital Smart business, which began operations in the first quarter of 2000 to test the economic viability of offering Internet marketing and e-commerce services to small and medium-sized businesses in the Miami/Ft. Lauderdale market. The Company ceased operations of this business in December 2000. The Company evaluates the performance of its operating segments and allocates resources to them based on operating income and other factors. Expenses for purposes of computing operating income for the reportable segments (except DonTech) includes those costs directly incurred by each business unit plus an allocation of certain shared operating and general and administrative expenses based on estimated business usage. Other represents expenses and assets not allocated to the operating segments. Interest expense, interest income, income tax expense and other non-operating income and expenses are not allocated to the operating segments. The Company has historically derived a significant portion of its net revenue from Bell Atlantic and Sprint. Net revenue from Bell Atlantic represented 30% of total net revenue in 2000 (through June 30, 2000), 54% in 1999 and 49% in 1998. Net revenue from Sprint (including CenDon) represented 46% of total net revenue in 2000, 23% in 1999 and 25% in 1998. Segment information for the years ended December 31, 2000, 1999 and 1998 is presented below:
Directory Get DonTech Advertising Digital Consolidated 2000 Partnership Services (1) Smart (2) Other Totals ----------- ------------ --------- ----- ------ Advertising sales (unaudited) (3) Calendar cycle............................ $428,201 $469,469 $897,670 Publication cycle......................... 430,815 429,708 860,523 Net revenue................................. 141,124 $163 141,287 Income from partnerships and related fees... 124,025 23,668 147,693 EBITDA (4).................................. 124,025 61,933 (8,857) $(14,293) 162,808 Depreciation and amortization............... 13,841 57 1,535 15,433 Operating income (loss)..................... 124,025 48,092 (8,914) (15,828) 147,375 Total assets................................ 197,822 47,270 120,192 365,284
40 43
Directory Get DonTech Advertising Digital Consolidated 1999 Partnership Services (1) Smart Other Totals ----------- ------------ ----- ----- ------ Advertising sales (unaudited) (3) Calendar cycle............................ $432,348 $634,380 $1,066,728 Publication cycle (5)..................... 427,562 617,570 1,045,132 Net revenue................................. 181,905 181,905 Income from partnerships and related fees... 123,524 15,657 139,181 EBITDA (4).................................. 123,524 40,906 $(1,329) $(14,876) 148,225 Depreciation and amortization............... 16,126 2,193 18,319 Operating income (loss)..................... 123,524 24,780 (1,329) (17,069) 129,906 Total assets................................ 197,307 139,394 58,705 395,406
Directory Get DonTech Advertising Digital Consolidated 1998 Partnership Services (1) Smart Other Totals ----------- ------------ ----- ----- ------ Advertising sales (unaudited) (3) Calendar cycle............................ $429,200 $562,375 $991,575 Publication cycle (5)..................... 408,930 580,352 989,282 Net revenue................................. 166,249 166,249 Income from partnerships and related fees... 120,087 15,767 135,854 EBITDA (4).................................. 120,087 38,414 $(13,688) 144,813 Depreciation and amortization............... 15,026 4,552 19,578 Operating income (loss)..................... 120,087 23,388 (18,240) 125,235 Total assets................................ 198,848 149,731 37,262 385,841
(1) The Directory Advertising Services segment information includes the following data relating to the Bell Atlantic and Cincinnati businesses which were disposed of in 2000 and certain one-time items related to the CenDon restructuring (see Notes 3 and 4).
2000 1999 1998 ---- ---- ---- Advertising sales (unaudited) (3) Calendar cycle.............................. $277,768 $453,971 $388,299 Publication cycle........................... 238,131 436,870 405,929 Net revenue.................................... 63,831 106,986 92,319 Income from partnerships and related fees...... 5,422 -- -- EBITDA (4)..................................... 24,808 14,403 11,702 Depreciation and amortization.................. 2,703 5,536 5,171 Operating income............................... 22,105 8,867 6,531 Total assets................................... -- 64,193 61,678
(2) GDS was shutdown in December 2000 and accordingly, will not be an operating segment in 2001. (3) Advertising sales represent the billing value of advertisements sold for an annual directory by the Company and DonTech. Calendar cycle advertising sales represent the billing value of advertisements sold for an annual directory stated on the same basis as revenue is recognized (that is, when a sales contract is signed where the Company acts as a sales agent and when a directory is published where the Company acted as the publisher). Publication cycle sales represent sales for directories that published in the current period which are compared against sales for the same directories published in the prior period, regardless of when the advertising for that directory was sold. If a directory publication date changes from one year to the next, the prior year publication date is adjusted to conform to the present year to maintain comparability. (4) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income or net income prepared in conformity with generally accepted accounting principles. In addition, EBITDA may not be comparable to similarly titled measures of other companies. (5) Publication cycle sales in 1998 for DAS have been adjusted from the amount originally reported to reduce sales by $481 to conform to the 1999 publication dates. Publication cycle sales in 1998 for DonTech have also been adjusted from the amount originally reported to increase sales by $5,830 to conform to the 1999 publication dates. Also in 1999, Sprint assumed responsibility for national advertising sales for Central Florida in consideration for an annual fee payable to the Company. Consequently, there were no national advertising sales in 1999 and accordingly, to conform to the 1999 presentation, national sales of $6,051 have been excluded from 1998 publication cycle sales for DAS. 41 44 12. VALUATION AND QUALIFYING ACCOUNTS
Additions Balance at Charged To Beginning of Revenue and Balance at End Period Expense Deductions (1) of Period ------ ------- -------------- --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS For the year ended December 31, 2000........ $7,992 11,128 11,765 $7,355 For the year ended December 31, 1999........ $8,765 8,571 9,344 $7,992 For the year ended December 31, 1998........ $3,295 8,264 2,794 $8,765
(1) Primarily includes sales allowances and accounts written off. 13. QUARTERLY INFORMATION (UNAUDITED)
Three Months Ended ------------------ March 31 June 30 September 30 December 31 Full Year -------- ------- ------------ ----------- --------- 2000 Net revenue........................... $41,389 $60,160 $22,778 $16,960 $141,287 Operating income...................... 25,574 52,210 45,641 23,950 147,375 Income before extraordinary loss...... 9,685 81,851 24,117 9,809 125,462 Net income (a, b)..................... 9,685 81,851 23,413 9,809 124,758 Basic earnings per share, before extraordinary loss (c)............ $0.30 $2.56 $0.76 $0.31 $3.93 Diluted earnings per share, before extraordinary loss (d)............ $0.29 $2.50 $0.74 $0.30 $3.85
Three Months Ended ------------------ March 31 June 30 September 30 December 31 Full Year -------- ------- ------------ ----------- --------- 1999 Net revenue.................... $ 40,523 $ 39,598 $ 58,541 $ 43,243 $181,905 Operating income............... 23,888 37,465 47,156 21,397 129,906 Net income..................... 8,475 16,873 22,358 7,445 55,151 Basic earnings per share....... $ 0.25 $ 0.50 $ 0.66 $ 0.22 $ 1.64 Diluted earnings per share..... $ 0.25 $ 0.49 $ 0.65 $ 0.22 $ 1.61
(a) Includes a pretax gain on disposition of businesses of $89,435 ($55,271 after tax) in the second quarter and a pretax loss on disposition of business of $2,940 ($1,817 after tax) in the fourth quarter. (b) Includes an extraordinary loss of $704 (net of taxes of $440) in the third quarter relating to the write-off of deferred financing costs in connection with the early repayment of debt. (c) Basic earnings per share after extraordinary loss for the third quarter and full year was $0.74 and $3.91, respectively. (d) Diluted earnings per share after extraordinary loss for the third quarter and full year was $0.72 and $3.83, respectively. The full year earnings per share amount may not equal the sum of the quarters due to changes in the average share calculations and rounding. 42 45 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Partners of DonTech I and DonTech II In our opinion, the accompanying combined balance sheets and the related combined statements of partners' capital, operations and cash flows present fairly, in all material respects, the combined financial position of AM-DON (doing business as "DonTech" and hereafter referred to as "DonTech I") and the DonTech II Partnership ("DonTech II") at December 31, 2000 and 1999, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of DonTech I and DonTech II; our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP January 12, 2001 Chicago, Illinois 43 46 DONTECH COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------- 2000 1999 1998 ---- ---- ---- (in thousands) Sales................................................................ $108,316 $109,260 $286,931 Less allowances...................................................... -- 6,364 30,731 -------- -------- -------- Net sales....................................................... 108,316 102,896 256,200 Expenses Selling............................................................ 49,327 44,994 59,549 Telephone company fees............................................. -- -- 2,021 Printing and manufacturing......................................... -- 19 14,036 Compilation........................................................ -- -- 3,384 Delivery........................................................... -- 2 1,074 Administrative..................................................... 8,493 9,440 11,850 Occupancy and depreciation......................................... 8,174 6,883 8,993 Other.............................................................. 1,640 1,670 2,344 -------- -------- -------- Total operating expenses........................................ 67,634 63,008 103,251 -------- -------- -------- Income from operations.......................................... 40,682 39,888 152,949 Other income (expense)............................................... 736 1,422 (507) -------- -------- -------- Net income...................................................... $41,418 $41,310 $152,442 ======== ======== ========
The accompanying notes are an integral part of the financial statements. 44 47 DONTECH COMBINED BALANCE SHEETS
DECEMBER 31, ------------ 2000 1999 ---- ---- (in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,371 $ 19,408 Trade receivable, net of allowance for doubtful accounts of $61 - from related party -- 20,128 Commission receivable - from related party 110,925 110,179 Prepaid expenses 103 961 -------- -------- Total current assets 116,399 150,676 Fixed assets, net of accumulated depreciation and amortization 8,115 7,141 Pension asset 9,677 8,443 Other 1,738 1,628 -------- -------- Total Assets $135,929 $167,888 ======== ======== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES Accounts payable $ 2,121 $ 2,446 Accrued liabilities 8,621 7,531 -------- -------- Total current liabilities 10,742 9,977 Partners' capital 125,187 157,911 -------- -------- Total Liabilities and Partners' Capital $135,929 $167,888 ======== ========
The accompanying notes are an integral part of the financial statements. 45 48 DONTECH COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------- 2000 1999 1998 ---- ---- ---- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 41,418 $ 41,310 $ 152,442 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 2,135 2,615 3,088 Provision for uncollectible accounts -- 6,364 20,832 Loss on disposal of fixed assets 44 -- -- Changes in assets and liabilities: Decrease (increase) in accounts receivable 2,815 (94) 132,687 Decrease in deferred printing and manufacturing -- 34 13,913 Decrease in deferred selling -- -- 20,331 Decrease in deferred compilation -- -- 3,310 Decrease in deferred delivery -- -- 1,087 Decrease in deferred directory operating service -- -- 750 (Increase) decrease in deferred other -- (4) 2,105 Increase in other current assets (486) (4,187) (604) Decrease in accounts payable (325) (4,090) (36,033) Increase in accrued liabilities 1,090 667 251 Decrease in deferred sales revenue -- (466) (161,340) --------- --------- --------- Net cash provided by operating activities 46,691 42,149 152,819 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment (3,153) (1,288) (6,658) CASH FLOWS FROM FINANCING ACTIVITIES: Partners contributions -- -- 49,000 Distributions to partners (57,575) (42,396) (181,042) --------- --------- --------- Net cash used in financing activities (57,575) (42,396) (132,042) --------- --------- --------- (Decrease) increase in cash and cash equivalents (14,037) (1,535) 14,119 Cash and cash equivalents, beginning of year 19,408 20,943 6,824 --------- --------- --------- Cash and cash equivalents, end of year $ 5,371 $ 19,408 $ 20,943 ========= ========= ========= NONCASH FINANCING ACTIVITIES Forgiveness of receivable due from API/IL $ 16,567 $ -- $ --
The accompanying notes are an integral part of the financial statements. 46 49 DONTECH COMBINED STATEMENTS OF PARTNERS' CAPITAL
R.H. AMERITECH DONNELLEY PUBLISHING OF CORPORATION ILLINOIS, INC. TOTAL ----------- -------------- ----- (in thousands) Balance, January 1, 1998 $ 82,263 $ 56,334 $ 138,597 Payment of contribution receivable 13,500 13,500 27,000 Contributions, per agreement 11,000 11,000 22,000 Net income 86,430 66,012 152,442 Distributions to partners (98,407) (82,635) (181,042) --------- --------- --------- Balance, December 31, 1998 94,786 64,211 158,997 Net income 20,312 20,998 41,310 Distributions to partners (21,896) (20,500) (42,396) --------- --------- --------- Balance, December 31, 1999 93,202 64,709 157,911 Net income 20,671 20,747 41,418 Distributions to partners (21,381) (52,761) (74,142) --------- --------- --------- Balance, December 31, 2000 $ 92,492 $ 32,695 $ 125,187 ========= ========= =========
The accompanying notes are an integral part of the financial statements. 47 50 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS) 1. FORM OF ORGANIZATION AND NATURE OF BUSINESS AM-DON d.b.a. DonTech ("DonTech I") is a general partnership between R.H. Donnelley Inc. (formerly known as The Reuben H. Donnelley Corporation) ("R.H. Donnelley"), a Delaware corporation, and Ameritech Publishing of Illinois, Inc. ("API/IL"), an Illinois corporation, doing business as Ameritech Advertising Services ("Aas"). Under a new structure as defined in the "Master Agreement" dated August 19, 1997, the existing partnership is defined as "DonTech I". Concurrently, API/IL and R.H. Donnelley formed a new partnership defined as "DonTech II". DonTech I participated in a Directory Agreement with R.H. Donnelley, Illinois Bell Telephone Company ("IBT"), doing business as Ameritech Illinois, API/IL and Aas. DonTech I also participated in a Subcontracting Agreement with Ameritech Publishing, Inc. ("API") to perform certain of API's obligations under the Publishing Services Contract between API and Indiana Bell Telephone Company, Incorporated ("Indiana Bell"), doing business as Ameritech Indiana. DonTech I published various directories, as identified in the Directory Agreements, solicited advertising, its primary source of revenues, and manufactured and delivered such directories. DonTech I's net income is allocated to each partner based on a predefined percentage as set forth in the amended partnership agreement. In accordance with the Second Amended and Restated AM-Don Partnership Agreement, effective August 19, 1997, the DonTech I partnership ceased publishing directories as of January 1, 1998. The partnership recognized the deferred revenue and expenses recorded as of December 31, 1997 over the remaining life of those directories published prior to January 1, 1998. As of December 31, 2000, DonTech I ceased business operations and the remaining assets were distributed to its partners. In August 1997, R.H. Donnelley and API/IL reached an agreement regarding a revised partnership structure through which a new DonTech partnership became the exclusive sales agent in perpetuity for the yellow page, white page and street address directories to be published by API for Illinois, Northwest Indiana and Michigan. The new partnership, known as "DonTech II", receives a 27% commission on sales net of provisions (capped at 6.1% per annum subject to certain exclusions). DonTech II's cost structure includes principally sales, sales operations, office services, finance, facilities and related overhead. DonTech II profits are shared equally between the partners. During the term of the partnership agreement, neither partner may compete directly against the business of DonTech II without the consent of the Board of Directors. A Board of Directors (the "Board") was appointed to administer the activities of each partnership. From time to time during the term of the partnership, the Board may call for additional capital contributions in equal amounts from each of the partners if, in the opinion of the Board, additional capital is required for the operation of the partnership. The accompanying financial statements of DonTech I and DonTech II are shown on a combined basis. All significant affiliated accounts and transactions have been eliminated in preparation of the combined financial statements. On January 28, 2000, the respective partners of DonTech I agreed to amend the DonTech I partnership agreement to provide for the payment of $29,898 from DonTech I to API/IL as a preferential distribution. The preferential distribution was comprised of cash funds totaling $13,331 and the forgiveness and cancellation of a receivable due from API/IL to the partnership in the amount of $16,567. Additionally, the partners of DonTech II also agreed to amend the DonTech II partnership agreement to provide for the payment of $29,898 by API/IL to DonTech II upon the dissolution of DonTech II and for the subsequent payment of a $29,898 preferential distribution from DonTech II to R.H. Donnelley. 2. SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents. Cash and cash equivalents include all highly liquid investments with an initial maturity date of three months or less. The carrying value of cash equivalents approximates fair value due to their short-term nature. Revenue Recognition. Substantially all DonTech I sales made to customers in the cities covered by the directories are recorded as deferred sales revenue and accounts receivable in the month of publication. Revenue related to these sales is recognized over 48 51 the lives of the directories, generally twelve months. Sales made to customers outside the cities covered by the directories are recognized each quarter. Sales for national accounts are recognized in full in the month of publication. For DonTech II, revenue is comprised of sales commissions reflected net of provisions (capped at 6.1% per annum subject to certain exclusions) and is recognized upon execution of contracts for the sale of advertising. Fixed Assets. Fixed assets are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. Upon asset retirement or other disposition, the cost and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the statement of operations. Amounts incurred for repairs and maintenance are charged to operations. Deferred Expense. The printing, manufacturing, compilation, sales, delivery and administrative costs of DonTech I publications are deferred and recognized in proportion to revenue. Postretirement Benefits Other Than Pensions. DonTech II is obligated to provide postretirement benefits consisting mainly of life and health insurance to substantially all employees and their dependants. The accrual method of accounting is utilized for postretirement health care and life insurance benefits. Income Taxes. No provision for income taxes is recognized as the proportional share of each partnership's income is the responsibility of the individual partners. Concentration of Credit Risk. Financial instruments that potentially subject each partnership to a concentration of credit risk consist principally of accounts receivables. DonTech I's trade accounts receivable and DonTech II commissions receivable are due from Aas. Collateral is generally not required from either partnership's customers. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. During 1999, DonTech I recorded a $6,200 charge related to bad debts that has been allocated to each partner based on their respective share of partnership and loss as stipulated in the partnership agreement. Recent Pronouncements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and hedging activities and requires recognition of all derivatives as assets or liabilities in the statement of financial position and measurement of those instruments at fair value. The statement, as amended, is effective for fiscal years beginning after June 15, 2000. As DonTech II does not have any derivative instruments or hedging activities, SFAS No. 133 is not expected to have a material effect on its financial results. 3. FIXED ASSETS Fixed assets consist of the following at December 31:
2000 1999 ---- ---- Equipment $15,243 $21,873 Furniture and fixtures 7,110 7,250 Leasehold improvements 1,903 1,544 ------- ------- 24,256 30,667 Less accumulated depreciation and amortization 16,141 23,526 ------- ------- $ 8,115 $ 7,141 ======= =======
Depreciation expense for the three years ending December 31, 2000, 1999 and 1998 was $2,135, $2,615 and $3,088, respectively. During the year ended December 31, 2000, DonTech II disposed of $9,565 of fixed assets that were no longer being utilized. Most of the assets were fully depreciated. This disposal activity resulted in a net loss of $44, which is reflected in the statement of operations for the year ended December 31, 2000. 49 52 4. RELATED PARTY TRANSACTIONS Amended Partnership Allocation. The partners negotiated settlement agreements regarding excessive bad debt write-offs incurred by DonTech I during the years ended December 31, 1999 and 1998. The agreements provided for special allocations of the excessive bad debts between the partners based upon a negotiated ratio. The effect of these settlement agreements has been included in the allocation of net income as presented in the statement of partners' capital at December 31, 1999 and 1998. DonTech II. Under the provisions of a "Revenue Participation Agreement" between APIL Partners Partnership and R.H. Donnelley dated August 19, 1997, in exchange for exclusive publishing rights, APIL Partners Partnership agrees to pay R.H. Donnelley revenue participation interests. The revenue participation interests are based upon gross revenues of the DonTech II partnership net of provisions (capped at 6.1% per annum subject to certain exclusions) and sales commissions paid to DonTech II. The revenue participation interest was 34.8% in 1998 and 35.9% in 1999 and 2000. Payment of the revenue participation interest is outside of the DonTech II partnership structure and is not reflected in the combined financial statements. The Partnership purchases insurance services and through August 2000 purchased car plan administration from R.H. Donnelley and general ledger and purchasing services from Aas. The Partnership also provides facility space for certain employees of Aas under an agreement entered into in 1998. 5. CONTINGENCIES AND COMMITMENTS DonTech II leases certain office facilities under noncancelable lease arrangements. Rent expense under these operating leases was $2,119, $1,807 and $2,743 for 2000, 1999 and 1998, respectively. During 2000, DonTech II entered into a sublease agreement with SBC Directory Operations ("SBC") whereby DonTech II received $30 of sublease rental income from SBC during 2000. The future minimum lease payments required under noncancelable operating leases that have initial or remaining lease terms in excess of one year as of December 31, 2000 are as follows: 2001...................................................... $ 4,131 2002...................................................... 3,851 2003...................................................... 3,751 2004...................................................... 3,526 2005 and thereafter....................................... 17,949 ------ $33,208 =======
In September 1998, DonTech entered into a maintenance service agreement with Ameritech to provide maintenance services, including parts, to DonTech II. The length of the agreement is five years. According to the terms of the agreement, DonTech II's obligations over the life of the agreement as of December 31, 2000 are as follows: 2001...................................................... $113 2002...................................................... 116 2003...................................................... 79 ---- $308 ====
6. EMPLOYEE RETIREMENT AND PROFIT PARTICIPATION PLANS DonTech II sponsors a defined benefit pension plan covering substantially all of its employees (the "Plan"). The Plan's assets are invested in equity funds, fixed income funds and real estate. Net periodic pension (benefit) expense for the Plan was $(342), $564 and $820 for 2000, 1999, and 1998 respectively. 50 53 The following provides a reconciliation of benefit obligations, plan assets, and the funded status of the Plan.
2000 1999 ---- ---- CHANGE IN BENEFIT OBLIGATION Projected benefit obligation, beginning of year $ 20,434 $ 20,572 Service cost 1,093 1,027 Interest cost 1,683 1,364 Benefits paid (728) (713) Actuarial loss (gain) 1,641 (13) Effect of plan amendments, assumption changes and other charges 354 (1,803) -------- -------- Projected benefit obligation, end of year 24,477 20,434 -------- -------- CHANGE IN PLAN ASSETS Market value of assets, at January 1 30,842 25,314 Benefits paid (728) (713) Contributions 767 3,620 Actual return on assets 737 2,621 -------- -------- Market value of assets, at December 31 31,618 30,842 -------- -------- Funded status of the plan 7,141 10,408 Unrecognized net (loss) gain 404 (4,398) Unrecognized prior service costs 1,547 1,974 -------- -------- Prepaid cost 9,092 7,984 ======== ======== Prepaid benefit cost 9,677 8,443 Accrued benefit liability (650) (459) Intangible asset 65 -- -------- -------- Net amount recognized $ 9,092 $ 7,984 ======== ========
Net periodic pension (benefit) cost for the Plan in 2000, 1999 and 1998 include the following components:
2000 1999 1998 ---- ---- ---- Service cost $ 1,093 $ 1,027 $ 929 Interest cost 1,683 1,364 1,298 Expected return on assets (3,430) (2,255) (1,833) Amortization of net (loss) gain (114) 2 -- Amortization of unrecognized prior service cost 426 426 426 ------- ------- ------- Total pension (benefit) cost $ (342) $ 564 $ 820 ======= ======= ======= Assumptions used are as follows: 2000 1999 1998 ------- ------- ------- Discount rate 7.50% 7.75% 7.00% Expected long-term rate of return 10.50% 9.75% 9.75% Weighted average compensation increase 4.16% 4.16% 3.16%
In the fourth quarter of 2000, the partnership changed the method of accounting used to determine the value of plan assets for purposes of calculating annual pension expense. The method was changed from a market-related value whereby gains and losses are recognized on a straight-line basis over five years to market value whereby gains and losses are reflected immediately. The effect of this change on the 2000 results of operations, including the cumulative effect of prior years, was not material. Additionally, DonTech II has a Profit Participation Plan (the "Profit Plan") that covers substantially all employees. Employees may voluntarily contribute up to 6% of their salaries to the Profit Plan and are guaranteed a matching contribution of fifty cents per dollar contributed. DonTech II also makes contributions to the Profit Plan based on a formula and contingent upon the 51 54 attainment of financial goals set in advance as defined in the Profit Plan. The contributions made to the Profit Plan were $854, $782 and $768 in 2000, 1999 and 1998, respectively. 7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS DonTech II provides postretirement health care and life insurance benefits to certain retired employees and their dependents. The following provides a reconciliation of benefit obligations, plan assets and the funded status of the health and life insurance plans.
2000 1999 ---- ---- CHANGE IN BENEFIT OBLIGATION Benefit obligation, beginning of year $ 2,951 $ 2,910 Service cost 154 164 Interest cost 231 196 Plan participants' contributions 27 21 Amendments 50 -- Actuarial loss (gain) 99 (210) Benefits paid (186) (130) ------- ------- Benefit obligation, end of year 3,326 2,951 ------- ------- CHANGE IN PLAN ASSETS Market value of assets, at January 1 -- -- Employer contributions 159 109 Plan participants' contributions 27 21 Benefits paid (186) (130) ------- ------- Market value of assets, at December 31, -- -- ------- ------- Funded status of plan 3,326 2,951 Unrecognized actuarial gain (121) (23) Unrecognized prior service benefit (263) (310) ------- ------- Accrued cost $ 2,942 $ 2,618 ======= =======
Net periodic postretirement benefit cost for 2000, 1999 and 1998 include the following components:
2000 1999 1998 ---- ---- ---- Service cost.............................................. $251 $253 $157 Interest cost............................................. 231 196 161 --- --- --- Net periodic benefit cost................................. $482 $449 $318 ==== ==== ====
The discount rate used in determining the Accumulated Postretirement Benefit Obligation ("APBO") as of December 31, 2000 and 1999 was 7.50% and 7.75%, respectively. The assumed health care cost trend rate used in measuring the APBO as of December 31, 2000 and 1999 varies by the age of the participant and the retirement date and ranges from 6.5% to 8.0%, respectively. The rates are assumed to decrease gradually to 5.0% for 2021 and remain at that level thereafter. Increasing the health care cost trend rates by one percentage point would not have had a material effect on the December 31, 2000 APBO or the net periodic postretirement expense. 8. VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Beginning of Charged to Cost Balance at End Period and Expenses Deductions (1) of Period ------ ------------ -------------- --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS For the year ended December 31, 2000........ $61 -- 61 $ -- For the year ended December 31, 1999........ $2,187 6,364 8,490 $ 61 For the year ended December 31, 1998........ $35,581 28,487 61,881 $2,187
(1) Includes accounts written off and other allowances made. 52 55 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES There have been no changes in, or disagreements with the Company's independent auditors, or the independent auditors of DonTech for the three-year period ended December 31, 2000. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this Item is incorporated herein by reference to the section entitled "Board of Directors" on pages 13 - 15 in the Company's Proxy Statement dated March 16, 2001 filed with the Securities and Exchange Commission, except that "Executive Officers of the Registrant" on pages 4 - 5 of this report responds to Item 401(b) and (e) of Regulation S-K with respect to executive officers. ITEM 11. EXECUTIVE COMPENSATION Information in response to this Item is incorporated herein by reference to the section entitled "Director and Executive Compensation" on pages 17 - 28 in the Company's Proxy Statement dated March 16, 2001 filed with the Securities and Exchange Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information in response to this Item is incorporated herein by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" on pages 29 - 30 in the Company's Proxy Statement dated March 16, 2001 filed with the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information in response to this Item is incorporated herein by reference to the section entitled "Board of Directors" on pages 13 - 15 in the Company's Proxy Statement dated March 16, 2001 filed with the Securities and Exchange Commission. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)(1) AND (2) - LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of the Company are included under Item 8: Consolidated Statements of Operations for the three years ended December 31, 2000 Consolidated Balance Sheets at December 31, 2000 and 1999 Consolidated Statements of Cash Flows for the three years ended December 31, 2000 Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the three years ended December 31, 2000 Notes to Consolidated Financial Statements The following combined financial statements for DonTech are included under Item 8: Combined Statements of Operations for the three years ended December 31, 2000 Combined Balance Sheets at December 31, 2000 and 1999 Combined Statements of Cash Flows for the three years ended December 31, 2000 Combined Statements of Partners' Capital for the three years ended December 31, 2000 Notes to Combined Financial Statements The following financial statement schedule for the Company is included under Item 8: Schedule II - Valuation and qualifying accounts (included as Footnote 12 - Valuation and Qualifying Accounts, in the Notes to Consolidated Financial Statements) 53 56 (B) REPORTS ON FORM 8-K Current Report on Form 8-K, dated January 11, 2001, disclosing under Item 9 that certain members of senior management of the Company were scheduled later that day to present at an investor conference and, among other things, intended to reiterate previous public disclosure of the Company's full year 2000 projected earnings per share of $1.85, before one-time costs, and 2001 projected earnings per share of $2.40. (C) EXHIBITS: EXHIBIT NO. DOCUMENT 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 3.3 Certificate of Incorporation of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 3.4 By-laws of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.1 Indenture dated as of June 5, 1998 between R.H. Donnelley Inc., as Issuer, the Company, as Guarantor, and the Bank of New York, as Trustee, with respect to the 9 1/8% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.2 Form of the 9 1/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.1) 4.3 Company Guarantee (included in Exhibit 4.1) 4.4 Rights Agreement, dated as of October 27, 1998 between R.H. Donnelley Corporation and First Chicago Trust Company (incorporated by reference to Exhibit 4 to the Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on November 5, 1998, Registration No. 001-07155) 4.5* Amendment No. 1 to Rights Agreement dated as of February 26, 2001 by and among R.H. Donnelley Corporation, First Chicago Trust Company of New York (as initial Rights Agent) and The Bank of New York (as successor Rights Agent) 10.1 Form of Distribution Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.2 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.2 Form of Tax Allocation Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.3 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 54 57 10.3 Form of Employee Benefits Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.4 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.4 Form of Intellectual Property Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.5 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.5 Form of Amended and Restated Transition Services Agreement between the Company (f/k/a The Dun & Bradstreet Corporation), The New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation and Gartner Group, Inc. (incorporated by reference to Exhibit 99.9 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.6 Credit Agreement among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent and the Lenders party thereto (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 10.7 First Amendment to Credit Agreement, dated as of March 4, 1999, among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 10.8 DonTech II Partnership Agreement, effective August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois, Inc. (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.9 Revenue Participation Agreement, dated as of August 19, 1997, by and between APIL Partners Partnership and R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.10 Master Agreement, executed August 19, 1997, by and among R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation), the Company (f/k/a The Dun & Bradstreet Corporation), The Am-Don Partnership a/k/a DonTech, DonTech II, Ameritech Publishing, Inc., Ameritech Publishing of Illinois, Inc., Ameritech Corporation, DonTech I Publishing Company LLC and the APIL Partners Partnership (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.11 Exclusive Sales Agency Agreement, effective August 19, 1997, between APIL Partners Partnership and DonTech II (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 55 58 10.12 Second Amended and Restated Partnership Agreement, effective as of August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois (incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.13+ Key Employees' Performance Unit Plan, as amended and restated (incorporated by reference to Exhibit 10.15 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.14+ 1991 Key Employees' Stock Option Plan, as amended and restated through April 25, 2000 (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2000, Commission File No. 001-07155) 10.15+ Amended and Restated 1998 Directors' Stock Plan (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 001-07155) 10.16+ Annual Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.18 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.17+ Supplemental Executive Benefit Plan (incorporated by reference to Exhibit 10.19 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.18+ Deferred Compensation Plan (incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on November 24, 1999, Registration No. 333-91613) 10.19+ Employment Agreement dated as of September 28, 1998 between the Company and Frank R. Noonan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Commission File No. 001-07155) 10.20+ Employment Agreement dated as of September 28, 1998 between the Company and Philip C. Danford (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Commission File No. 001-07155) 10.21*+ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Phillip C. Danford 10.22*+ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and Phillip C. Danford 10.23+ Employment Agreement dated as of September 28, 1998 between the Company and David C. Swanson (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Commission File No. 001-07155) 10.24*+ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and David C. Swanson 10.25*+ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and David C. Swanson 56 59 10.26+ Employment Agreement dated as of September 28, 1998 between the Company and Judith A. Norton (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 001-07155) 10.27*+ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Judith A. Norton 10.28*+ Amendment No. 2 to the Employment Agreement dated as of February 27, 2001 between the Company and Judith A. Norton 10.29*+ Separation Agreement and Release dated as of March 15, 2001 between the Company and Judith A. Norton 10.30*+ Employment Agreement dated as of March 23, 2000 between Get Digital Smart.com, Inc. and Thomas A. Daniel 10.31*+ Separation Agreement and Release dated as of February 28, 2001 between Get Digital Smart.com and Thomas A. Daniel 10.32*+ Employment Agreement dated as of September 28, 1998 between the Company and Frank M. Colarusso 10.33*+ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Frank M. Colarusso 10.34*+ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and Frank M. Colarusso 10.35*+ Employment Agreement dated as of September 26, 2000 between the Company and William C. Drexler 10.36*+ Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and William C. Drexler 10.37*+ Employment Agreement dated as of January 1, 2001 between the Company and Robert J. Bush 10.38*+ Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and Robert J. Bush 21* Subsidiaries of the Company 23* Consent of Independent Accountants *Filed herewith + Management contract or compensatory plan 57 60 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, on the 26th day of March, 2001. R.H. Donnelley Corporation By: /s/ Frank R. Noonan ------------------------------------ Frank R. Noonan, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been duly signed by the following persons in the capacities and on the date indicated. /s/ Frank R. Noonan Chairman of the Board and March 26, 2001 - ------------------------------- Chief Executive Officer (Frank R. Noonan) /s/ Philip C. Danford Senior Vice President and March 26, 2001 - ------------------------------- Chief Financial Officer (Philip C. Danford) /s/ William C. Drexler Vice President and Controller March 26, 2001 - ------------------------------- (William C. Drexler) /s/ Diane P. Baker Director March 26, 2001 - ------------------------------- (Diane P. Baker) /s/ Kenneth G. Campbell Director March 26, 2001 - ------------------------------- (Kenneth G. Campbell) /s/ Darius W. Gaskins Jr. Director March 26, 2001 - ------------------------------- (Darius W. Gaskins Jr.) /s/ William G. Jacobi Director March 26, 2001 - ------------------------------- (William G. Jacobi) /s/ Robert Kamerschen Director March 26, 2001 - ------------------------------- (Robert Kamerschen) /s/ Carol J. Parry Director March 26, 2001 - ------------------------------- (Carol J. Parry) /s/ Barry Lawson Williams Director March 26, 2001 - ------------------------------- (Barry Lawson Williams)
58 61 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, on the 26th day of March, 2001. R.H. Donnelley Inc. By: /s/ Frank R. Noonan ------------------------------------ Frank R. Noonan, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been duly signed by the following persons in the capacities and on the date indicated. /s/ Frank R. Noonan Director, President and March 26, 2001 - ------------------------------- Chief Executive Officer (Frank R. Noonan) /s/ Philip C. Danford Director, Senior Vice President March 26, 2001 - ------------------------------- and Chief Financial Officer (Philip C. Danford) /s/ William C. Drexler Vice President and Controller March 26, 2001 - ------------------------------- (William C. Drexler)
59 62 EXHIBIT INDEX ------------- EXHIBIT NO. DOCUMENT 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 3.3 Certificate of Incorporation of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 3.4 By-laws of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.1 Indenture dated as of June 5, 1998 between R.H. Donnelley Inc., as Issuer, the Company, as Guarantor, and the Bank of New York, as Trustee, with respect to the 9 1/8% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.2 Form of the 9 1/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.1) 4.3 Company Guarantee (included in Exhibit 4.1) 4.4 Rights Agreement, dated as of October 27, 1998 between R.H. Donnelley Corporation and First Chicago Trust Company (incorporated by reference to Exhibit 4 to the Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on November 5, 1998, Registration No. 001-07155) 4.5* Amendment No. 1 to Rights Agreement dated as of February 26, 2001 by and among R.H. Donnelley Corporation, First Chicago Trust Company of New York (as initial Rights Agent) and The Bank of New York (as successor Rights Agent) 10.1 Form of Distribution Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.2 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.2 Form of Tax Allocation Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.3 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 63 10.3 Form of Employee Benefits Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.4 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.4 Form of Intellectual Property Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.5 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.5 Form of Amended and Restated Transition Services Agreement between the Company (f/k/a The Dun & Bradstreet Corporation), The New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation and Gartner Group, Inc. (incorporated by reference to Exhibit 99.9 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.6 Credit Agreement among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent and the Lenders party thereto (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 10.7 First Amendment to Credit Agreement, dated as of March 4, 1999, among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 10.8 DonTech II Partnership Agreement, effective August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois, Inc. (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.9 Revenue Participation Agreement, dated as of August 19, 1997, by and between APIL Partners Partnership and R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.10 Master Agreement, executed August 19, 1997, by and among R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation), the Company (f/k/a The Dun & Bradstreet Corporation), The Am-Don Partnership a/k/a DonTech, DonTech II, Ameritech Publishing, Inc., Ameritech Publishing of Illinois, Inc., Ameritech Corporation, DonTech I Publishing Company LLC and the APIL Partners Partnership (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.11 Exclusive Sales Agency Agreement, effective August 19, 1997, between APIL Partners Partnership and DonTech II (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 64 10.12 Second Amended and Restated Partnership Agreement, effective as of August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois (incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.13+ Key Employees' Performance Unit Plan, as amended and restated (incorporated by reference to Exhibit 10.15 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.14+ 1991 Key Employees' Stock Option Plan, as amended and restated through April 25, 2000 (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2000, Commission File No. 001-07155) 10.15+ Amended and Restated 1998 Directors' Stock Plan (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 001-07155) 10.16+ Annual Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.18 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.17+ Supplemental Executive Benefit Plan (incorporated by reference to Exhibit 10.19 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.18+ Deferred Compensation Plan (incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on November 24, 1999, Registration No. 333-91613) 10.19+ Employment Agreement dated as of September 28, 1998 between the Company and Frank R. Noonan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Commission File No. 001-07155) 10.20+ Employment Agreement dated as of September 28, 1998 between the Company and Philip C. Danford (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Commission File No. 001-07155) 10.21*+ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Phillip C. Danford 10.22*+ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and Phillip C. Danford 10.23+ Employment Agreement dated as of September 28, 1998 between the Company and David C. Swanson (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Commission File No. 001-07155) 10.24*+ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and David C. Swanson 10.25*+ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and David C. Swanson 65 10.26+ Employment Agreement dated as of September 28, 1998 between the Company and Judith A. Norton (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 001-07155) 10.27*+ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Judith A. Norton 10.28*+ Amendment No. 2 to the Employment Agreement dated as of February 27, 2001 between the Company and Judith A. Norton 10.29*+ Separation Agreement and Release dated as of March 15, 2001 between the Company and Judith A. Norton 10.30*+ Employment Agreement dated as of March 23, 2000 between Get Digital Smart.com, Inc. and Thomas A. Daniel 10.31*+ Separation Agreement and Release dated as of February 28, 2001 between Get Digital Smart.com and Thomas A. Daniel 10.32*+ Employment Agreement dated as of September 28, 1998 between the Company and Frank M. Colarusso 10.33*+ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Frank M. Colarusso 10.34*+ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and Frank M. Colarusso 10.35*+ Employment Agreement dated as of September 26, 2000 between the Company and William C. Drexler 10.36*+ Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and William C. Drexler 10.37*+ Employment Agreement dated as of January 1, 2001 between the Company and Robert J. Bush 10.38*+ Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and Robert J. Bush 21* Subsidiaries of the Company 23* Consent of Independent Accountants *Filed herewith + Management contract or compensatory plan EX-4.5 2 y46667ex4-5.txt AMENDMENT NO. 1 TO RIGHTS AGREEMENT 1 EXHIBIT 4.5 AMENDMENT NO. 1 TO RIGHTS AGREEMENT This Amendment No. 1 (this "Amendment") to the Rights Agreement dated as of this 26th day of February, 2001, by and among R.H. Donnelley Corporation, a Delaware corporation ("RHD"), First Chicago Trust Company of New York, as Rights Agent (the "Initial Agent"), and The Bank of New York, as successor Rights Agent (the "Successor Agent"). RECITALS WHEREAS, RHD and the Initial Agent entered into that certain Rights Agreement dated October 27, 1998 (the "Rights Agreement"); WHEREAS, RHD has notified the Initial Agent in writing that it no longer will contract with the Initial Agent for transfer agent services effective on or about February 26, 2001; WHEREAS, RHD has notified the Initial Agent in writing that it has elected to terminate the Initial Agent as Rights Agent under the Rights Agreement effective as of February 26, 2001 (the "Effective Date"); and WHEREAS, RHD has notified the Successor Agent (with a copy to the Initial Agent) that it has been appointed as Successor Rights Agent under the Rights Agreement and Successor Agent has accepted such appointment; NOW, WHEREFORE, in consideration of the mutual covenants set forth herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. As of the Effective Date, Initial Agent will be removed as Rights Agent under the Rights Agreement and Successor Agent will be substituted as successor Rights Agent. From and after the Effective Date, any and all references in the Rights Agreement to (a) the Initial Agent shall be read to refer to the Successor Agent and (b) to the Rights Agent shall refer to the Successor Agent, as Rights Agent under the Rights Agreement. 2. As of the Effective Date, all rights, entitlements, obligations, duties, and liabilities of the Rights Agent under the Rights Agreement shall be assumed by Successor Agent and Initial Agent shall have no such rights, entitlements, obligations, duties, and liabilities of the Rights Agent thereafter. 3. Except with respect to their respective rights to enforce the obligations set forth herein, RHD and Initial Agent hereby permanently and forever discharge and release each other, their affiliates, successors and assigns with respect to any and all liabilities, claims, debts, damages and rights of action that they ever may have had, have, or ever will have against the other, whether currently known or unknown, whether or not currently accrued, in connection with the Rights Agreement or Initial Agent's service as Rights Agent thereunder. 2 4. Section 20(c) of the Agreement is hereby amended by adding at the end of the first sentence the following: "; provided, however, that the Rights Agent shall not be liable for indirect, special, consequential or punitive damages." 5. Section 32 of the Agreement is hereby amended by adding the following two sentences at the end of that Section. "The parties agree that all actions and proceedings arising out of this Agreement or any of the transactions contemplated hereby, shall be brought in the United States District Court for the Southern District of New York or in a New York State Court in the County of New York and that, in connection with any such action or proceeding, submit to the jurisdiction of, and venue in, such court. Each of the parties hereto also irrevocably waive all right to trial by jury in any action proceeding or counterclaim arising out of this agreement or the transactions contemplated hereby." 6. Except as amended hereby, the Rights Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. 7. This Amendment and the performance of the parties hereunder shall be interpreted, construed, and enforced in accordance with the laws of the State of New York. 8. This Amendment may be executed in multiple counterparts. Each such counterpart shall be an original and all together shall constitute but one and the same Amendment. 2 3 IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Rights Agreement on the date set forth herein. R.H. DONNELLEY CORPORATION By: /s/ Robert J. Bush -------------------------- Name: Robert J. Bush Title: Vice President and General Counsel FIRST CHICAGO TRUST COMPANY OF NEW YORK By: /s/ Christopher Coleman -------------------------- Name: Christopher Coleman Title: Senior Account Officer THE BANK OF NEW YORK By: /s/ Alexander Pabon -------------------------- Name: Alexander Pabon Title: Assistant Vice President 3 EX-10.21 3 y46667ex10-21.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.21 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 dated as of July 27, 2000 amends the Employment Agreement dated September 28, 1998 by and between R.H. Donnelley Corporation, a Delaware corporation (the "Company"), and Phillip C. Danford (the "Executive") (the "Existing Agreement", and as amended, the "Agreement"). WHEREAS, the Company considers it essential and in the best interests of its shareholders to foster the continued employment of its senior management personnel, and the Executive is an important member of the Company's senior management; and WHEREAS, the Company wishes to clarify its intent with respect to benefits to be provided to the Executive in certain events following a Change in Control. NOW, THEREFORE, the parties agree that the Existing Agreement is hereby amended as follows: 1. Paragraph 1 of the Existing Agreement is amended by inserting the following sentence at the end thereof: "Notwithstanding the foregoing, no person (including the Company and any successor thereto) shall be permitted to give notice of such intention within two years following a Change in Control, as hereinafter defined." 2. Paragraph 8 of the Existing Agreement is amended by deleting the last sentence thereof and replacing such sentence with the following: "The provisions of this Section 8 (and any related provisions of Section 10) shall survive any non-renewal of this Agreement by the Company pursuant to Section 1." 3. Subsection (c) of Paragraph 8 of the Existing Agreement is amended by deleting ", as hereinafter defined," from the first sentence thereof. 4. This Amendment No. 1 shall be conditioned upon the receipt by each party hereto from the other a counterpart hereof signed by such other party or facsimile or other written confirmation that such other party has signed a counterpart hereof. 5. This Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of New York. 2 6. This Amendment No. 1 may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 1 as of the day and year first above written. Phillip C. Danford /s/ Phillip C. Danford ---------------------- R.H. DONNELLEY CORPORATION By: /s/ Judith A. Norton ---------------------- Judith A. Norton SVP, Human Resources 2 EX-10.22 4 y46667ex10-22.txt AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.22 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment No. 2, dated as of February 27, 2001, amends the Employment Agreement, dated as of September 28, 1998, by and between R.H. Donnelley Corporation (the "Company") and Philip C. Danford (the "Executive"), as amended by Amendment No. 1, dated as of July 27, 2000 (as so amended, the "Existing Agreement", and as amended hereby, the "Agreement"). WHEREAS, the Company considers it essential and in the best interests of its shareholders to foster the continued employment of its senior management personnel, and the Executive is an important member of the Company's senior management; and WHEREAS, the initial term of the Existing Agreement expires on June 30, 2001, although the Existing Agreement automatically renews for successive one-year terms, unless either party gives 90 day's written notice prior to the renewal date; WHEREAS, the Company wishes to clarify the ramifications of a decision by the Company not to renew Executive's employment as of June 30, 2001 or during any subsequent renewal term; and WHEREAS, the Compensation and Benefits Committee of the Board of Directors has approved the following amendment to the Existing Agreement; NOW, THEREFORE, the parties agree that the Existing Agreement is hereby amended as follows: 1. Paragraph 1 of the Existing Agreement is amended by inserting the following sentence at the end thereof: "Any such non-renewal of this Agreement by the Company shall be treated as a termination of Executive's employment without Cause, as hereinafter defined." 2. Except as amended hereby, the Existing Agreement shall remain in full force and effect in accordance with its terms. 3. This Amendment No. 2 shall be governed by and construed in accordance with the laws of the State of New York. 4. This Amendment No. 2 may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 2 IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 2 as of the day and year first above written. Executive /s/ Phillip C. Danford ------------------------------- Signature of Phillip C. Danford R.H. DONNELLEY CORPORATION By:/s/ Frank R. Noonan ------------------------------- Name: Frank R. Noonan Title: Chairman & CEO 2 EX-10.24 5 y46667ex10-24.txt AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.24 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 dated as of July 27, 2000 amends the Employment Agreement dated September 28, 1998 by and between R.H. Donnelley Corporation, a Delaware corporation (the "Company"), and David C. Swanson (the "Executive") (the "Existing Agreement", and as amended, the "Agreement"). WHEREAS, the Company considers it essential and in the best interests of its shareholders to foster the continued employment of its senior management personnel, and the Executive is an important member of the Company's senior management; and WHEREAS, the Company wishes to clarify its intent with respect to benefits to be provided to the Executive in certain events following a Change in Control. NOW, THEREFORE, the parties agree that the Existing Agreement is hereby amended as follows: 1. Paragraph 1 of the Existing Agreement is amended by inserting the following sentence at the end thereof: "Notwithstanding the foregoing, no person (including the Company and any successor thereto) shall be permitted to give notice of such intention within two years following a Change in Control, as hereinafter defined." 2. Paragraph 8 of the Existing Agreement is amended by deleting the last sentence thereof and replacing such sentence with the following: "The provisions of this Section 8 (and any related provisions of Section 10) shall survive any non-renewal of this Agreement by the Company pursuant to Section 1." 3. Subsection (c) of Paragraph 8 of the Existing Agreement is amended by deleting ", as hereinafter defined," from the first sentence thereof. 4. This Amendment No. 1 shall be conditioned upon the receipt by each party hereto from the other a counterpart hereof signed by such other party or facsimile or other written confirmation that such other party has signed a counterpart hereof. 5. This Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of New York. 2 6. This Amendment No. 1 may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 1 as of the day and year first above written. David C. Swanson /s/ David C. Swanson --------------------- R.H. DONNELLEY CORPORATION By: /s/ Judith A. Norton --------------------- Judith A. Norton SVP, Human Resources 2 EX-10.25 6 y46667ex10-25.txt AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.25 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment No. 2, dated as of February 27, 2001, amends the Employment Agreement, dated as of September 28, 1998, by and between R.H. Donnelley Corporation (the "Company") and David C. Swanson (the "Executive"), as amended by Amendment No. 1, dated as of July 27, 2000 (as so amended, the "Existing Agreement", and as amended hereby, the "Agreement"). WHEREAS, the Company considers it essential and in the best interests of its shareholders to foster the continued employment of its senior management personnel, and the Executive is an important member of the Company's senior management; and WHEREAS, the initial term of the Existing Agreement expires on June 30, 2001, although the Existing Agreement automatically renews for successive one-year terms, unless either party gives 90 day's written notice prior to the renewal date; WHEREAS, the Company wishes to clarify the ramifications of a decision by the Company not to renew Executive's employment as of June 30, 2001 or during any subsequent renewal term; and WHEREAS, the Compensation and Benefits Committee of the Board of Directors has approved the following amendment to the Existing Agreement; NOW, THEREFORE, the parties agree that the Existing Agreement is hereby amended as follows: 1. Paragraph 1 of the Existing Agreement is amended by inserting the following sentence at the end thereof: "Any such non-renewal of this Agreement by the Company shall be treated as a termination of Executive's employment without Cause, as hereinafter defined." 2. Except as amended hereby, the Existing Agreement shall remain in full force and effect in accordance with its terms. 3. This Amendment No. 2 shall be governed by and construed in accordance with the laws of the State of New York. 4. This Amendment No. 2 may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 2 IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 2 as of the day and year first above written. Executive /s/ David C. Swanson -------------------- Signature of David C. Swanson R.H. DONNELLEY CORPORATION By:/s/ Frank R. Noonan ---------------------- Name: Frank R. Noonan Title: Chairman & CEO 2 EX-10.27 7 y46667ex10-27.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.27 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 dated as of July 27, 2000 amends the Employment Agreement dated September 28, 1998 by and between R.H. Donnelley Corporation, a Delaware corporation (the "Company"), and Judith A. Norton (the "Executive") (the "Existing Agreement", and as amended, the "Agreement"). WHEREAS, the Company considers it essential and in the best interests of its shareholders to foster the continued employment of its senior management personnel, and the Executive is an important member of the Company's senior management; and WHEREAS, the Company wishes to clarify its intent with respect to benefits to be provided to the Executive in certain events following a Change in Control. NOW, THEREFORE, the parties agree that the Existing Agreement is hereby amended as follows: 1. Paragraph 1 of the Existing Agreement is amended by inserting the following sentence at the end thereof: "Notwithstanding the foregoing, no person (including the Company and any successor thereto) shall be permitted to give notice of such intention within two years following a Change in Control, as hereinafter defined." 2. Paragraph 8 of the Existing Agreement is amended by deleting the last sentence thereof and replacing such sentence with the following: "The provisions of this Section 8 (and any related provisions of Section 10) shall survive any non-renewal of this Agreement by the Company pursuant to Section 1." 3. Subsection (c) of Paragraph 8 of the Existing Agreement is amended by deleting ", as hereinafter defined," from the first sentence thereof. 4. This Amendment No. 1 shall be conditioned upon the receipt by each party hereto from the other a counterpart hereof signed by such other party or facsimile or other written confirmation that such other party has signed a counterpart hereof. 5. This Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of New York. 2 6. This Amendment No. 1 may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 1 as of the day and year first above written. Judith A. Norton /s/ Judith A. Norton -------------------- R.H. DONNELLEY CORPORATION By: /s/ Frank R. Noonan -------------------- Frank R. Noonan Chairman and CEO 2 EX-10.28 8 y46667ex10-28.txt AMENDMENT NO. 2 TO THE EMPLOMENT AGREEMENT 1 EXHIBIT 10.28 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment No. 2, dated as of February 27, 2001, amends the Employment Agreement, dated as of September 28, 1998, by and between R.H. Donnelley Corporation (the "Company") and Judith A. Norton (the "Executive"), as amended by Amendment No. 1, dated as of July 27, 2000 (as so amended, the "Existing Agreement", and as amended hereby, the "Agreement"). WHEREAS, the Company considers it essential and in the best interests of its shareholders to foster the continued employment of its senior management personnel, and the Executive is an important member of the Company's senior management; and WHEREAS, the initial term of the Existing Agreement expires on June 30, 2001, although the Existing Agreement automatically renews for successive one-year terms, unless either party gives 90 day's written notice prior to the renewal date; WHEREAS, the Company wishes to clarify the ramifications of a decision by the Company not to renew Executive's employment as of June 30, 2001 or during any subsequent renewal term; and WHEREAS, the Compensation and Benefits Committee of the Board of Directors has approved the following amendment to the Existing Agreement; NOW, THEREFORE, the parties agree that the Existing Agreement is hereby amended as follows: 1. Paragraph 1 of the Existing Agreement is amended by inserting the following sentence at the end thereof: "Any such non-renewal of this Agreement by the Company shall be treated as a termination of Executive's employment without Cause, as hereinafter defined." 2. Except as amended hereby, the Existing Agreement shall remain in full force and effect in accordance with its terms. 3. This Amendment No. 2 shall be governed by and construed in accordance with the laws of the State of New York. 4. This Amendment No. 2 may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 2 IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 2 as of the day and year first above written. Executive /s/ Judith A. Norton -------------------- Signature of Judith A. Norton R.H. DONNELLEY CORPORATION By:/s/ Frank R. Noonan ---------------------- Name: Frank R. Noonan Title: Chairman & CEO 2 EX-10.29 9 y46667ex10-29.txt SEPARATION AGREEMENT AND RELEASE 1 EXHIBIT 10.29 SEPARATION AGREEMENT And RELEASE THIS SEPARATION AGREEMENT AND RELEASE AGREEMENT (the "Agreement") dated as of this 15th day of March, 2001, made by and between Judith A. Norton (hereinafter referred to as "Employee"), and R.H. Donnelley Corporation (hereinafter, unless the context indicates to the contrary, deemed to include its subsidiaries, partnerships and affiliates and referred to as the "Company"). WITNESSETH THAT: WHEREAS, Employee has been employed by the Company pursuant to the terms of an Employment Agreement dated September 28, 1998 (as amended to date, the "Employment Agreement"); and WHEREAS, Employee's employment with the Company will terminate as of March 15, 2001 (the "Termination Date"); WHEREAS, Section 8(h) of the Employment Agreement requires Employee to execute a general release of claims in favor of the Company as a condition to receiving certain benefits and payments under the Employment Agreement; NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter provided and of the actions taken pursuant thereto, the parties agree as follows: 1. Termination Date. Employee's employment with the Company (as well as Employee's membership on any Boards of Directors and/or committees) will be terminated effective as of the Termination Date. 2. Entitlements under Employment Agreement. Upon Employee's termination of employment, Employee shall be entitled to the payments and benefits set forth below in accordance with Section 8(c) of the Employment Agreement. Employee acknowledges and agrees that she is not entitled to (and waives to the extent so entitled) any other or different payments or benefits under the Employment Agreement or otherwise as a result of such termination. Each of the Company's and Employee's rights and obligations under the Employment Agreement shall terminate as of the Termination Date, except those that expressly survive termination of the Employment Agreement under the terms of the Employment Agreement or this Agreement, including, without limitation, (a) the last sentence of Section 8(d) regarding certain entitlements upon the occurrence of a Change of Control (as defined in the Employment Agreement) for which negotiations had commenced prior to the Termination Date, and (b) the provisions of Section 16 of the Employment Agreement regarding the reimbursement of legal fees and costs under certain circumstances, in each case, which shall expressly survive the termination of the Employment Agreement and the release set forth herein. 2 4. Severance Payments. Within ten (10) days following the Termination Date, in lieu of further salary or bonus payments, Employee shall be entitled to receive a lump-sum amount equal to $436,000 (representing 200% of Employee's Base Salary as of the Termination Date) plus $218,000 (representing 200% of Employee's Target Bonus). Employee shall not be entitled to any Bonus payment with respect to 2001 or any portion thereof or any subsequent period. 5. Benefits. For the earlier to occur of twenty four (24) months from the Termination Date and Employee's becoming eligible to participate in comparable plans of another employer, the Company shall continue to provide Employee an opportunity to participate in the Company's health, life insurance and disability plans by which she is presently covered at corporate rates. The Company will invoice Employee monthly for the cost of such plans. The foregoing sentence shall not be construed to require the Company to maintain any plan presently in effect or to adopt any new or replacement plan, all such decisions with respect to plans being reserved by the Company its sole and absolute discretion. Employee shall also be entitled to participate, at no cost to Employee, in the Company's executive financial counseling program for twenty-four (24) months following the Termination Date. As of the Termination Date, Employee shall be 100% vested in all company contributions under the Company's Profit Participation Plan and Retirement Account and all amounts credited to Employee under the Retirement Account shall be fully portable. Finally, all cash amounts and deferred shares credited to Employee's account under the Company's Deferred Compensation Plan will be paid out to Employee in a lump sum cash amount as promptly as practicable after the Valuation Date next following the Termination Date, in accordance with the provisions of that Plan. 6. Stock Options. As a retirement eligible employee, all unvested options shall vest as of the Termination Date and all options vested as of the Termination Date may be exercised over the remaining life of those options, all in accordance with the terms of the Company's 1991 Key Employee Stock Option Plan. Employee shall not be entitled to any option grant with respect to 2001 or any portion thereof or any subsequent period. 7. PERS. On account of the performance shares awarded to Employee under the Key Employees' Performance Unit Plan for the performance period from January 1, 1999 through December 31, 2001, Employee shall be entitled to receive an amount in cash equal to her pro-rated (27/36ths) award based upon the Company's actual results against target over the full performance period, payable in the first quarter of 2002 at the same time as paid to other senior executives following approval by the Compensation and Benefits Committee. In addition, Employee shall be entitled to receive the remaining one-third of her PERS award (representing 6,488 shares) with respect to the performance period July 1998 to December 1999. Within ten (10) days following the Termination Date, the Company shall pay to Employee an amount in cash equal to the value of those 6,488 shares based upon the average of the high and low prices of the Company's Common Stock on the Termination Date. Employee shall not be entitled to any PERS award grant with respect to 2001 or any portion thereof or any subsequent period. 8. Withholding Taxes. All amounts payable by Company to Employee under this Agreement shall be reduced for any applicable withholding taxes. 2 3 9. Non-Competition. Employee hereby acknowledges the restrictions set forth in Section 12 of the Employment Agreement (the "Non-Compete Provisions") and, as consideration for the payments and benefits set forth above, Employee hereby agrees that Employee shall be bound by such Non-Compete Provisions for the twelve month period commencing as of the Termination Date. In the event of a breach of the foregoing Non-Compete Provisions, Employee shall forfeit all rights to the payments and benefits set forth above and the Company shall be entitled to recoup any payments and the fair value of any benefits previously bestowed upon Employee hereunder. 10. Confidentiality; Non-Disparagement. Employee hereby acknowledges the restrictions set forth in Section 13 of the Employment Agreement (the "Confidentiality and Non-Disparagement Provisions") and, as consideration for the payments and benefits set forth above, Employee hereby agrees that Employee shall continue to be bound by such Confidentiality and Non-Disparagement Provisions into perpetuity. Without limiting the generality of the foregoing, the existence and the terms and conditions of this Separation Agreement and Release shall constitute confidential information covered by the Confidentiality and Non-Disparagement Provisions, except that Employee shall have the right to disclose the existence and terms of this Separation Agreement and Release to the extent reasonably necessary to enforce her rights hereunder or those rights that survive under the Employment Agreement. In the event of a breach of the foregoing Confidentiality and Non-Disparagement Provisions, Employee shall forfeit all rights to the payments and benefits set forth above and the Company shall be entitled to recoup any payments and the fair value of any benefits previously bestowed upon Employee hereunder. 11. Material Inducement. Employee acknowledges and agrees that the Non-Compete Provisions and the Confidentiality and Non-Disparagement Provisions are an essential element of the parties' agreement, are a material inducement for the Company to make the payments and provide the benefits set forth above and the breach thereof would be a material breach of this Agreement. Employee further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of the Non-Compete Provisions or the Confidentiality and Non-Disparagement Provisions would be inadequate and, in recognition of this fact, Employee agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to seek equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 12. Release. a. Except with respect to Employee's rights hereunder and those rights of Employee that survive under the Employment Agreement, Employee, Employee's representatives, successors and assigns releases and forever discharges the Company and its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan from any and all claims, demands, debts, damages, injuries, actions or rights of action of any nature whatsoever (collectively "Claims"), whether known or unknown, which Employee had, now has or may have against the Company, its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan, including, without limitation, Claims relating to or arising out 3 4 of Employee's employment with the Company or the termination of such employment. Employee represents that Employee has not filed any action, complaint, charge, grievance or arbitration against the Company or any of its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan. b. Employee covenants that neither Employee, nor any of Employee's respective heirs, representatives, successors or assigns, will commence, prosecute or cause to be commenced or prosecuted against the Company or any of its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan any action or other proceeding based upon any claims, demands, causes of action, obligations, damages or liabilities which are to be released by this Agreement, nor will Employee seek to challenge the validity of this Agreement, except that this covenant not to sue does not affect Employee's future right to enforce appropriately in a court of competent jurisdiction the terms of this Agreement or the terms that survive under the Employment Agreement. c. By releasing the claims described in this Section 12, Employee does not waive any claims that cannot be waived as a matter of law, including without limitation any claims filed with the Equal Employment Opportunity Commission, the U.S. Department of Labor or claims under the Age Discrimination in Employment Act that arise after the date of this Agreement. 13. Employee Acknowledgments. Employee acknowledges that (a) Employee has been advised to consult with an attorney before executing this Agreement and that Employee has been advised by an attorney or has knowingly waived Employee's right to do so, (b) Employee has been offered a period of at least twenty-one (21) days to consider this Agreement, (c) Employee has a period of seven (7) days from the date hereof within which to revoke it and that this Agreement will not become effective or enforceable until the expiration of this seven (7) day revocation period, (d) Employee fully understands the terms and contents of this Agreement and freely, voluntarily, knowingly and without coercion enters into this Agreement, and (e) the waiver or release by Employee of rights or claims Employee may have under Title VII of the Civil Rights Act of 1964, The Employee Retirement Income Security Act of 1974, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Fair Labor Standards Act, the Americans with Disabilities Act, the Rehabilitation Act, the Worker Adjustment and Retraining Act (all as amended) and/or any other local, state or federal law dealing with employment or the termination thereof is knowing and voluntary and, accordingly, that it shall be a breach of this Agreement to institute any action or to recover any damages that would be in conflict with or contrary to this acknowledgment or the releases Employee has granted hereunder. Employee understands and agrees that the Company's payment of money and other benefits to Employee and Employee's signing of this Agreement does not in any way indicate that Employee has any viable claims against the Company or that the Company admits any liability whatsoever. 14. Reasonable Assistance. As consideration for the payments and benefits set forth above, during the two years following the Termination Date, at the Company's reasonable expense, Employee hereby agrees, upon the Company's written request, to reasonably assist the Company in any matters relating to her prior responsibilities with the Company and to reasonably cooperate, at the Company's expense, with respect to any claims, litigation or investigations relating to her prior responsibilities. 4 5 15. Notice of Termination. Each of Employee and the Company hereby waives the Notice of Termination provided for in Section 8(g) of the Employment Agreement. 16. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and legal representatives. Neither this Agreement nor any rights hereunder shall be assignable by Employee without the Company's written consent, other than by operation of the laws of descent and distribution. 17. Severability. If for any reason any one or more of the provisions of this Agreement shall be held or deemed to be inoperative, unenforceable or invalid by a court of competent jurisdiction, such circumstances shall not have the effect of rendering such provision invalid in any other case or rendering any other provisions of this Agreement inoperative, unenforceable or invalid. In any such event, such provision shall be read by such court to be as broad and restrictive as possible without being found to be inoperative, unenforceable or invalid. 18. Governing Law. This Agreement shall be construed in accordance with the laws of the State of New York, without giving effect to the conflict of laws provisions thereof, except to the extent superseded by applicable federal law. 19. Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed an original, with all counterparts taken together representing one and the same Agreement, with the same effect as if all of the signatures were upon the same instrument. 5 6 IN WITNESS WHEREOF, Employee and R.H. Donnelley Corporation, by its duly authorized agent, have hereunder executed this Agreement. /s/ Judith A. Norton -------------------- Judith A. Norton R.H. DONNELLEY CORPORATION /s/ Frank R. Noonan ------------------- Name: Frank R. Noonan Title: Chairman and CEO 6 EX-10.30 10 y46667ex10-30.txt EMPLOYMENT AGREEMENT DATED AS OF MARCH 23, 2000 1 EXHIBIT 10.30 GET DIGITAL SMART.COM, INC. ONE MANHATTANVILLE ROAD PURCHASE, NEW YORK 10577 March 23, 2000 Thomas A. Daniel 7932 Grado el Tupelo Carlsbad, CA 92009 Dear Tom: Get Digital Smart.com, Inc. (the "COMPANY") is pleased to memorialize the terms and conditions of your employment as follows: 1. POSITION. You will serve in a full-time capacity as President and Chief Executive Officer of the Company. You will report to the President and Chief Executive Officer of R.H. Donnelley Corporation ("RHD"), currently Frank R. Noonan. In this position, you will have such duties and authority as will be determined from time to time by the Board of Directors of the Company (the "BOARD") or its designee. By signing this letter agreement, you represent and warrant to the Company that: (x) you are under no contractual commitments (including without limitation any noncompetition, nonsolicitation, proprietary information and inventions, shareholders', investors' or similar agreement) inconsistent with your obligations to the Company; and (y) you have no holdings in the capital stock of any company (other than holdings of less than 1% of the outstanding capital stock of a publicly traded corporation) which is in competition with any line of business conducted by the Company or its affiliates, except as disclosed in writing to the Company. 2. SALARY. You will be paid a salary at the annual rate of $250,000, payable in accordance with the Company's standard payroll practices for salaried employees. This salary will be subject to adjustment pursuant to the Company's employee compensation policies in effect from time to time. 2 3. BONUS. You will be eligible to receive an annual target bonus of 50% of your salary (i.e., this year, the target amount will be $125,000), subject to the Company's attainment of specified performance goals. Your bonus will be paid out as soon as practicable after it has been approved by the Board or a relevant committee (the "COMPENSATION COMMITTEE") at its first annual meeting following the year in respect of which such bonus is awarded, and for this calendar year ending December 31, 2000, your bonus payout will be equal to 100% of the target amount. 4. STOCK OPTIONS. Subject to the approval of the Board or its Compensation Committee, you will be granted an option to purchase that number of shares of the Company representing 5% of the outstanding shares of the Company as of the date of grant of the option (which number of shares will be equitably adjusted to prevent any dilution upon the issuance of warrants, options or other rights to purchase shares of the Company or other securities of the Company, so long as the shares of the Company are not traded on an exchange or principal trading market on the date of such issuance). The exercise price per share will be equal to the fair market value per share on the date the option is granted. It is anticipated that the date of grant will be April 25, 2000. As of each of the first, second, third and fourth anniversaries of the date of grant of the option, 25% of the shares subject to the option will vest and become exercisable; provided that you are on each relevant date, and at all times since the date of grant of the option have been, in the employment of the Company or one of its affiliates. The option will be subject to the terms and conditions applicable to options granted under the Company's 2000 Stock Plan, as described in the plan and the award agreement evidencing the grant of your option. Notwithstanding the foregoing, with respect to the vesting period, grant date, exercise price per share, term and exercise period of the option, the provisions of the plan and award agreement are superseded by the provisions of this letter agreement to the extent of any inconsistency, except to the extent consented to by you in writing. 5. PERIOD OF EMPLOYMENT. (a) Your employment with the Company will be "at will", meaning that either you or the Company will be entitled to terminate your employment at any time and for any reason, with or without Cause (as defined in Exhibit A attached hereto). Although your job duties, title, compensation and benefits, as well as the Company's personnel policies and procedures, may change from time to time, the "at will" nature of your employment may only be changed in an express written agreement signed by you and a duly authorized officer of the Company. (b) Notwithstanding anything in this letter agreement to the contrary, if your employment with the Company is terminated, your entitlements 2 3 under this letter agreement in the event of any such termination will be as set forth in this paragraph 5(b). FOR CAUSE BY THE COMPANY: If your employment is terminated by the company for Cause, you will be entitled to receive your salary through the Date of Termination (as defined in Exhibit A attached hereto). All other benefits due to you following your termination of employment will be determined in accordance with the plans, policies and practices of the Company. WITHOUT CAUSE BY THE COMPANY NOT FOLLOWING A CHANGE IN CONTROL. If, prior to a Change in Control (as defined in Exhibit A attached hereto) or more than two years after a Change in Control, your employment is terminated by the Company without Cause, you will be entitled to the following benefits: (v) salary through the Date of Termination at the rate in effect at the time the Notice of Termination (as defined in Exhibit A attached hereto) is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company; (w) in lieu of any further salary payments to you for periods subsequent to the Date of Termination, a severance payment not later than the fifth day following the Date of Termination equal to 100% of the sum of (A) your salary at the rate in effect at the time the Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus (B) your target bonus, paid in lump sum without reduction for time value of money; (x) if the option granted under paragraph 4 is not already fully vested, accelerated vesting of 25% of all remaining unvested shares subject to the option; (y) continued exercisability of any option vested as of the Date of Termination for a period beginning on the Date of Termination and ending on the earlier of (i) one year following the Date of Termination or (ii) 90 days after the expiration of any underwriters' lock-up or similar arrangement in connection with any public offering of the shares of the Company; and (z) continued eligibility to participate in all health, medical and dental benefit plans of the Company for which you were eligible immediately prior to the time the Notice of Termination is given, or comparable coverage, for one year following the Date of Termination, or, if sooner, until comparable health insurance coverage is available to you in connection with subsequent employment or self-employment (it being understood that the coverage for which you will continue to be eligible under this clause (z) will be made available at no greater 3 4 cost or tax cost to you than that applicable to you at the time of termination of employment). TERMINATION WITHIN TWO YEARS FOLLOWING A CHANGE IN CONTROL. If, within two years following a Change in Control, your employment is terminated by the Company without Cause, or by you for Good Reason (as defined in Exhibit A attached hereto), you will be entitled to the payments and benefits described for a termination without Cause by the Company not following a Change in Control, except that the reference to "25%" in clause (x) of this paragraph 5(b) will be changed to "100%". Termination of employment after the commencement of negotiations with a potential acquiror or business combination partner will be deemed to be a termination of employment within two years following a Change in Control if such negotiations result in a transaction with such acquiror or business combination partner constituting a Change in Control. VOLUNTARY TERMINATION OF EMPLOYMENT. If you terminate your employment under circumstances other than those specified above, you will be entitled to the payments and benefits described for a termination of employment for Cause. (c) Any purported termination of employment by the Company or by you must be communicated by a written Notice of Termination to the other party. (d) Notwithstanding anything in this letter agreement to the contrary, you will be obligated to execute a general release of claims in favor of the Company, in the form used generally by the Company in connection with termination of employment from time to time, as a condition to receiving benefits and payments under this letter agreement. 6. OUTSIDE ACTIVITIES. (a) During your employment with the Company, you will not engage in any other gainful employment, business or activity without the written consent of the Board. During your employment with the Company, you also will not assist any person or organization in competing with the Company or its affiliates, in preparing to compete with the Company or its affiliates or in hiring any employees of the Company or its affiliates. Without limiting the foregoing, you acknowledge and recognize the highly competitive nature of the businesses of the Company and its affiliates and accordingly agree that during your employment with the Company and for a period of one year after the termination of such employment: 4 5 (w) you will not directly or indirectly engage in any business which is in competition with any line of business conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for any person who is a customer or client of the Company or any of its affiliates or by diverting, taking or usurping a business opportunity of the Company or any of its affiliates for your benefit or of any other person) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates conducted any such competing line of business; (x) you will not directly or indirectly assist others in engaging in any of the activities in which you are prohibited from engaging in by clause (w); (y) you will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which you are prohibited to engage by this paragraph 6, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months; and (z) you will not directly or indirectly solicit subscribers or suppliers of the Company or induce any such person to terminate his, her or its relationships with the Company. Notwithstanding the foregoing, you may maintain your current holdings in LiveOnTheNet.com, Inc. and Contigo Software, Inc.; provided that you do not (i) purchase or otherwise acquire, or agree or offer to purchase or otherwise acquire, beneficial ownership of any additional securities of such companies, (ii) obtain or exercise any special rights as a shareholder of such companies (other than the voting of such shares in the ordinary course of business), whether pursuant to a shareholders' or investors' agreement or otherwise, or (iii) have any role in, or communicate with, any members of the managements of such companies; and provided further that you agree to sell or otherwise transfer your shares of such companies to the extent necessary to satisfy clause (w) of this paragraph 6 and if such companies have a public offering of their capital stock. (b) In addition, you will not at any time (whether during or after your employment with the Company) knowingly make any statement, written or oral, or take any other action relating to the Company or its officers or directors that would disparage or otherwise harm the Company, its business or its reputation or those of any of its officers and directors. 5 6 (c) It is expressly understood and agreed that although you and the Company consider the restrictions contained in this paragraph 6 to be reasonable, if a final judgment is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this letter agreement is an unenforceable restriction against you, the provisions of this letter agreement will not be rendered void but will be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this letter agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding will not affect the enforceability of any of the other restrictions contained herein. 7. CONFIDENTIALITY. Like all Company employees, you will be required, as a condition to your employment with the Company, to sign the Company's standard Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit B. Without limiting the foregoing, you will not at any time (whether during or after your employment with the Company) disclose or use for your own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any of its affiliates; provided that the foregoing will not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of your breach of this covenant. You agree that upon termination of your employment with the Company for any reason, you will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that you may retain personal notes, notebooks and diaries. You further agree that you will not retain or use for your account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. 8. MATERIAL INDUCEMENT; SPECIFIC PERFORMANCE. You acknowledge and agree that the covenants entered into by you in paragraphs 6 and 7 are essential elements of the parties' agreement as expressed in this letter agreement, are a material inducement for the Company to enter into this letter agreement and 6 7 the breach of any of those covenants would be a material breach of this letter agreement. You further acknowledge and agree that the Company's remedies at law for a breach or threatened breach of any of the provisions of paragraphs 6 or 7 would be inadequate. In recognition of this fact, you agree that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, will be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 9. LITIGATION SUPPORT. You agree to assist and cooperate with the Company or its affiliates in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by you, pertinent knowledge possessed by you, or any act or omission by you. You further agree to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this paragraph 9. 10. WITHHOLDING TAXES. All forms of compensation referred to in this letter agreement are subject to reduction to reflect applicable withholding and payroll taxes. 11. ENTIRE AGREEMENT. This letter agreement and its exhibits contain all of the terms of your employment with the Company and supersede any prior understandings or agreements, whether oral or written, between you and the Company or its affiliates. 12. AMENDMENT AND GOVERNING LAW. This letter agreement may not be amended or modified except by an express written agreement signed by you and a duly authorized officer of the Company. The terms of this letter agreement and the resolution of any disputes will be governed by New York law. We hope that you find the foregoing terms acceptable. You may indicate your agreement with these terms and accept this offer by signing and dating both the enclosed duplicate original of this letter agreement and the enclosed Proprietary Information and Inventions Agreement and returning them to me. As required by law, your employment with the Company is also contingent upon your providing legal proof of your identity and authorization to work in the United States. 7 8 Very truly yours, GET DIGITAL SMART.COM, INC. By:/s/ Judith A. Norton ----------------------- Name: Judith A. Norton Title: Senior Vice President I have read and accept this employment offer: /s/ Thomas A. Daniel - -------------------- Signature of Thomas A. Daniel Dated: March 27, 2000 8 9 EXHIBIT A DEFINITIONS For purposes of the letter agreement, the following terms will have the following meanings: "CAUSE" means: (v) your willful and continued failure substantially to perform the duties of your position as specified in paragraph 1 of the letter agreement (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by you for Good Reason); (w) any willful act or omission by you constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably injurious to the financial condition or business reputation of the Company or any of its affiliates; (x) your conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company or any of its affiliates conducts business which materially impairs the value of your services to the Company or any of its affiliates; (y) any misrepresentation or breach (or threatened breach) of warranty, covenant or agreement made or to be performed by you pursuant to the letter agreement; or (z) any final judgment made by a court of competent jurisdiction or any binding arbitration award made by an arbitral body against you, the Company or RHD that has the effect of materially diminishing your ability or willingness to perform the duties of your position as specified in paragraph 1 of the letter agreement or the ability of willingness of the Company or RHD to accept your performance of such duties (including without limitation any such determination or award enforcing any proprietary information and inventions or similar agreement with a third party). For purposes of this definition, no act or failure to act will be deemed "willful" unless effected by you not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. A-1 10 For purposes of the letter agreement, a termination by the Company without Cause will include the occurrence of any of the following events after the date of the letter agreement: (i) any affirmative determination by the Board of Directors of RHD not to begin the business activities of the Company; or (ii) any affirmative determination by the Board of Directors of RHD (and, if relevant, any third party) not to provide or continue financing to the Company to the extent necessary to begin and develop the business activities of the Company as agreed upon between you and RHD, or any failure to provide or continue such financing. "CHANGE IN CONTROL" means the occurrence of any of the following events after the date of the letter agreement: (w) any "person" (as used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (or RHD) representing 20% or more of the combined voting power of the then outstanding securities of the Company (or RHD); (x) during any period of two consecutive years commencing on the date of the letter agreement, individuals who at the beginning of such period constitute the Board (or the Board of Directors of RHD, as the case may be), and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company (or RHD) to effect a transaction described in clauses (w), (y) or (z) of this definition) whose election by the Board (or the board of Directors of RHD) or nomination for election by the stockholders of the Company (or RHD) was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (y) the stockholders of the Company (or RHD, as the case may be) have approved a merger or consolidation of the Company (or RHD) with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than a merger or consolidation which A-2 11 would result in the voting securities of the Company (or RHD) outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company (or RHD) or such surviving entity outstanding immediately after such merger or consolidation or a merger or consolidation effected to implement a recapitalization of the Company (or RHD) (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the then outstanding securities of the Company (or RHD); or (z) the stockholders of the Company (or RHD, as the case may be) have approved a plan of complete liquidation of the Company (or RHD) or an agreement for the sale or disposition by the Company (or RHD) of all or substantially all of the assets of the Company (or RHD), and all other required governmental approvals of such transaction have been obtained. "DATE OF TERMINATION" means the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause will not be less than 10 days after the date such Notice of Termination is given); provided that if within 30 days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination will be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination will be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. "GOOD REASON" means: (w) removal from, or failure to be reappointed or reelected to, your position as specified in paragraph 1 of the letter agreement (other than as a result of a promotion); (x) material diminution in your title, position, duties or responsibilities, or the assignment to you of duties that are inconsistent, in a A-3 12 material respect, with the scope of duties and responsibilities associated with your position as specified in paragraph 1 of the letter agreement; (y) reduction in salary or target bonus, reduction in level of participation in long term incentive, option and other equity award, benefit and other plans for senior executives or other material breach of the letter agreement by the Company; or (z) relocation of your principal workplace without your consent to a location outside the San Diego metropolitan area. "NOTICE OF TERMINATION" means a notice which will indicate the specific termination provision in the letter agreement relied upon and will set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is based is susceptible of cure, the Notice of Termination will not be delivered until you or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. A-4 13 EXHIBIT B GET DIGITAL SMART.COM, INC. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT THIS AGREEMENT is made on March 27, 2000, between Get Digital Smart.com, Inc., a Delaware limited liability company ("THE COMPANY"), and Thomas A. Daniel ("INDIVIDUAL"), referring to either an employee of the Company or an affiliate thereof (collectively, the "COMPANY") or a person hired by the Company on a contract basis. BACKGROUND A. The Company desires to hire or contract with Individual, and Individual desires to be employed by or contract with the Company, and as a result of such employment or contract, Individual may have access to the Company's Confidential Information (as defined below) and may be involved in the further development thereof; and B. As consideration for the Company's offer of employment or contract with Individual, Individual agrees not to disclose any of the Company's Confidential Information and agrees to assign all new developments for which he/she is responsible in whole or in part to the Company. C. Specifically, Individual, in return for the offer of employment or contract, hereby agrees as follows: 1. Definitions. (a) Confidential Information. The term "CONFIDENTIAL INFORMATION" means all information not generally known in the relevant trade or industry which was obtained from the Company, or which was learned, discovered, developed, conceived, originated, or prepared by employee or contractor in the scope of his/her employment or contract, and which falls within the following general categories: (i) Software products and services of the Company either currently existing or under development, B-1 14 including all New Developments (as defined below) (including but not limited to all source code, object code, class libraries, user interface screens, algorithms, development frameworks, repository, system designs, system logic flow, and processing techniques and procedures related thereto; any system, user or other documentation related thereto; and any copies and derivatives of any of the foregoing, in whole or in part, and all copyrights, patent, trade secret and other proprietary rights in any of the foregoing); (ii) Business plans, product development plans, sales or marketing methods and internal business procedures of the Company; (iii) Customer lists and specific requirements of the Company's customers; and (iv) Any other information which the Company informs Individual is to be kept confidential. All Confidential Information is and shall remain the sole and exclusive confidential property of the Company. Individual shall hold as the Company's confidential property, and shall further safeguard against disclosure, all copies of software systems, in whole or in part, and all other information furnished by the Company to Individual in connection with the software systems. (b) New Developments. The term "NEW DEVELOPMENTS" means all ideas, inventions and discoveries (including but not limited to software, algorithms, designs, innovations, and improvements to existing Confidential Information) which were conceived or developed by Individual in the course of employment or contract or by using any Confidential Information. 2. Nondisclosure and Nonuse of Confidential Information. During Individual's employment or contract with the Company, and at all times thereafter, Individual agrees not to disclose to others, use for his/her own benefit, or otherwise appropriate or copy any Confidential B-2 15 Information, whether or not developed by Individual, except as required in the performance of Individual's duties for the Company. 3. Warranty of Original Development. Individual represents and warrants that all work performed for the Company and all work product produced will be of original development, and will be specifically developed for the fulfillment of this Agreement and will not knowingly infringe upon or violate any parent, copyright, trade secret or other proprietary right of any former employer or any third party. 4. Rights to New Developments. (a) Individual agrees to promptly disclose all New Developments to the Company. (b) Individual acknowledges that all copyrightable New Developments are "works made for hire" and consequently that the Company owns all copyrights thereto. (c) Individual hereby assigns to the Company all other rights to any New Developments (including but not limited to United States and foreign copyrights, patents, trade secrets, trade names and trademarks granted upon such New Developments). However, this provision does not apply to a New Development for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Individual's own time, unless the New Development: (i) relates to the business of the Company, or (ii) relates to the actual or demonstrable anticipated research or development of the Company, or (iii) results from any work performed by the Individual for the Company. (d) Individual agrees to execute all documents reasonably requested by the Company to assist the Company in perfecting or protecting any or all of its rights in the New Developments. B-3 16 5. Duty Upon Termination of Employment or Contract. (a) Upon termination of employment or contract with the Company for any reason, Individual agrees to deliver to the Company all writings, designs, documents, records, data, memoranda, computer source code listings, file layouts, record layouts, system design information, models, manuals, documentation, notes and other material of any nature in his/her possession or control and which are or contain Confidential Information. (b) Individual further agrees to retain in the strictest confidence any Confidential Information learned or acquired during the term of employment or contract unless and until such information has been made generally available to the trade other than by breach of this Agreement. 6. Other Agreements. Individual represents and warrants that, to the best of his/her knowledge, executing this Agreement and performing services for the Company will not be in violation of any other contract, agreement, or understanding to which he/she is a party. 7. Severability. Should a court determine that any provision in this Agreement is illegal or unenforceable, such determination shall solely affect such provision and shall not impair the remaining provisions of this Agreement. IN WITNESS WHEREOF, the parties have hereto executed this Agreement as of the day and year first above written. GET DIGITAL SMART.COM, INC. INDIVIDUAL By:/s/ Judith A. Norton By: /s/ Thomas A. Daniel ------------------------- -------------------- Title: Senior Vice President B-4 EX-10.31 11 y46667ex10-31.txt SEPARATION AGREEMENT AND RELEASE 1 EXHIBIT 10.31 SEPARATION AGREEMENT And RELEASE THIS SEPARATION AGREEMENT AND RELEASE AGREEMENT (the "Agreement") dated as of this 28th day of February, 2001, made by and between Thomas A. Daniel (hereinafter referred to as "Executive"), and Get Digital Smart.com, Inc. (hereinafter, unless the context indicates to the contrary, deemed to include its subsidiaries, parent and affiliates and referred to as the "Company"). WITNESSETH THAT: WHEREAS, Executive has been employed by the Company pursuant to the terms of an Employment Agreement dated as of March 27, 2000 (the "Employment Agreement"); WHEREAS, in connection with the Employment Agreement, Executive also executed with the Company (1) a Proprietary Information and Inventions Assignment Agreement dated March 27, 2000 ("Inventions Agreement") and (2) an Award Agreement under the Company's 2000 Stock Option Plan ("Option Agreement"); WHEREAS, the Company ceased its operations in December 2000 and Executive has assisted R.H. Donnelley Inc. in the wind up of the Company's business and the transition of its customers; accordingly, Executive's employment with the Company will terminate effective as of February 28, 2001 the ("Termination Date"); and WHEREAS, Section 5(d) of the Employment Agreement requires Executive to execute a general release of claims in favor of the Company as a condition to receiving certain benefits and payments under the Employment Agreement; NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter provided and of the actions taken pursuant thereto, the parties agree as follows: 1. Termination Date. Executive's employment with the Company and any of its subsidiaries and affiliates, and Executive's membership on any boards or committees, will be terminated, effective as of the Termination Date. 2. Entitlements under Employment Agreement. Upon Executive's termination of employment, Executive shall be entitled to the payments and benefits set forth below in accordance with Section 5(b) of the Employment Agreement. Executive acknowledges and agrees that he is not entitled to (and waives to the extent so entitled) any other or different payments or benefits under the Employment Agreement or the Option Agreement , or otherwise as a result of such termination. Each of the Company's and Executive's rights and obligations under the Employment Agreement, the Inventions Agreement and the Option Agreement shall terminate as of the Termination Date, 2 except those that expressly survive termination of your employment under the terms of those agreements or this Agreement. Without limiting the generality of the foregoing, the provisions of Section 5 of the Employment Agreement regarding certain entitlements upon the occurrence of a Change in Control (as defined in the Employment Agreement) for which negotiations had commenced prior to the Termination Date, shall expressly survive termination. 3. Severance Payments. Within five (5) business days following the Termination Date, in lieu of further salary or bonus payments, Executive shall be entitled to receive a lump-sum amount equal to $375,000 (representing 100% of Executive's Base Salary as of the Termination Date plus 100% of Executive's Target Bonus as of the Termination Date). In addition, in accordance with Section 3 of the Employment Agreement, Executive shall be entitled to receive his guaranteed annual Bonus for 2000 equal to $125,000, payable in cash within five (5) business days following the Termination Date. Executive shall not be entitled to any bonus payment with respect to 2001 or any portion thereof. Lastly, within five (5) business days following the Termination Date, Executive shall be paid a lump sum cash amount for his unused vacation during 2000 and for his accrued but unpaid vacation for 2001. 4. Benefits. For the earlier to occur of twelve (12) months from the Termination Date and Executive's becoming eligible to participate in comparable plans of another employer, the Company (or one of its affiliates) shall continue to provide Executive an opportunity to participate (at the same levels as in effect as of the Termination Date) in the Company's health, life insurance and disability plans at corporate rates. The Company will invoice Executive monthly for the cost of such plans. The foregoing sentence shall not be construed to require the Company to maintain any plan presently in effect or to adopt any new or replacement plan, all such decisions with respect to plans being reserved by the Company its sole and absolute discretion. Executive shall also be entitled to participate, at no cost to Executive, in the Company's executive outplacement program for six (6) months following the Termination Date. 5. Stock Options. Notwithstanding anything to the contrary set forth in the Employment Agreement or the Option Agreement, all stock options granted to Executive shall expire as of the Termination Date and not be subject to exercise at any time. 6. Withholding Taxes. All amounts payable by the Company to Executive hereunder, other than the Settlement Payment under Section 7 hereof, shall be reduced for any applicable withholding taxes. The Settlement Payment to Employee under Section 7 of this Agreement shall be reported by the Company to Executive on Form 1099. Executive acknowledges that the Company intends to take a tax deduction for the entire amount of the Settlement Payment and that Executive shall be fully responsible for paying any and all applicable taxes with respect to the Settlement Payment. 7. Settlement Payment. In consideration for the payments and benefits to be made to Executive hereunder and in settlement of certain good faith, bona fide disputes between Executive and the Company, within five (5) business days following the Termination Date, the Company shall pay to Employee, in a lump sum, the amount of $100,000 (the "Settlement Payment"). The parties agree that the terms and conditions of this paragraph represent only a settlement of a bona fide 2 3 dispute and do not constitute and may not be construed as an admission of wrongdoing or liability by any party. 8. Non-Competition. Executive hereby acknowledges the restrictions set forth in Section 6(a) of the Employment Agreement (the "Non-Compete Provisions") and, as consideration for the payments and benefits set forth above, Executive hereby agrees that Executive shall be bound by such Non-Compete Provisions for the twelve month period commencing as of the Termination Date. 9. Confidentiality; Non-Disparagement. Executive hereby acknowledges the confidentiality restrictions set forth in Section 7 of the Employment Agreement and the confidentiality provisions set forth in Sections 2 and 5 of the Inventions Agreement, and the restrictions on statements about the Company set forth in Section 6(b) of the Employment Agreement (collectively, the "Confidentiality and Non-Disparagement Provisions") and, as consideration for the payments and benefits set forth above, Executive hereby agrees that Executive shall continue to be bound by such Confidentiality and Non-Disparagement Provisions into perpetuity. 10. Material Inducement. Executive acknowledges and agrees that the Non-Compete Provisions and the Confidentiality and Non-Disparagement Provisions are an essential element of the parties' agreement, are a material inducement for the Company to make the payments and provide the benefits set forth above and the breach thereof would be a material breach of this Agreement. Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of the Non-Compete Provisions or the Confidentiality and Non-Disparagement Provisions would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 11. Release. a. Except with respect to Executive's rights hereunder, Executive, Executive's representatives, successors and assigns releases and forever discharges the Company and its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan from any and all claims, demands, debts, damages, injuries, actions or rights of action of any nature whatsoever (collectively "Claims"), whether known or unknown, which Executive had, now has or may have against the Company, its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan, from the beginning of Executive's employment to and including the date of this Agreement, including, without limitation, Claims relating to or arising out of Executive's employment with the Company or the termination of such employment. Executive represents that Executive has not filed any action, complaint, charge, grievance or 3 4 arbitration against the Company or any of its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan. b. Executive covenants that neither Executive, nor any of Executive's respective heirs, representatives, successors or assigns, will commence, prosecute or cause to be commenced or prosecuted against the Company or any of its successors, assigns, subsidiaries, affiliates, directors, officers, employees, attorneys, agents and trustees or administrators of any Company plan any action or other proceeding based upon any claims, demands, causes of action, obligations, damages or liabilities which are being released by this Agreement, nor will Executive seek to challenge the validity of this Agreement, except that this covenant not to sue does not affect Executive's future right to enforce appropriately the terms of this Agreement in a court of competent jurisdiction. 12. Executive Acknowledgments. Executive acknowledges that (a) Executive has been advised to consult with an attorney before executing this Agreement and that Executive has been advised by an attorney or has knowingly waived Executive's right to do so, (b) Executive has been offered a period of at least twenty-one (21) days to consider this Agreement, (c) Executive has a period of seven (7) days from the date hereof within which to revoke it and that this Agreement will not become effective or enforceable until the expiration of this seven (7) day revocation period, (d) Executive fully understands the terms and contents of this Agreement and freely, voluntarily, knowingly and without coercion enters into this Agreement, and (e) the waiver or release by Executive of rights or claims Executive may have under Title VII of the Civil Rights Act of 1964, The Executive Retirement Income Security Act of 1974, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Fair Labor Standards Act, the Americans with Disabilities Act, the Rehabilitation Act, the Worker Adjustment and Retraining Act (all as amended) and/or any other local, state or federal law dealing with employment or the termination thereof is knowing and voluntary and, accordingly, that it shall be a breach of this Agreement to institute any action or to recover any damages that would be in conflict with or contrary to this acknowledgment or the releases Executive has granted hereunder. Executive understands and agrees that the Company's payment of money and other benefits to Executive and Executive's signing of this Agreement does not in any way indicate that Executive has any viable claims against the Company or that the Company admits any liability whatsoever. 13. Reasonable Assistance. As consideration for the payments and benefits set forth above, during the two years following the Termination Date, at the Company's reasonable expense, Executive hereby agrees, upon the Company's written request, to reasonably assist the Company in any matters relating to his prior responsibilities with the Company and to reasonably cooperate with respect to any claims, litigation or investigations relating to his prior responsibilities. 14. Notice of Termination. Each of Executive and the Company hereby waives the Notice of Termination provided for in Section 5(c) of the Employment Agreement. 15. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. It shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and legal representatives but neither 4 5 this Agreement nor any rights hereunder shall be assignable by Executive without the Company's written consent. 16. Severability. If for any reason any one or more of the provisions of this Agreement shall be held or deemed to be inoperative, unenforceable or invalid by a court of competent jurisdiction, such circumstances shall not have the effect of rendering such provision invalid in any other case or rendering any other provisions of this Agreement inoperative, unenforceable or invalid, and any such provision shall be read by such court to be as broad and restrictive as possible without rendering such provision inoperative, unenforceable or invalid. 17. Governing Law. This Agreement shall be construed in accordance with the laws of the State of New York, without giving effect to the conflict of laws provisions thereof, except to the extent superceded by applicable federal law. 18. Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed an original, with all counterparts taken together representing one and the same Agreement, with the same effect as if all of the signatures were upon the same instrument. 5 6 IN WITNESS WHEREOF, Executive and Get Digital Smart.com, by its duly authorized agent, have hereunder executed this Agreement. /s/ Thomas A. Daniel -------------------- Thomas A. Daniel Get Digital Smart.com /s/ Robert J. Bush ------------------ Name: Robert J. Bush Title: General Counsel and Assistant Secretary 6 EX-10.32 12 y46667ex10-32.txt EMPLOYMENT AGREEMENT DATED SEPTEMBER 28, 1998 1 EXHIBIT 10.32 EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H. Donnelley Corporation, a Delaware corporation, (the "COMPANY") and Frank M. Colarusso (the "EXECUTIVE"). WHEREAS, the transaction pursuant to which the Company has been separated from its former parent company (the "SPINOFF") has been consummated as of July 1, 1998, and WHEREAS, Executive is currently serving as an executive of the Company or of its subsidiary, R.H. Donnelley, Inc.; and WHEREAS, Executive is willing to continue his employment on the terms hereinafter set forth in this agreement (the "AGREEMENT"); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc. for a period (the "EMPLOYMENT TERM") commencing on the date hereof (the "COMMENCEMENT DATE") and ending on the third anniversary of the Spinoff. On the third and each succeeding anniversary of the Spinoff, the Employment Term shall automatically be extended for one additional year unless, not later than ninety days prior to such anniversary, the Company or the Executive shall have given notice of its or his intention not to extend the Employment Term. 2. Position. (a) Executive shall serve as an executive officer of the Company or of R.H. Donnelley, Inc. In such position, Executive shall have such duties and authority as shall be determined from time to time by the Board of Directors of the Company (the "BOARD") or its designee. (b) During the Employment Term, Executive will devote substantially all of his business time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive from serving on business, civic or charitable boards or committees, as long as such 2 activities do not materially interfere with the performance of Executive's duties hereunder. 3. Base Salary. Company shall pay Executive an annual base salary (the "BASE SALARY") at the initial annual rate of $175,000, payable in equal monthly installments or otherwise in accordance with the payroll and personnel practices of the Company from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the "COMMITTEE") for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. 4. Bonus. With respect to each fiscal year all or part of which is contained in the Employment Term, Executive shall be eligible to participate in the Company's Annual Incentive Plan or any successor plan thereto, with a target bonus opportunity of 45% of Base Salary and a maximum bonus opportunity not less than that for which he is eligible on the date hereof (the "BONUS"). 5. Additional Compensation. As further compensation, Executive will be eligible for participation in all bonuses, long-term incentive compensation and stock options and other equity participation arrangements (at the same opportunity as that applicable in the ordinary course on the Effective Date) made available generally to senior executives of the Company. 6. Employee Benefits. During the Employment Term, Executive shall be eligible, on the same basis as he is currently eligible, for employee benefits (including fringe benefits, vacation, pension and profit sharing plan participation and life, health, accident and disability insurance) no less favorable than those benefits for which he is eligible immediately prior to the Commencement Date. 7. Business Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies from time to time. 8. Termination of Employment. Each of Executive and the Company may terminate the employment of Executive hereunder at any time in accordance with this Section 8. Executive's entitlements hereunder in the event of any such termination shall be as set forth in this Section 8. The provisions of this Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant to Section 1. (a) For Cause by the Company. If Executive's employment is terminated by the company for Cause, he shall be entitled to receive his Base 2 3 Salary through the Date of Termination, as hereinafter defined. All other benefits due Executive following Executive's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the plans, policies and practices of the Company. (b) Death or Disability. Executive's employment hereunder shall terminate upon his death and may be terminated by the Company upon his Disability during the Employment Term. Upon termination of Executive's employment hereunder upon the Executive's Disability or death, Executive or his estate (as the case may be) shall be entitled to receive Base Salary through the date of such termination, plus a pro-rata portion of target Bonus, based on the number of whole or partial months from the beginning of the bonus period to the Date of Termination. In addition, if Executive's employment is terminated as a result of Disability, Executive shall continue to be eligible to participate in all health, medical and dental benefit plans of the Company, until age 65 in accordance with the terms, conditions and elections, if any, applicable to or in effect with respect to Executive at the time of termination of employment. (c) Without Cause by the Company Not Following a Change in Control. If, during the Employment Term and prior to a Change in Control, as hereinafter defined, or more than two years after a Change in Control, Executive's employment is terminated by the Company without Cause, Executive shall be entitled to the following benefits: (i) Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination, as defined in Section 8(g) herein, is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus all other amounts to which Executive is entitled under any compensation or benefit plan of the Company. (ii) In lieu of any further salary payments to Executive for periods subsequent to the date of termination, the Company shall pay as severance pay, not later than the fifth day following the Date of Termination, a severance payment (the "SEVERANCE PAYMENT") equal to one and one-half times the sum of (A) Base Salary at the rate in effect on the date Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus (B) target Bonus, paid in lump sum without reduction for time value of money. (iii) Continued eligibility to participate in all health, medical and dental benefit plans of the Company for which Executive was eligible 3 4 immediately prior to the time of the Notice of Termination, or comparable coverage, for 18 months, or, if sooner, until comparable health insurance coverage is available to Executive in connection with subsequent employment or self-employment. The coverage for which Executive shall continue to be eligible under this Section shall be made available at no greater cost or tax cost to Executive than that applicable to Executive at the time of termination of employment. (iv) Term life insurance equivalent in coverage, and at no greater cost or tax cost to Executive, to that elected by Executive at the time of the Notice of Termination, until the last day of the eighteenth calendar month beginning after termination of employment, or, if sooner, until comparable life insurance coverage is available to Executive in connection with subsequent employment or self-employment. (d) Termination Within Two Years Following a Change in Control. If, during the Employment Term and within two years following a Change in Control, Executive's employment is terminated by the Company without Cause, or by the Executive for Good Reason, as hereinafter defined, Executive shall be entitled to the payments and benefits set forth in Section 8(c), except that for purposes of this Section 8(d), references in such Section to "one and one-half" times or eighteen months shall be changed to "two" times and "two" years. In addition, Executive shall be entitled to receive, for the two years following termination of employment or, if sooner, until subsequently employed or self-employed, (i) all perquisites and similar benefits he was receiving immediately prior to the time of Notice of Termination, (ii) reimbursement of expenses relating to financial planning services, up to a maximum amount per year equal to the average of such amounts paid to Executive for the two calendar years preceding the Date of Termination and (iii) reimbursement of expenses relating to outplacement services, subject to a maximum reimbursement under this clause (iii) of $25,000. For purposes of this Agreement, termination of employment after the commencement of negotiations with a potential acquiror or business combination partner shall be deemed to be a termination of employment within two years following a Change in Control if such negotiations result in a transaction with such acquiror or business combination partner which constitutes a Change in Control. (e) Retirement. If during the Employment Term, Executive retires at normal retirement age under the Company's qualified pension plan or any successor plan, Executive shall be entitled to the payments and benefits specified in Section 8(b) as if his employment had terminated as a result of Disability. 4 5 (f) Voluntary Termination of Employment. If during the Employment Term, Executive terminates his employment under circumstances other than those specified in this Section 8, Executive shall be entitled to the payments and benefits specified in Section 8(a). (g) Notice and Date of Termination. (i) Any purported termination of employment by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 17(i) hereof. For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is based is susceptible of cure, the Notice of Termination shall not be delivered until Executive or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. (ii) "DATE OF TERMINATION" shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period), (B) if employment is terminated by reason of death, the date of death, and (C) if employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause shall not be less than ten (10) days after the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. (h) Any provision of this Agreement to the contrary notwithstanding, Executive shall be obligated to execute a general release of claims in favor of the Company, in the form used generally by the Company in connection with 5 6 termination of employment from time to time, as a condition to receiving benefits and payments under this Agreement. 9. Definitions. (a) "CAUSE" shall mean (i) Executive's willful and continued failure substantially to perform the duties of his position (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by Executive for Good Reason, as hereinafter defined), (ii) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably injurious to the financial condition or business reputation of the Company or any of its affiliates, or (iii) the Executive's conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company or any of its subsidiaries conducts business which materially impairs the value of Executive's services to the Company or any of its subsidiaries. For purposes of this definition, no act or failure to act shall be deemed "willful" unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. (b) "CHANGE IN CONTROL" shall mean the occurrence of any of the following events after July 14, 1998: (i) Any "person," as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years commencing on July 14, 1998, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; 6 7 (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. (c) "DISABILITY" shall mean the Executive's inability, as a result of physical or mental incapacity, to perform the duties of his position for a period of six (6) consecutive months or for an aggregate of six (6) months in any twelve (12) consecutive month period. Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (d) "GOOD REASON" means: (i) Removal from, or failure to be reappointed or reelected to, Executive's position as specified in Section 2 (other than as a result of a promotion). (ii) Material diminution in Executive's title, position, duties or responsibilities, or the assignment to Executive of duties that are inconsistent, in a material respect, with the scope of duties and 7 8 responsibilities associated with Executive's position as specified in Section 2. (iii) Reduction in Base Salary or target or maximum Bonus opportunity, reduction in level of participation in long term incentive, stock option and other equity award, benefit and other plans for senior executives or other material breach of this Agreement by the Company. (iv) Relocation of the executive's principal workplace without his consent to a location outside the New York metropolitan area. 10. Certain Payments. (a) If any of the payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment, whether or not pursuant to this Agreement (such payments or benefits, excluding the Gross-Up Payment, as hereinafter defined, shall hereinafter be referred to as the "TOTAL PAYMENTS") will be subject to an excise tax as provided for in Section 4999 of the Internal Revenue Code (the "CODE") (the "EXCISE TAX"), the Company shall pay to Executive an additional amount (the "GROSS-UP PAYMENT") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments; provided, however, that if the Total Payments are less than 360% of the Executive's Base Amount, as defined in section 280G(b)(3) of the Code, the Executive shall not be entitled to the Gross-Up Payment, and the Total Payments shall be reduced as provided for in Section 10(d) below. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("TAX COUNSEL") reasonably acceptable to Executive and selected by the accounting firm acting as the "Auditor", as defined below, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "Excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For 8 9 purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence or, if higher, in the state and locality of Executive's principal place of employment, on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 10), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (including that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (d) If the Total Payments would constitute an Excess parachute payment, but are less than 360% of the Base Amount, such payments shall be reduced to the largest amount that may be paid to the Executive without the imposition of the Excise Tax or the disallowance as deductions to the Company under Section 280G of the Code of any such payments. (e) All determinations under this Section 10 shall be made by a nationally recognized accounting firm selected by the Executive (the "AUDITOR"). The Company shall cooperate in good faith in making such determinations and in providing the necessary information for this purpose. 9 10 11. Indemnification. The Company will indemnify Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) by applicable law, as in effect at the time of the subject act or omission, or by the Certificate of Incorporation and By-Laws of the Company, as in effect at such time or on the Commencement Date, or by the terms of any indemnification agreement between the Company and Executive, whichever affords or afforded greatest protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage available for any Company officer or director), against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives (including but not limited to any judgment entered by a court of law) at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which Executive (or his legal representatives or other successors) may be made a party by reason of his having accepted employment with the Company or by reason of his being or having been a director, officer or employee of the Company, or any subsidiary of the Company, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. Executive's rights under this Section 11 shall continue without time limit for so long as he may be subject to any such liability, whether or not the Employment Term may have ended. 12. Non-Competition. (a) Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that during the Employment Term and for a period of one year after the termination thereof; (i) The Executive will not directly or indirectly engage in any business which is in competition with any line of business conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for any person who is a customer or client of the Company or any of its affiliates) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates conducted any such competing line of business. 10 11 (ii) Executive will not directly or indirectly assist others in engaging in any of the activities in which Executive is prohibited from engaging in by clause (i) above. (iii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or his employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months. (iv) Executive will not directly or indirectly solicit subscribers or suppliers of the Company or telephone companies for which the Company serves as sales agent or induce any such person to terminate its relationships with the Company. (b) It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 12 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 13. Confidentiality; Nondisparagement. (a) Executive will not at any time (whether during or after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this 11 12 covenant. Executive agrees that upon termination of his employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that he may retain personal notes, notebooks and diaries. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. (b) Executive will not at any time (whether during or after his employment with the Company) knowingly make any statement, written or oral, or take any other action relating to the Company or its officers or directors that would disparage or otherwise harm the Company, its business or its reputation or those of any of its officers and directors. 14. Material Inducement; Specific Performance. Executive acknowledges and agrees that the covenants entered into by Executive in Section 12 and 13 are essential elements of the parties' agreement as expressed herein, are a material inducement for the Company to enter into this Agreement and the breach thereof would be a material breach of this Agreement. Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 12 or Section 13 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 15. Litigation Support. Executive agrees that he will assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by Executive, pertinent knowledge possessed by Executive, or any act or omission by Executive. Executive further agrees to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section. 16. Legal Fees. The Company will pay or reimburse Executive, as incurred, all legal fees and costs incurred by Executive in enforcing his rights 12 13 under the Agreement, if Executive's position substantially prevails. Following a Change in Control, the Company will pay or reimburse Executive, as incurred, for all such fees and costs unless Executive's claim was frivolous or was brought or pursued by Executive in bad faith. 17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and in the incentive compensation and other employee benefit plans and arrangements of the Company referenced herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. (e) Assignment. This Agreement shall not be assignable by Executive and shall be assignable by the Company only with the consent of Executive except as set forth in Section 17(h); provided that no such assignment by the Company shall relieve the Company of any liability hereunder, whether accrued before or after such assignment. (f) No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such employment, if obtained, or compensation or benefits payable in connection therewith, shall reduce any amounts or benefits to which Executive is entitled hereunder except as provided for in Sections 8(c) and (d). (g) Arbitration. Any dispute between the parties to this Agreement arising from or relating to the terms of this Agreement or the employment of 13 14 Executive by the Company shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. (h) Successors; Binding Agreement (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Such assumption and agreement shall be obtained prior to the effectiveness of any such succession. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term "Company" shall also mean any affiliate of the Company to which Executive may be transferred and the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term "Company" shall not mean any affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. (ii) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributors, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the devisee, legatee or other designee of Executive or, if there is no such designee, to the estate of Executive. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at the address appearing from time to time in the personnel records of the Company and to the Company at the address of its corporate headquarters, directed to the attention of the Board with a copy to the Secretary of the 14 15 Company, or in either case to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (j) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (k) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 15 16 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Frank M. Colarusso /s/ Frank M. Colarusso ---------------------- R.H. DONNELLEY CORPORATION By: /s/ Frank R. Noonan ------------------- Title: Chairman and CEO 16 EX-10.33 13 y46667ex10-33.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.33 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 dated as of July 27, 2000 amends the Employment Agreement dated September 28, 1998 by and between R.H. Donnelley Corporation, a Delaware corporation (the "Company"), and Frank M. Colarusso (the "Executive") (the "Existing Agreement", and as amended, the "Agreement"). WHEREAS, the Company considers it essential and in the best interests of its shareholders to foster the continued employment of its senior management personnel, and the Executive is an important member of the Company's senior management; and WHEREAS, the Company wishes to clarify its intent with respect to benefits to be provided to the Executive in certain events following a Change in Control. NOW, THEREFORE, the parties agree that the Existing Agreement is hereby amended as follows: 1. Paragraph 1 of the Existing Agreement is amended by inserting the following sentence at the end thereof: "Notwithstanding the foregoing, no person (including the Company and any successor thereto) shall be permitted to give notice of such intention within two years following a Change in Control, as hereinafter defined." 2. Paragraph 8 of the Existing Agreement is amended by deleting the last sentence thereof and replacing such sentence with the following: "The provisions of this Section 8 (and any related provisions of Section 10) shall survive any non-renewal of this Agreement by the Company pursuant to Section 1." 3. Subsection (c) of Paragraph 8 of the Existing Agreement is amended by deleting ", as hereinafter defined," from the first sentence thereof. 4. This Amendment No. 1 shall be conditioned upon the receipt by each party hereto from the other a counterpart hereof signed by such other party or facsimile or other written confirmation that such other party has signed a counterpart hereof. 5. This Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of New York. 2 6. This Amendment No. 1 may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 1 as of the day and year first above written. Frank M. Colarusso /s/ Frank M. Colarusso ---------------------- R.H. DONNELLEY CORPORATION By: /s/ Judith A. Norton ------------------------ Judith A. Norton SVP, Human Resources 2 EX-10.34 14 y46667ex10-34.txt AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.34 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment No. 2, dated as of February 27, 2001, amends the Employment Agreement, dated as of September 28, 1998, by and between R.H. Donnelley Corporation (the "Company") and Frank M. Colarusso (the "Executive"), as amended by Amendment No. 1, dated as of July 27, 2000 (as so amended, the "Existing Agreement", and as amended hereby, the "Agreement"). WHEREAS, the Company considers it essential and in the best interests of its shareholders to foster the continued employment of its senior management personnel, and the Executive is an important member of the Company's senior management; and WHEREAS, the initial term of the Existing Agreement expires on June 30, 2001, although the Existing Agreement automatically renews for successive one-year terms, unless either party gives 90 day's written notice prior to the renewal date; WHEREAS, the Company wishes to clarify the ramifications of a decision by the Company not to renew Executive's employment as of June 30, 2001 or during any subsequent renewal term; and WHEREAS, the Compensation and Benefits Committee of the Board of Directors has approved the following amendment to the Existing Agreement; NOW, THEREFORE, the parties agree that the Existing Agreement is hereby amended as follows: 1. Paragraph 1 of the Existing Agreement is amended by inserting the following sentence at the end thereof: "Any such non-renewal of this Agreement by the Company shall be treated as a termination of Executive's employment without Cause, as hereinafter defined." 2. Except as amended hereby, the Existing Agreement shall remain in full force and effect in accordance with its terms. 3. This Amendment No. 2 shall be governed by and construed in accordance with the laws of the State of New York. 4. This Amendment No. 2 may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 2 IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 2 as of the day and year first above written. Executive /s/ Frank M. Colarusso ---------------------- Signature of Frank M. Colarusso R.H. DONNELLEY CORPORATION By:/s/ Frank R. Noonan ---------------------- Name: Frank R. Noonan Title: Chairman & CEO 2 EX-10.35 15 y46667ex10-35.txt EMPLOYMENT AGREEMENT DATED SEPTEMBER 26, 2000 1 EXHIBIT 10.35 EMPLOYMENT AGREEMENT dated as of September 26, 2000 by and between R.H. Donnelley Corporation, a Delaware corporation (the "COMPANY"), and William C. Drexler (the "EXECUTIVE"). WHEREAS, Executive is currently serving as an executive officer of the Company; and WHEREAS, the Compensation and Benefits Committee of the Board of Directors has determined it to be in the Company's best interest to offer Executive an employment agreement on substantially the same terms as other executive officers of the Company; and WHEREAS, Executive desires to continue his employment with the Company upon the terms and conditions hereinafter set forth in this agreement (this "AGREEMENT"); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the validity and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company or, at the Company's discretion, by any subsidiary of the Company for a period (the "EMPLOYMENT TERM") commencing on the date hereof (the "COMMENCEMENT DATE") and ending on June 30, 2001. On July 1, 2001 and each succeeding anniversary thereof, the Employment Term shall automatically be extended for one additional year unless, not later than ninety days prior to such anniversary, the Company or the Executive shall have given notice of its or his intention not to extend the Employment Term. Notwithstanding the foregoing, no person (including the Company, or any successor thereto) shall be permitted to give notice of such intention within two years following a Change in Control, as hereinafter defined. 2. Position. (a) Executive shall serve as an executive officer of the Company or, at the Company's discretion, any of its subsidiaries. In such position, Executive shall have such duties and authority as shall be determined from time to time by the Board of Directors of the Company (the "BOARD") or its designee. 2 (b) During the Employment Term, Executive will devote substantially all of his business time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive from serving on business, civic or charitable boards or committees, as long as such activities do not materially interfere with the performance of Executive's duties hereunder. 3. Base Salary. Company shall pay Executive an annual base salary (the "BASE SALARY") at the initial annual rate of $145,000, payable in equal monthly installments or otherwise in accordance with the payroll and personnel practices of the Company from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the "COMMITTEE") for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. 4. Bonus. With respect to each fiscal year all or part of which is contained in the Employment Term, Executive shall be eligible to participate in the Company's Annual Incentive Plan or any successor plan thereto, with a target bonus opportunity of 45% of Base Salary and a maximum bonus opportunity not less than that for which he is eligible on the date hereof (the "BONUS"). 5. Additional Compensation. As further compensation, Executive will be eligible for participation in all bonuses, long-term incentive compensation and stock options and other equity participation arrangements (at the same opportunity as that applicable in the ordinary course on the Commencement Date) made available generally to senior executives of the Company. 6. Employee Benefits. During the Employment Term, Executive shall be eligible, on the same basis as he is currently eligible, for employee benefits (including fringe benefits, vacation, pension and profit sharing plan participation and life, health, accident and disability insurance) no less favorable than those benefits for which he is eligible immediately prior to the Commencement Date. 7. Business Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies from time to time. 8. Termination of Employment. Each of Executive and the Company may terminate the employment of Executive hereunder at any time in accordance 2 3 with this Section 8. Executive's entitlements hereunder in the event of any such termination shall be as set forth in this Section 8. The provisions of this Section 8 (and any related provision of Section 10) shall survive any non-renewal of this Agreement by the Company pursuant to Section 1. (a) For Cause by the Company. If Executive's employment is terminated by the Company for Cause, he shall be entitled to receive his Base Salary through the Date of Termination, as hereinafter defined. All other benefits due Executive following Executive's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the plans, policies and practices of the Company. (b) Death or Disability. Executive's employment hereunder shall terminate upon his death and may be terminated by the Company upon his Disability during the Employment Term. Upon termination of Executive's employment hereunder upon the Executive's Disability or death, Executive or his estate (as the case may be) shall be entitled to receive Base Salary through the Date of Termination, plus a pro-rata portion of target Bonus, based on the number of whole or partial months from the beginning of the bonus period to the Date of Termination. In addition, if Executive's employment is terminated as a result of Disability, Executive shall continue to be eligible to participate in all health, medical and dental benefit plans of the Company, until age 65 in accordance with the terms, conditions and elections, if any, applicable to or in effect with respect to Executive at the Date of Termination. (c) Without Cause by the Company Not Following a Change in Control. If, during the Employment Term and prior to a Change in Control or more than two years after a Change in Control, Executive's employment is terminated by the Company without Cause, Executive shall be entitled to the following: (i) Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination, as defined in Section 8(g) herein, is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus all other amounts to which Executive is entitled under any compensation or benefit plan of the Company. (ii) In lieu of any further salary payments to Executive for periods subsequent to the Date of Termination, the Company shall pay as severance pay, not later than the fifth day following the Date of Termination, a severance payment (the "SEVERANCE PAYMENT") equal to one and one-half times the sum of (A) Base Salary at the rate in effect on the date Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination 3 4 of employment, plus (B) target Bonus, paid in lump sum without reduction for time value of money. (iii) Continued eligibility to participate in all health, medical and dental benefit plans of the Company for which Executive was eligible immediately prior to the time of the Notice of Termination, or comparable coverage, for 18 months, or, if sooner, until comparable health insurance coverage is available to Executive in connection with subsequent employment or self-employment. The coverage for which Executive shall continue to be eligible under this Section shall be made available at no greater cost or tax cost to Executive than that applicable to Executive at the time of termination of employment. (iv) Term life insurance equivalent in coverage, and at no greater cost or tax cost to Executive, to that elected by Executive at the time of the Notice of Termination, until the last day of the eighteenth calendar month beginning after termination of employment, or, if sooner, until comparable life insurance coverage is available to Executive in connection with subsequent employment or self-employment. (d) Termination Within Two Years Following a Change in Control. If, during the Employment Term and within two years following a Change in Control, Executive's employment is terminated by the Company without Cause, or by the Executive for Good Reason, as hereinafter defined, Executive shall be entitled to the payments and benefits set forth in Section 8(c), except that for purposes of this Section 8(d), references in such Section to "one and one-half" times or "eighteen months" shall be changed to "two" times and "two years." In addition, Executive shall be entitled to receive, for the two years following termination of employment or, if sooner, until subsequently employed or self-employed, (i) all perquisites and similar benefits he was receiving immediately prior to the time of Notice of Termination, (ii) reimbursement of expenses relating to financial planning services, up to a maximum amount per year equal to the average of such amounts paid to Executive for the two calendar years preceding the Date of Termination and (iii) reimbursement of expenses relating to outplacement services, subject to a maximum reimbursement under this clause (iii) of $25,000. For purposes of this Agreement, termination of employment after the commencement of negotiations with a potential acquiror or business combination partner but prior to an actual Change of Control shall be deemed to be a termination of employment within two years following a Change in Control if such negotiations subsequently result in a transaction with such acquiror or business combination partner which constitutes a Change in Control. (e) Retirement. If during the Employment Term, Executive retires at normal retirement age under the Company's qualified pension plan or any 4 5 successor plan, Executive shall be entitled to the payments and benefits specified in Section 8(b) as if his employment had terminated as a result of Disability. (f) Voluntary Termination of Employment. If during the Employment Term, Executive terminates his employment under circumstances other than those specified elsewhere in this Section 8, Executive shall be entitled to the payments and benefits specified in Section 8(a). (g) Notice and Date of Termination. (i) Any purported termination of employment by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 17(i) hereof. For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a notice which shall indicate (by reference to specific Section and sub-section numbers and letters, for example, Section 8(d)) the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is based is susceptible of cure, the Notice of Termination shall not be deemed effective until Executive or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. (ii) "DATE OF TERMINATION" shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period), (B) if employment is terminated by reason of death, the date of death, and (C) if employment is terminated for any other reason, subject to the effectiveness of notice and "cure" provisions of clause (i) above, the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause shall not be less than ten (10) days after the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. 5 6 (h) Any provision of this Agreement to the contrary notwithstanding, Executive shall be obligated to execute a general release of claims in favor of the Company, in the form used generally by the Company in connection with termination of employment from time to time, as a condition to receiving benefits and payments under Section 8 of this Agreement. 9. Definitions. (a) "CAUSE" shall mean (i) Executive's willful and continued failure substantially to perform the duties of his position (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by Executive for Good Reason, as hereinafter defined), (ii) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably injurious to the financial condition or business reputation of the Company or any of its affiliates, or (iii) the Executive's conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company or any of its subsidiaries conducts business which materially impairs the value of Executive's services to the Company or any of its subsidiaries. For purposes of this definition, no act or failure to act shall be deemed "willful" unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. (b) "CHANGE IN CONTROL" shall mean the occurrence of any of the following events after July 14, 1998: (i) Any "person," as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years commencing on July 14, 1998, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was 6 7 previously so approved, cease for any reason to constitute at least a majority thereof; (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. (c) "DISABILITY" shall mean the Executive's inability, as a result of physical or mental incapacity, to perform the duties of his position for a period of six (6) consecutive months or for an aggregate of six (6) months in any twelve (12) consecutive month period. Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (d) "GOOD REASON" means: (i) Removal from, or failure to be reappointed or reelected to, Executive's position as specified in Section 2 (other than as a result of a promotion); or (ii) Material diminution in Executive's title, position, duties or responsibilities, or the assignment to Executive of duties that are 7 8 inconsistent, in a material respect, with the scope of duties and responsibilities associated with Executive's position as specified in Section 2; or (iii) Reduction in Base Salary or target or maximum Bonus opportunity, reduction in level of participation in long term incentive, stock option and other equity award, benefit and other plans for executive officers or other material breach of this Agreement by the Company; or (iv) Relocation of the executive's principal workplace without his consent to a location outside the New York metropolitan area. 10. Certain Payments. (a) If any of the payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment, whether or not pursuant to this Agreement (such payments or benefits, excluding the Gross-Up Payment, as hereinafter defined, shall hereinafter be referred to as the "TOTAL PAYMENTS") will be subject to an excise tax as provided for in Section 4999 of the Internal Revenue Code (the "CODE") (the "EXCISE TAX"), the Company shall pay to Executive an additional amount (the "GROSS-UP PAYMENT") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments; provided, however, that if the Total Payments are less than 360% of the Executive's Base Amount, as defined in section 280G(b)(3) of the Code, the Executive shall not be entitled to the Gross-Up Payment, and the Total Payments shall be reduced as provided for in Section 10(d) below. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("TAX COUNSEL") reasonably acceptable to Executive and selected by the accounting firm acting as the "Auditor", as defined below, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "Excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For 8 9 purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence or, if higher, in the state and locality of Executive's principal place of employment, on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 10), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (including that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (d) If the Total Payments would constitute an Excess parachute payment, but are less than 360% of the Base Amount, such payments shall be reduced to the largest amount that may be paid to the Executive without the imposition of the Excise Tax or the disallowance as deductions to the Company under Section 280G of the Code of any such payments. (e) All determinations under this Section 10 shall be made by a nationally recognized accounting firm selected by the Executive (the "AUDITOR"). The Company shall cooperate in good faith in making such determinations and in providing the necessary information for this purpose. 9 10 11. Indemnification. The Company will indemnify Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) by applicable law, as in effect at the time of the subject act or omission, or by the Certificate of Incorporation and By-Laws of the Company, as in effect at such time or on the Commencement Date, or by the terms of any indemnification agreement between the Company and Executive, whichever affords or afforded greatest protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage available for any Company officer or director), against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives (including but not limited to any judgment entered by a court of law) at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which Executive (or his legal representatives or other successors) may be made a party by reason of his having accepted employment with the Company or by reason of his being or having been a director, officer or employee of the Company, or any subsidiary of the Company, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. Executive's rights under this Section 11 shall continue without time limit for so long as he may be subject to any such liability, whether or not the Employment Term may have ended. 12. Non-Competition. (a) Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that during the Employment Term and for a period of one year after the termination thereof: (i) Executive will not directly or indirectly engage in any business which is in competition with any line of business conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for any person who is a customer or client of the Company or any of its affiliates) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates conducted any such competing line of business; and (ii) Executive will not directly or indirectly assist others in engaging in any of the activities in which Executive is prohibited from engaging in by clause (i) above; and 10 11 (iii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months; and (iv) Executive will not directly or indirectly solicit clients, subscribers or suppliers of the Company or telephone companies for which the Company serves as sales agent or induce any such person to terminate its relationships with the Company. (b) It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 12 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 13. Confidentiality; Nondisparagement. (a) Executive will not at any time (whether during or after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this covenant. Executive agrees that upon termination of his employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all 11 12 copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that he may retain personal notes, notebooks and diaries. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. (b) Executive will not at any time (whether during or after his employment with the Company) knowingly make any statement, written or oral, or take any other action relating to the Company or its officers or directors that would disparage or otherwise harm the Company, its business or its reputation or those of any of its officers and directors. 14. Material Inducement; Specific Performance. Executive acknowledges and agrees that the covenants entered into by Executive in Section 12 and 13 are essential elements of the parties' agreement as expressed herein, are a material inducement for the Company to enter into this Agreement and the breach thereof would be a material breach of this Agreement. Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 12 or Section 13 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 15. Litigation Support. Executive agrees that he will assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by Executive, pertinent knowledge possessed by Executive, or any act or omission by Executive. Executive further agrees to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section. 16. Legal Fees. The Company will pay or reimburse Executive, as incurred, all legal fees and costs incurred by Executive in enforcing his rights under the Agreement, if Executive's position substantially prevails. Following a Change in Control, the Company will pay or reimburse Executive, as incurred, for all such fees and costs unless Executive's claim was frivolous or was brought or pursued by Executive in bad faith. 12 13 17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and in the incentive compensation and other employee benefit plans and arrangements of the Company referenced herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. (e) Assignment. This Agreement shall not be assignable by Executive and shall be assignable by the Company only with the consent of Executive except as set forth in Section 17(h); provided that no such assignment by the Company shall relieve the Company of any liability hereunder, whether accrued before or after such assignment. (f) No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such employment, if obtained, or compensation or benefits payable in connection therewith, shall reduce any amounts or benefits to which Executive is entitled hereunder except as provided for in Sections 8(c) and (d). (g) Arbitration. Any dispute between the parties to this Agreement arising from or relating to the terms of this Agreement or the employment of Executive by the Company shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. 13 14 (h) Successors; Binding Agreement (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Such assumption and agreement shall be obtained prior to the effectiveness of any such succession. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term "Company" shall also mean any affiliate of the Company to which Executive may be transferred and the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term "Company" shall not mean any affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. (ii) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the devisee, legatee or other designee of Executive or, if there is no such designee, to the estate of Executive. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at the address appearing from time to time in the personnel records of the Company and to the Company at the address of its corporate headquarters, directed to the attention of the Board with a copy to the Secretary of the Company, or in either case to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 14 15 (j) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (k) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 15 16 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. William C. Drexler /s/ William C. Drexler ---------------------- Signature of William C. Drexler R.H. DONNELLEY CORPORATION By: /s/ Frank R. Noonan ------------------- Name: Frank R. Noonan Title: Chairman & CEO 16 EX-10.36 16 y46667ex10-36.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.36 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1, dated as of February 27, 2001, amends the Employment Agreement, dated as of September 26, 2000 by and between R.H. Donnelley Corporation (the "Company") and William C. Drexler (the "Executive") (the "Existing Agreement", and as amended hereby, the "Agreement"). WHEREAS, the Company considers it essential and in the best interests of its shareholders to foster the continued employment of its senior management personnel, and the Executive is an important member of the Company's senior management; and WHEREAS, the initial term of the Existing Agreement expires on June 30, 2001, although the Existing Agreement automatically renews for successive one-year terms, unless either party gives 90 day's written notice prior to the renewal date; WHEREAS, the Company wishes to clarify the ramifications of a decision by the Company not to renew Executive's employment as of June 30, 2001 or during any subsequent renewal term; and WHEREAS, the Compensation and Benefits Committee of the Board of Directors has approved the following amendment to the Existing Agreement; NOW, THEREFORE, the parties agree that the Existing Agreement is hereby amended as follows: 1. Paragraph 1 of the Existing Agreement is amended by inserting the following sentence at the end thereof: "Any such non-renewal of this Agreement by the Company shall be treated as a termination of Executive's employment without Cause, as hereinafter defined." 2. Except as amended hereby, the Existing Agreement shall remain in full force and effect in accordance with its terms. 3. This Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of New York. 4. This Amendment No. 1 may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 2 IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 1 as of the day and year first above written. Executive /s/ William C. Drexler ---------------------- Signature of William C. Drexler R.H. DONNELLEY CORPORATION By:/s/ Frank R. Noonan ---------------------- Name:Frank R. Noonan Title: Chairman & CEO 2 EX-10.37 17 y46667ex10-37.txt EMPLOYMENT AGREEMENT DATED AS OF JANUARY 1, 2001 1 EXHIBIT 10.37 EMPLOYMENT AGREEMENT dated as of January 1, 2001 by and between R.H. Donnelley Corporation, a Delaware corporation (the "COMPANY"), and Robert J. Bush (the "EXECUTIVE"). WHEREAS, Executive is currently serving as an executive officer of the Company; and WHEREAS, the Compensation and Benefits Committee of the Board of Directors has determined it to be in the Company's best interest to offer Executive an employment agreement on substantially the same terms as other executive officers of the Company; and WHEREAS, Executive desires to continue his employment with the Company upon the terms and conditions hereinafter set forth in this agreement (this "AGREEMENT"); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the validity and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company or, at the Company's discretion, by any subsidiary of the Company for a period (the "EMPLOYMENT TERM") commencing on the date hereof (the "COMMENCEMENT DATE") and ending on June 30, 2001. On July 1, 2001 and each succeeding anniversary thereof, the Employment Term shall automatically be extended for one additional year unless, not later than ninety days prior to such anniversary, the Company or the Executive shall have given notice of its or his intention not to extend the Employment Term. Notwithstanding the foregoing, no person (including the Company, or any successor thereto) shall be permitted to give notice of such intention within two years following a Change in Control, as hereinafter defined. 2. Position. (a) Executive shall serve as an executive officer of the Company or, at the Company's discretion, any of its subsidiaries. In such position, Executive shall have such duties and authority as shall be determined from time to time by the Board of Directors of the Company (the "BOARD") or its designee. 2 (b) During the Employment Term, Executive will devote substantially all of his business time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive from serving on business, civic or charitable boards or committees, as long as such activities do not materially interfere with the performance of Executive's duties hereunder. 3. Base Salary. Company shall pay Executive an annual base salary (the "BASE SALARY") at the initial annual rate of $155,000, payable in equal monthly installments or otherwise in accordance with the payroll and personnel practices of the Company from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the "COMMITTEE") for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. 4. Bonus. With respect to each fiscal year all or part of which is contained in the Employment Term, Executive shall be eligible to participate in the Company's Annual Incentive Plan or any successor plan thereto, with a target bonus opportunity of 45% of Base Salary and a maximum bonus opportunity not less than that for which he is eligible on the date hereof (the "BONUS"). 5. Additional Compensation. As further compensation, Executive will be eligible for participation in all bonuses, long-term incentive compensation and stock options and other equity participation arrangements (at the same opportunity as that applicable in the ordinary course on the Commencement Date) made available generally to senior executives of the Company. 6. Employee Benefits. During the Employment Term, Executive shall be eligible, on the same basis as he is currently eligible, for employee benefits (including fringe benefits, vacation, pension and profit sharing plan participation and life, health, accident and disability insurance) no less favorable than those benefits for which he is eligible immediately prior to the Commencement Date. 7. Business Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies from time to time. 8. Termination of Employment. Each of Executive and the Company may terminate the employment of Executive hereunder at any time in accordance 2 3 with this Section 8. Executive's entitlements hereunder in the event of any such termination shall be as set forth in this Section 8. The provisions of this Section 8 (and any related provision of Section 10) shall survive any non-renewal of this Agreement by the Company pursuant to Section 1. (a) For Cause by the Company. If Executive's employment is terminated by the Company for Cause, he shall be entitled to receive his Base Salary through the Date of Termination, as hereinafter defined. All other benefits due Executive following Executive's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the plans, policies and practices of the Company. (b) Death or Disability. Executive's employment hereunder shall terminate upon his death and may be terminated by the Company upon his Disability during the Employment Term. Upon termination of Executive's employment hereunder upon the Executive's Disability or death, Executive or his estate (as the case may be) shall be entitled to receive Base Salary through the Date of Termination, plus a pro-rata portion of target Bonus, based on the number of whole or partial months from the beginning of the bonus period to the Date of Termination. In addition, if Executive's employment is terminated as a result of Disability, Executive shall continue to be eligible to participate in all health, medical and dental benefit plans of the Company, until age 65 in accordance with the terms, conditions and elections, if any, applicable to or in effect with respect to Executive at the Date of Termination. (c) Without Cause by the Company Not Following a Change in Control. If, during the Employment Term and prior to a Change in Control or more than two years after a Change in Control, Executive's employment is terminated by the Company without Cause, Executive shall be entitled to the following: (i) Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination, as defined in Section 8(g) herein, is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus all other amounts to which Executive is entitled under any compensation or benefit plan of the Company. (ii) In lieu of any further salary payments to Executive for periods subsequent to the Date of Termination, the Company shall pay as severance pay, not later than the fifth day following the Date of Termination, a severance payment (the "SEVERANCE PAYMENT") equal to one and one-half times the sum of (A) Base Salary at the rate in effect on the date Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination 3 4 of employment, plus (B) target Bonus, paid in lump sum without reduction for time value of money. (iii) Continued eligibility to participate in all health, medical and dental benefit plans of the Company for which Executive was eligible immediately prior to the time of the Notice of Termination, or comparable coverage, for 18 months, or, if sooner, until comparable health insurance coverage is available to Executive in connection with subsequent employment or self-employment. The coverage for which Executive shall continue to be eligible under this Section shall be made available at no greater cost or tax cost to Executive than that applicable to Executive at the time of termination of employment. (iv) Term life insurance equivalent in coverage, and at no greater cost or tax cost to Executive, to that elected by Executive at the time of the Notice of Termination, until the last day of the eighteenth calendar month beginning after termination of employment, or, if sooner, until comparable life insurance coverage is available to Executive in connection with subsequent employment or self-employment. (d) Termination Within Two Years Following a Change in Control. If, during the Employment Term and within two years following a Change in Control, Executive's employment is terminated by the Company without Cause, or by the Executive for Good Reason, as hereinafter defined, Executive shall be entitled to the payments and benefits set forth in Section 8(c), except that for purposes of this Section 8(d), references in such Section to "one and one-half" times or "eighteen months" shall be changed to "two" times and "two years." In addition, Executive shall be entitled to receive, for the two years following termination of employment or, if sooner, until subsequently employed or self-employed, (i) all perquisites and similar benefits he was receiving immediately prior to the time of Notice of Termination, (ii) reimbursement of expenses relating to financial planning services, up to a maximum amount per year equal to the average of such amounts paid to Executive for the two calendar years preceding the Date of Termination and (iii) reimbursement of expenses relating to outplacement services, subject to a maximum reimbursement under this clause (iii) of $25,000. For purposes of this Agreement, termination of employment after the commencement of negotiations with a potential acquiror or business combination partner but prior to an actual Change of Control shall be deemed to be a termination of employment within two years following a Change in Control if such negotiations subsequently result in a transaction with such acquiror or business combination partner which constitutes a Change in Control. (e) Retirement. If during the Employment Term, Executive retires at normal retirement age under the Company's qualified pension plan or any 4 5 successor plan, Executive shall be entitled to the payments and benefits specified in Section 8(b) as if his employment had terminated as a result of Disability. (f) Voluntary Termination of Employment. If during the Employment Term, Executive terminates his employment under circumstances other than those specified elsewhere in this Section 8, Executive shall be entitled to the payments and benefits specified in Section 8(a). (g) Notice and Date of Termination. (i) Any purported termination of employment by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 17(i) hereof. For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a notice which shall indicate (by reference to specific Section and sub-section numbers and letters, for example, Section 8(d)) the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is based is susceptible of cure, the Notice of Termination shall not be deemed effective until Executive or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. (ii) "DATE OF TERMINATION" shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period), (B) if employment is terminated by reason of death, the date of death, and (C) if employment is terminated for any other reason, subject to the effectiveness of notice and "cure" provisions of clause (i) above, the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause shall not be less than ten (10) days after the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. 5 6 (h) Any provision of this Agreement to the contrary notwithstanding, Executive shall be obligated to execute a general release of claims in favor of the Company, in the form used generally by the Company in connection with termination of employment from time to time, as a condition to receiving benefits and payments under Section 8 of this Agreement. 9. Definitions. (a) "CAUSE" shall mean (i) Executive's willful and continued failure substantially to perform the duties of his position (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by Executive for Good Reason, as hereinafter defined), (ii) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably injurious to the financial condition or business reputation of the Company or any of its affiliates, or (iii) the Executive's conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company or any of its subsidiaries conducts business which materially impairs the value of Executive's services to the Company or any of its subsidiaries. For purposes of this definition, no act or failure to act shall be deemed "willful" unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. (b) "CHANGE IN CONTROL" shall mean the occurrence of any of the following events after July 14, 1998: (i) Any "person," as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years commencing on July 14, 1998, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was 6 7 previously so approved, cease for any reason to constitute at least a majority thereof; (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. (c) "DISABILITY" shall mean the Executive's inability, as a result of physical or mental incapacity, to perform the duties of his position for a period of six (6) consecutive months or for an aggregate of six (6) months in any twelve (12) consecutive month period. Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (d) "GOOD REASON" means: (i) Removal from, or failure to be reappointed or reelected to, Executive's position as specified in Section 2 (other than as a result of a promotion); or (ii) Material diminution in Executive's title, position, duties or responsibilities, or the assignment to Executive of duties that are 7 8 inconsistent, in a material respect, with the scope of duties and responsibilities associated with Executive's position as specified in Section 2; or (iii) Reduction in Base Salary or target or maximum Bonus opportunity, reduction in level of participation in long term incentive, stock option and other equity award, benefit and other plans for executive officers or other material breach of this Agreement by the Company; or (iv) Relocation of the executive's principal workplace without his consent to a location outside the New York metropolitan area. 10. Certain Payments. (a) If any of the payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment, whether or not pursuant to this Agreement (such payments or benefits, excluding the Gross-Up Payment, as hereinafter defined, shall hereinafter be referred to as the "TOTAL PAYMENTS") will be subject to an excise tax as provided for in Section 4999 of the Internal Revenue Code (the "CODE") (the "EXCISE TAX"), the Company shall pay to Executive an additional amount (the "GROSS-UP PAYMENT") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments; provided, however, that if the Total Payments are less than 360% of the Executive's Base Amount, as defined in section 280G(b)(3) of the Code, the Executive shall not be entitled to the Gross-Up Payment, and the Total Payments shall be reduced as provided for in Section 10(d) below. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("TAX COUNSEL") reasonably acceptable to Executive and selected by the accounting firm acting as the "Auditor", as defined below, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "Excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For 8 9 purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence or, if higher, in the state and locality of Executive's principal place of employment, on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 10), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (including that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (d) If the Total Payments would constitute an Excess parachute payment, but are less than 360% of the Base Amount, such payments shall be reduced to the largest amount that may be paid to the Executive without the imposition of the Excise Tax or the disallowance as deductions to the Company under Section 280G of the Code of any such payments. (e) All determinations under this Section 10 shall be made by a nationally recognized accounting firm selected by the Executive (the "AUDITOR"). The Company shall cooperate in good faith in making such determinations and in providing the necessary information for this purpose. 9 10 11. Indemnification. The Company will indemnify Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) by applicable law, as in effect at the time of the subject act or omission, or by the Certificate of Incorporation and By-Laws of the Company, as in effect at such time or on the Commencement Date, or by the terms of any indemnification agreement between the Company and Executive, whichever affords or afforded greatest protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage available for any Company officer or director), against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives (including but not limited to any judgment entered by a court of law) at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which Executive (or his legal representatives or other successors) may be made a party by reason of his having accepted employment with the Company or by reason of his being or having been a director, officer or employee of the Company, or any subsidiary of the Company, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. Executive's rights under this Section 11 shall continue without time limit for so long as he may be subject to any such liability, whether or not the Employment Term may have ended. 12. Non-Competition. (a) Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that during the Employment Term and for a period of one year after the termination thereof: (i) Executive will not directly or indirectly engage in any business which is in competition with any line of business conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for any person who is a customer or client of the Company or any of its affiliates) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates conducted any such competing line of business; and (ii) Executive will not directly or indirectly assist others in engaging in any of the activities in which Executive is prohibited from engaging in by clause (i) above; and 10 11 (iii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months; and (iv) Executive will not directly or indirectly solicit clients, subscribers or suppliers of the Company or telephone companies for which the Company serves as sales agent or induce any such person to terminate its relationships with the Company. (b) It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 12 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 13. Confidentiality; Nondisparagement. (a) Executive will not at any time (whether during or after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this covenant. Executive agrees that upon termination of his employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all 11 12 copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that he may retain personal notes, notebooks and diaries. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. (b) Executive will not at any time (whether during or after his employment with the Company) knowingly make any statement, written or oral, or take any other action relating to the Company or its officers or directors that would disparage or otherwise harm the Company, its business or its reputation or those of any of its officers and directors. 14. Material Inducement; Specific Performance. Executive acknowledges and agrees that the covenants entered into by Executive in Section 12 and 13 are essential elements of the parties' agreement as expressed herein, are a material inducement for the Company to enter into this Agreement and the breach thereof would be a material breach of this Agreement. Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 12 or Section 13 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 15. Litigation Support. Executive agrees that he will assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by Executive, pertinent knowledge possessed by Executive, or any act or omission by Executive. Executive further agrees to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section. 16. Legal Fees. The Company will pay or reimburse Executive, as incurred, all legal fees and costs incurred by Executive in enforcing his rights under the Agreement, if Executive's position substantially prevails. Following a Change in Control, the Company will pay or reimburse Executive, as incurred, for all such fees and costs unless Executive's claim was frivolous or was brought or pursued by Executive in bad faith. 12 13 17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and in the incentive compensation and other employee benefit plans and arrangements of the Company referenced herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. (e) Assignment. This Agreement shall not be assignable by Executive and shall be assignable by the Company only with the consent of Executive except as set forth in Section 17(h); provided that no such assignment by the Company shall relieve the Company of any liability hereunder, whether accrued before or after such assignment. (f) No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such employment, if obtained, or compensation or benefits payable in connection therewith, shall reduce any amounts or benefits to which Executive is entitled hereunder except as provided for in Sections 8(c) and (d). (g) Arbitration. Any dispute between the parties to this Agreement arising from or relating to the terms of this Agreement or the employment of Executive by the Company shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. 13 14 (h) Successors; Binding Agreement (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Such assumption and agreement shall be obtained prior to the effectiveness of any such succession. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term "Company" shall also mean any affiliate of the Company to which Executive may be transferred and the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term "Company" shall not mean any affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. (ii) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the devisee, legatee or other designee of Executive or, if there is no such designee, to the estate of Executive. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at the address appearing from time to time in the personnel records of the Company and to the Company at the address of its corporate headquarters, directed to the attention of the Board with a copy to the Secretary of the Company, or in either case to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (j) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (k) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 14 15 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Robert J. Bush /s/ Robert J. Bush ------------------ Signature of Robert J. Bush R.H. DONNELLEY CORPORATION By:/s/ Frank R. Noonan ------------------- Name: Frank R. Noonan Title: Chairman & CEO 15 EX-10.38 18 y46667ex10-38.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.38 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1, dated as of February 27, 2001, amends the Employment Agreement, dated as of January 1, 2001 by and between R.H. Donnelley Corporation (the "Company") and Robert J. Bush (the "Executive") (the "Existing Agreement", and as amended hereby, the "Agreement"). WHEREAS, the Company considers it essential and in the best interests of its shareholders to foster the continued employment of its senior management personnel, and the Executive is an important member of the Company's senior management; and WHEREAS, the initial term of the Existing Agreement expires on June 30, 2001, although the Existing Agreement automatically renews for successive one-year terms, unless either party gives 90 day's written notice prior to the renewal date; WHEREAS, the Company wishes to clarify the ramifications of a decision by the Company not to renew Executive's employment as of June 30, 2001 or during any subsequent renewal term; and WHEREAS, the Compensation and Benefits Committee of the Board of Directors has approved the following amendment to the Existing Agreement; NOW, THEREFORE, the parties agree that the Existing Agreement is hereby amended as follows: 1. Paragraph 1 of the Existing Agreement is amended by inserting the following sentence at the end thereof: "Any such non-renewal of this Agreement by the Company shall be treated as a termination of Executive's employment without Cause, as hereinafter defined." 2. Except as amended hereby, the Existing Agreement shall remain in full force and effect in accordance with its terms. 3. This Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of New York. 4. This Amendment No. 1 may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 2 IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 1 as of the day and year first above written. Executive /s/ Robert J. Bush ------------------ Signature of Robert J. Bush R.H. DONNELLEY CORPORATION By:/s/ Frank R. Noonan ---------------------- Name: Frank R. Noonan Title: Chairman & CEO -2- EX-21 19 y46667ex21.txt SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Parent Level: R.H. Donnelley Corporation (formerly known as The Dun & Bradstreet Corporation), a Delaware corporation Tier 1 Subsidiary: R.H. Donnelley Inc. (formerly known as The Reuben H. Donnelley Corporation), a Delaware corporation wholly owned by R.H. Donnelley Corporation Tier 2 Subsidiaries: Get Digital Smart.com, Inc., a Delaware corporation wholly owned by R.H. Donnelley Inc. (inactive as of December 31, 2000). R.H. Donnelley APIL, Inc., a Delaware corporation wholly owned by R.H. Donnelley Inc. R.H. Donnelley CD, Inc., a Delaware corporation wholly owned by R.H. Donnelley Inc. Tier 3 Subsidiaries: R.H. Donnelley Acquisitions, Inc., a Delaware corporation wholly owned by R.H. Donnelley APIL, Inc. EX-23 20 y46667ex23.txt CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (File Nos. 33-44551, 33-56289, 33-64317, 333-46615, 333-75539, 333-75541, 333-75543, 333-91613) of R.H. Donnelley Corporation of our report dated February 16, 2001, relating to the consolidated financial statements which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP New York, New York March 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----