-----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, NwysUWy5wYrXjLNJcRbyTOEnAMGOgxE7IQ6jB7Sj5pMCteO/RzRbXZEhK/IPYxTq zIjU+IIxhccmOhlw+iB/lg== 0000950123-98-003870.txt : 19980417 0000950123-98-003870.hdr.sgml : 19980417 ACCESSION NUMBER: 0000950123-98-003870 CONFORMED SUBMISSION TYPE: 10-12B PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19980416 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW DUN & BRADSTREET CORP CENTRAL INDEX KEY: 0001059556 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133998945 FILING VALUES: FORM TYPE: 10-12B SEC ACT: SEC FILE NUMBER: 001-14037 FILM NUMBER: 98595180 BUSINESS ADDRESS: STREET 1: ONE DIAMOND HILL RD STREET 2: C/O DUN & BRADSTREET CITY: MURRAY HILL STATE: NJ ZIP: 07974 BUSINESS PHONE: 9086655000 MAIL ADDRESS: STREET 1: ONE DIAMOND HILL RD STREET 2: C/O DUN & BRADSTREET CITY: MURRAY HILL STATE: NJ ZIP: 07974 10-12B 1 THE NEW DUN & BRADSTREET CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1998 REGISTRATION NO. ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 THE NEW DUN & BRADSTREET CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 13-3998945 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) ONE DIAMOND HILL ROAD MURRAY HILL, NEW JERSEY 07974 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
------------------------ REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (908) 665-5000 SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED --------------------------------------- ------------------------------ Common Stock, par value $0.01 per share New York Stock Exchange
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ================================================================================ 2 ITEM 1. BUSINESS. The information required by this item is contained under the sections "The New Dun & Bradstreet Corporation Business", "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Management's Discussion and Analysis of Financial Condition and Results of Operations", "Risk Factors -- Risks Relating to The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation" and "-- Risks Relating to The New Dun & Bradstreet Corporation", and "Forward-Looking Statements" of, and in The Dun & Bradstreet Corporation Financial Statements in, the Information Statement dated April 16, 1998 included herewith as Exhibit 99.1 (the "Information Statement") and such sections are incorporated herein by reference. ITEM 2. FINANCIAL INFORMATION. The information required by this item is contained under the sections "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Selected Financial Data", "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Management's Discussion and Analysis of Financial Condition and Results of Operations", "Risk Factors -- Risks Relating to The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation" and "-- Risks Relating to The New Dun & Bradstreet Corporation", and "Forward-Looking Statements" of the Information Statement and such sections are incorporated herein by reference. ITEM 3. PROPERTIES. The information required by this item is contained under the section "The New Dun & Bradstreet Corporation Business -- Properties" of the Information Statement and such section is incorporated herein by reference. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is contained under the section "The New Dun & Bradstreet Corporation Security Ownership by Certain Beneficial Owners and Management" of the Information Statement and such section is incorporated herein by reference. ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS. The information required by this item is contained under the sections "The New Dun & Bradstreet Corporation Management and Executive Compensation -- The New Dun & Bradstreet Corporation Board of Directors" and "-- The New Dun & Bradstreet Corporation Executive Officers" of the Information Statement and such sections are incorporated herein by reference. ITEM 6. EXECUTIVE COMPENSATION. The information required by this item is contained under the section "The New Dun & Bradstreet Corporation Management and Executive Compensation" of the Information Statement and such section is incorporated herein by reference. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is contained under the section "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution" of the Information Statement and such section is incorporated herein by reference. ITEM 8. LEGAL PROCEEDINGS. The information required by this item is contained under the sections "The New Dun & Bradstreet Corporation Business -- Legal Proceedings", "Risk Factors -- Risks Relating to The New Dun & Bradstreet Corporation" and "Forward-Looking Statements" of the Information Statement and such sections are incorporated herein by reference. 2 3 ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information required by this item is contained under the sections "The Distribution -- Listing and Trading of New D&B Common Stock and Reuben H. Donnelley Common Stock", "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Employee Benefits Agreement", "Dividend Policies", "The New Dun & Bradstreet Corporation Management and Executive Compensation" and "Description of The New Dun & Bradstreet Corporation Capital Stock" of the Information Statement and such sections are incorporated herein by reference. ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES. On April 14, 1998, as part of its original incorporation, the Registrant issued 1,000 shares of its common stock, for a total consideration of $10.00, to The Dun & Bradstreet Corporation, which is and will be the Registrant's sole stockholder until the Distribution Date as defined and described in the section "The Distribution" of the Information Statement, and such section is incorporated herein by reference. Subsequent to the Distribution, The Dun & Bradstreet Corporation (which will change its name to The Reuben H. Donnelley Corporation) will hold no capital stock of the Registrant. ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED. The information required by this item is contained under the section "Description of The New Dun & Bradstreet Corporation Capital Stock" of the Information Statement and such section is incorporated herein by reference, except for the information under the caption "The New Dun & Bradstreet Corporation Rights Plan", which is not incorporated by reference herein as the preferred share purchase rights and shares of Series A Junior Participating Preferred Stock of The New Dun & Bradstreet Corporation described under such caption will be registered separately on a Registration Statement on Form 8-A. ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The information required by this item is contained under the section "Description of The New Dun & Bradstreet Corporation Capital Stock -- Indemnification and Limitation of Liability for Directors and Officers" of the Information Statement and such section is incorporated herein by reference. ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item is identified in the section "Index to Financial Statements -- The Dun & Bradstreet Corporation" and is contained in the section "Financial Statements -- The Dun & Bradstreet Corporation" of the Information Statement and such sections are incorporated herein by reference. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL MATTERS. None. ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements The information required by this item is contained in the "Index to Financial Statements" on page F-1 of the Information Statement and such information is incorporated herein by reference. 3 4 (b) Exhibits The following documents are filed as exhibits hereto:
EXHIBIT NO. DESCRIPTION - ------- ----------- 3.1 Form of Restated Certificate of Incorporation of The New Dun & Bradstreet Corporation* 3.2 Form of Amended and Restated By-laws of The New Dun & Bradstreet Corporation* 4.1 Specimen Common Stock certificate+ 10.1 Form of Distribution Agreement between The Dun & Bradstreet Corporation and The New Dun & Bradstreet Corporation* 10.2 Form of Tax Allocation Agreement between The Dun & Bradstreet Corporation and The New Dun & Bradstreet Corporation* 10.3 Form of Employee Benefits Agreement between The Dun & Bradstreet Corporation and The New Dun & Bradstreet Corporation* 10.4 Form of Intellectual Property Agreement between The Dun & Bradstreet Corporation and The New Dun & Bradstreet Corporation+ 10.5 Form of Shared Transaction Services Agreement between The Dun & Bradstreet Corporation and The New Dun & Bradstreet Corporation+ 10.6 Form of Data Services Agreement between The Dun & Bradstreet Corporation and The New Dun & Bradstreet Corporation+ 10.7 Form of Transition Services Agreement between The Dun & Bradstreet Corporation and The New Dun & Bradstreet Corporation+ 10.8 Undertaking of The New Dun & Bradstreet Corporation+ 21 List of Subsidiaries of The New Dun & Bradstreet Corporation+ 27 Financial Data Schedule of The New Dun & Bradstreet Corporation+ 99.1 Information Statement dated as of April 16, 1998* 99.2 Chairman's Letter to Stockholders of The Dun & Bradstreet Corporation* 99.3 Form of Rights Agreement between The New Dun & Bradstreet Corporation and First Chicago Trust Company of New York, as Rights Agent+
- --------------- * Filed herewith + To be filed by amendment 4 5 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. THE NEW DUN & BRADSTREET CORPORATION By: /s/ NANCY L. HENRY ------------------------------------ Name: Nancy L. Henry Title: Senior Vice President and Chief Legal Counsel Date: April 16, 1998 5 EX-3.1 2 FORM OF RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF THE NEW DUN & BRADSTREET CORPORATION The name of the corporation is The New Dun & Bradstreet Corporation, and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on April 8, 1998. The original Certificate of Incorporation of the corporation is hereby amended and restated to read in its entirety as follows: "FIRST: The name of the corporation is The New Dun & Bradstreet Corporation. SECOND: The registered office of the corporation in the State of Delaware is located at No. 1209 Orange Street, in the City of Wilmington, County of New Castle; and the name of its registered agent at such address is The Corporation Trust Company. THIRD: The purposes of the corporation are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: (1) The total number of shares of all classes of stock which the corporation shall have authority to issue is 420,000,000, consisting of (1) 10,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred Stock"), (2) 400,000,000 shares of Common Stock, par value $.01 per share ("Common Stock"), and (3) 10,000,000 shares of Series Common Stock, par value $.01 per share ("Series Common Stock"). The number of authorized shares of any of the Preferred Stock, the Common Stock or the Series Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware (or any successor provision thereto), and no vote of the holders of any of the Preferred Stock, the Common Stock or the Series Common Stock voting separately as a class shall be required therefor. (2) The Board of Directors is hereby expressly authorized, by resolution or resolutions, to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. 2 2 (3) The Board of Directors is hereby expressly authorized, by resolution or resolutions, to provide, out of the unissued shares of Series Common Stock, for series of Series Common Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of Series Common Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. (4) (a) Each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock or Series Common Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock or Series Common Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock or Series Common Stock) or pursuant to the General Corporation Law of the State of Delaware. (b) Except as otherwise required by law, holders of a series of Preferred Stock or Series Common Stock, as such, shall be entitled only to such voting rights, if any, as shall expressly be granted thereto by this Restated Certificate of Incorporation (including any certificate of designations relating to such series). (c) Subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock or Series Common Stock or any class or series of stock having a preference over or the right to participate with the Common Stock with respect to the payment of dividends, dividends may be declared and paid on the Common Stock at such times and in such amounts as the Board of Directors in its discretion shall determine. (d) Upon the dissolution, liquidation or winding up of the corporation, subject to the rights, if any, of the holders of any outstanding series of Preferred Stock or Series Common Stock or any class or series of stock having a preference over or the right to participate with the Common Stock with respect to the distribution of assets of the corporation upon such dissolution, liquidation or winding up of the corporation, the holders of the Common Stock, as such, shall be entitled to receive the assets of the corporation available for distribution to its stockholders ratably in proportion to the number of shares held by them. 3 3 FIFTH: The Board of Directors shall be authorized to make, amend, alter, change, add to or repeal the By-Laws of the corporation in any manner not inconsistent with the laws of the State of Delaware, subject to the power of the stockholders to amend, alter, change, add to or repeal the By-Laws made by the Board of Directors. Notwithstanding anything contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80 percent in voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required in order for the stockholders to alter, amend or repeal any provision of the By-laws which is to the same effect as Article Fifth, Article Seventh, and Article Eighth of this Restated Certificate of Incorporation or to adopt any provision inconsistent therewith. SIXTH: (1) To the fullest extent permitted by the laws of the State of Delaware: (a) The corporation shall indemnify any person (and such person's heirs, executors or administrators) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (brought in the right of the corporation or otherwise), whether civil, criminal, administrative or investigative, and whether formal or informal, including appeals, by reason of the fact that such person is or was a director or officer of the corporation or, if a director or officer of the corporation, by reason of the fact that such person is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for and against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person or such heirs, executors or administrators in connection with such action, suit or proceeding, including appeals. Notwithstanding the preceding sentence, the corporation shall be required to indemnify a person described in such sentence in connection with any action, suit or proceeding (or part thereof) commenced by such person only if the commencement of such action, suit or proceeding (or part thereof) by such person was authorized by the Board of Directors of the corporation. The corporation may indemnify any person (and such person's heirs, executors or administrators) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (brought in the right of the corporation or otherwise), whether civil, criminal, administrative or investigative, and whether formal or informal, including appeals, by reason of the fact that such person is or was an employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation, for and against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person or such heirs, executors or administrators in connection with such action, suit or proceeding, including appeals. (b) The corporation shall promptly pay expenses incurred by (i) any person whom the corporation is obligated to indemnify pursuant to the first sentence of subsection (a) of this Article Sixth, Section 1 or (ii) any person whom the corporation has determined to indemnify pursuant to the third sentence of subsection (a) of this Article Sixth, Section 4 4 1, in defending any action, suit or proceeding in advance of the final disposition of such action, suit or proceeding, including appeals, upon presentation of appropriate documentation. (c) The corporation may purchase and maintain insurance on behalf of any person described in subsection (a) of this Article Sixth, Section (1) against any liability asserted against such person, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article Sixth, Section (1) or otherwise. (d) The provisions of this Article Sixth, Section (1) shall be applicable to all actions, claims, suits or proceedings made or commenced after the adoption hereof, whether arising from acts or omissions to act occurring before or after its adoption. The provisions of this Article Sixth, Section (1) shall be deemed to be a contract between the corporation and each director or officer who serves in such capacity at any time while this Article Sixth, Section (1) and the relevant provisions of the laws of the State of Delaware and other applicable law, if any, are in effect, and any repeal or modification hereof shall not affect any rights or obligations then existing with respect to any state of facts or any action, suit or proceeding then or theretofore existing, or any action, suit or proceeding thereafter brought or threatened based in whole or in part on any such state of facts. If any provision of this Article Sixth, Section (1) shall be found to be invalid or limited in application by reason of any law or regulation, it shall not affect the validity of the remaining provisions hereof. The rights of indemnification provided in this Article Sixth, Section (1) shall neither be exclusive of, nor be deemed in limitation of, any rights to which an officer, director, employee or agent may otherwise be entitled or permitted by contract, this Restated Certificate of Incorporation, vote of stockholders or directors or otherwise, or as a matter of law, both as to actions in such person's official capacity and actions in any other capacity while holding such office, it being the policy of the corporation that indemnification of any person whom the corporation is obligated to indemnify pursuant to the first sentence of subsection (a) of this Article Sixth, Section 1 shall be made to the fullest extent permitted by law. (e) For purposes of this Article Sixth, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. (2) A director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the corporation hereunder in 5 5 respect of any act or omission occurring prior to the time of such amendment, modification or repeal. SEVENTH: (1) The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors consisting of not less than three directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the Board of Directors. The directors shall be divided into three classes designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board of Directors. Class I directors shall be originally elected for a term expiring at the succeeding annual meeting of stockholders, Class II directors shall be originally elected for a term expiring at the second succeeding annual meeting of stockholders, and Class III directors shall be originally elected for a term expiring at the third succeeding annual meeting of stockholders. At each succeeding annual meeting of stockholders following 1998, successors to the class of directors whose term expires at that annual meeting shall be elected for a term expiring at the third succeeding annual meeting. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a newly created directorship resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case shall a decrease in the number of directors remove or shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any newly created directorship on the Board of Directors that results from an increase in the number of directors and any vacancy occurring in the Board of Directors may be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If any applicable provision of the General Corporation Law of the State of Delaware expressly confers power on stockholders to fill such a directorship at a special meeting of stockholders, such a directorship may be filled at such meeting only by the affirmative vote of at least 80 percent of the voting power of all shares of the corporation entitled to vote generally in the election of directors voting as a single class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Directors may be removed only for cause, and only by the affirmative vote of at least 80 percent in voting power of all shares of the corporation entitled to vote generally in the election of directors, voting as a single class. (2) Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock or Series Common Stock issued by the corporation shall have the right, voting separately as a series or separately as a class with one or more such other series, to elect directors at an annual or special meeting of stockholders, the election, term of office, removal, filling of vacancies and other features of such directorships shall be governed by the terms of this Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock or Series Common 6 6 Stock) applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article Seventh unless expressly provided by such terms. EIGHTH: Any action required or permitted to be taken by the holders of the Common Stock of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock or Series Common Stock, special meetings of stockholders of the corporation may be called only by the Chief Executive Officer of the corporation or by the Board of Directors pursuant to a resolution approved by the Board of Directors. NINTH: Notwithstanding anything contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80 percent in voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or repeal Article Fifth, Article Seventh, Article Eighth or this Article Ninth or to adopt any provision inconsistent therewith." The New Dun & Bradstreet Corporation does hereby further certify that this Restated Certificate of Incorporation was duly adopted by unanimous written consent of the stockholders in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. 7 7 IN WITNESS WHEREOF, THE NEW DUN & BRADSTREET CORPORATION has caused its corporate seal to be hereunto affixed and this certificate to be signed by _______________ , its ____________________ , this ______ day of ______________ , 1998. THE NEW DUN & BRADSTREET CORPORATION By: -------------------- Name: Title: EX-3.2 3 FORM OF AMENDED AND RESTATED BY-LAWS 1 Exhibit 3.2 AMENDED AND RESTATED BY-LAWS OF THE NEW DUN & BRADSTREET CORPORATION ------------ ARTICLE I. STOCKHOLDERS Section 1. The annual meeting of the stockholders of the corporation for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting shall be held on such date, and at such time and place within or without the State of Delaware as may be designated from time to time by the Board of Directors. Section 2. Special meetings of the stockholders shall be called at any time by the Secretary or any other officer, whenever directed by the Board of Directors or by the Chief Executive Officer. The purpose or purposes of the proposed meeting shall be included in the notice setting forth such call. Section 3. Except as otherwise provided by law, notice of the time, place and, in the case of a special meeting, the purpose or purposes of the meeting of stockholders shall be delivered personally or mailed not earlier than sixty, nor less than ten days previous thereto, to each stockholder of record entitled to vote at the meeting at such address as appears on the records of the corporation. Section 4. The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or by the Restated Certificate of Incorporation; but if at any regularly called meeting of stockholders there be less than a quorum present, the stockholders present may adjourn the meeting from time to time without further notice other than announcement at the meeting until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 5. The Chairman of the Board, or in the Chairman's absence or at the Chairman's direction, the President, or in the President's absence or at the President's direction, any officer of the Corporation shall call all meetings of the stockholders to order and shall act as Chairman of such meeting. The Secretary of the corporation or, in such officer's absence, an 2 2 Assistant Secretary shall act as secretary of the meeting. If neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting. Unless otherwise determined by the Board of Directors prior to the meeting, the Chairman of the meeting shall determine the order of business and shall have the authority in his or her discretion to regulate the conduct of any such meeting, including, without limitation, by imposing restrictions on the persons (other than stockholders of the corporation or their duly appointed proxies) who may attend any such meeting, whether any stockholder or stockholders' proxy may be excluded from any meeting of stockholders based upon any determination by the Chairman, in his or her sole discretion, that any such person has unduly disrupted or is likely to disrupt the proceedings thereat, and the circumstances in which any person may make a statement or ask questions at any meeting of stockholders. Section 6. At all meetings of stockholders, any stockholder entitled to vote thereat shall be entitled to vote in person or by proxy, but no proxy shall be voted after three years from its date, unless such proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for the stockholder as proxy pursuant to the General Corporation Law of the State of Delaware, the following shall constitute a valid means by which a stockholder may grant such authority: (1) a stockholder may execute a writing authorizing another person or persons to act for the stockholder as proxy, and execution of the writing may be accomplished by the stockholder or the stockholder's authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature; or (2) a stockholder may authorize another person or persons to act for the stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the judge or judges of stockholder votes or, if there are no such judges, such other persons making that determination shall specify the information upon which they relied. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to the preceding paragraph of this Section 6 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed with the Secretary of the meeting prior to or at the commencement of the meeting to which they relate. Section 7. When a quorum is present at any meeting, the vote of the holders of a majority in voting power of the stock present in person or represented by proxy and entitled 3 3 to vote on the matter shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Restated Certificate of Incorporation or these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 8. In order that the corporation may determine the stockholders (a) entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or (b) entitled to consent to corporate action in writing without a meeting, or (c) entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date (i) in the case of clause (a) above, shall not be more than sixty nor less than ten days before the date of such meeting, (ii) in the case of clause (b) above, shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors, and (iii) in the case of clause (c) above, shall not be more than sixty days prior to such action. If for any reason the Board of Directors shall not have fixed a record date for any such purpose, the record date for such purpose shall be determined as provided by law. Only those stockholders of record on the date so fixed or determined shall be entitled to any of the foregoing rights, notwithstanding the transfer of any such stock on the books of the corporation after any such record date so fixed or determined. Section 9. The officer who has charge of the stock ledger of the corporation shall prepare and make at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced at the time and kept at the place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 10. The Board of Directors, in advance of all meetings of the stockholders, shall appoint one or more judges of stockholder votes, who may be stockholders or their proxies, but not directors of the corporation or candidates for office. In the event that the Board of Directors fails to so appoint judges of stockholder votes or, in the event that one or more judges of stockholder votes previously designated by the Board of Directors fails to appear or act at the meeting of stockholders, the Chairman of the meeting may appoint one or more judges of stockholder votes to fill such vacancy or vacancies. Judges of stockholder votes appointed to act at any meeting of the stockholders, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of judge of stockholder votes with strict impartiality and according to the best of their ability and the oath so taken shall be subscribed by them. Judges of stockholder votes shall, subject to the power of the Chairman of the meeting to open and close the polls, take charge of the polls, and, after the voting, shall make a certificate of the result of the vote taken. 4 4 Section 11. (A) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the corporation's notice of meeting delivered pursuant to Article 1, Section 3 of these By-Laws, (b) by or at the direction of the Chairman of the Board or (c) by any stockholder of the corporation who is entitled to vote at the meeting, who complied with the notice procedures set forth in subparagraphs (2) and (3) of this paragraph (A) of this By-Law and who was a stockholder of record at the time such notice is delivered to the Secretary of the corporation. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this By-Law, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, and, in the case of business other than nominations, such other business must be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the corporation not less than seventy days nor more than ninety days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than twenty days, or delayed by more than seventy days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of the seventieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least eighty days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of 5 5 business on the tenth day following the day on which such public announcement is first made by the corporation. (B) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting pursuant to Article I, Section 2 of these By-Laws. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in this By-Law and who is a stockholder of record at the time such notice is delivered to the Secretary of the corporation. Nominations of stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice as required by paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of the seventieth day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (C) General. (1) Only persons who are nominated in accordance with the procedures set forth in this By-Law shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-Law. Except as otherwise provided by law, the Restated Certificate of Incorporation or these By-Laws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this By-Law and, if any proposed nomination or business is not in compliance with this By-Law, to declare that such defective nomination shall be disregarded or that such proposed business shall not be transacted. (2) For purposes of this By-Law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) For purposes of this By-Law, no adjournment nor notice of adjournment of any meeting shall be deemed to constitute a new notice of such meeting for purposes of this Section 11, and in order for any notification required to be delivered by a stockholder pursuant to this Section 11 to be timely, such notification must be delivered within the periods set forth above with respect to the originally scheduled meeting. (4) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall 6 6 be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. ARTICLE II. BOARD OF DIRECTORS Section 1. The Board of Directors of the corporation shall consist of such number of directors, not less than three nor more than 15, as shall from time to time be fixed exclusively by resolution of the Board of Directors. The directors shall be divided into three classes in the manner set forth in the Restated Certificate of Incorporation of the corporation, each class to be elected for the term set forth therein. Directors shall (except as hereinafter provided for the filling of vacancies and newly created directorships) be elected by the holders of a plurality of the voting power present in person or represented by proxy and entitled to vote. A majority of the total number of directors then in office (but not less than one-third of the number of directors constituting the entire Board of Directors) shall constitute a quorum for the transaction of business and, except as otherwise provided by law or by the corporation's Restated Certificate of Incorporation, the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. Directors need not be stockholders. Section 2. Newly created directorships in the Board of Directors that result from an increase in the number of directors and any vacancy occurring in the Board of Directors may be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director; and the directors so chosen shall hold office for a term as set forth in the Restated Certificate of Incorporation of the corporation. If any applicable provision of the General Corporation Law of the State of Delaware expressly confers power on stockholders to fill such a directorship at a special meeting of stockholders, such a directorship may be filled at such meeting only by the affirmative vote of at least 80 percent in voting power of all shares of the corporation entitled to vote generally in the election of directors, voting as a single class. Section 3. Meetings of the Board of Directors shall be held at such place within or without the State of Delaware as may from time to time be fixed by resolution of the Board or as may be specified in the notice of any meeting. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board and special meetings may be held at any time upon the call of the Chairman of the Board or the President, by oral, or written notice including, telegraph, telex or transmission of a telecopy, e-mail or other means of transmission, duly served on or sent or mailed to each director to such director's address or telecopy number as shown on the books of the corporation not less than one day before the meeting. The notice of any meeting need not specify the purposes thereof. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place at which such meeting is held. Notice need not be given of regular meetings of the Board held at times fixed by resolution of the Board. Notice of any meeting need not be given to any director who shall attend such meeting in person (except when the director attends a meeting for the express purpose of objecting at the beginning of the 7 7 meeting, to the transaction of any business because the meeting is not lawfully called or convened), or who shall waive notice thereof, before or after such meeting, in writing. Section 4. Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock or Series Common Stock issued by the corporation shall have the right, voting separately by series, to elect directors at an annual or special meeting of stockholders, the election, term of office, removal, filling of vacancies and other features of such directorships shall be governed by the terms of the Restated Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to Article SEVENTH of the Restated Certificate of Incorporation unless expressly provided by such terms. The number of directors that may be elected by the holders of any such series of Preferred Stock or Series Common Stock shall be in addition to the number fixed by or pursuant to the By-Laws. Except as otherwise expressly provided in the terms of such series, the number of directors that may be so elected by the holders of any such series of stock shall be elected for terms expiring at the next annual meeting of stockholders and without regard to the classification of the members of the Board of Directors as set forth in Section 1 hereof, and vacancies among directors so elected by the separate vote of the holders of any such series of Preferred Stock or Series Common Stock shall be filled by the affirmative vote of a majority of the remaining directors elected by such series, or, if there are no such remaining directors, by the holders of such series in the same manner in which such series initially elected a director. Section 5. If at any meeting for the election of directors, the corporation has outstanding more than one class of stock, and one or more such classes or series thereof are entitled to vote separately as a class, and there shall be a quorum of only one such class or series of stock, that class or series of stock shall be entitled to elect its quota of directors notwithstanding absence of a quorum of the other class or series of stock. Section 6. The Board of Directors may designate three or more directors to constitute an executive committee, one of whom shall be designated Chairman of such committee. The members of such committee shall hold such office until the next election of the Board of Directors and until their successors are elected and qualify. Any vacancy occurring in the committee shall be filled by the Board of Directors. Regular meetings of the committee shall be held at such times and on such notice and at such places as it may from time to time determine. The committee shall act, advise with and aid the officers of the corporation in all matters concerning its interest and the management of its business, and shall generally perform such duties and exercise such powers as may from time to time be delegated to it by the Board of Directors, and shall have authority to exercise all the powers of the Board of Directors, so far as may be permitted by law, in the management of the business and the affairs of the corporation whenever the Board of Directors is not in session or whenever a quorum of the Board of Directors fails to attend any regular or special meeting of such Board. Without limiting the generality of the foregoing grant of authority, the executive committee is expressly authorized to declare dividends, whether regular or special, to authorize the issuance of stock of the corporation and to adopt a certificate of ownership and merger pursuant to Section 253 or any successor provision of the Delaware General Corporation Law. The committee shall have power to authorize the seal of the corporation to be affixed to all papers which are required by the Delaware General Corporation Law to have the seal affixed thereto. The fact that the executive 8 8 committee has acted shall be conclusive evidence that the Board of Directors was not in session at such time or that a quorum of the Board had failed to attend the regular or special meeting thereof. The executive committee shall keep regular minutes of its transactions and shall cause them to be recorded in a book kept in the office of the corporation designated for that purpose, and shall report the same to the Board of Directors at their regular meeting. The committee shall make and adopt its own rules for the government thereof and shall elect its own officers. Section 7. The Board of Directors may from time to time establish such other committees to serve at the pleasure of the Board which shall be comprised of such members of the Board and have such duties as the Board shall from time to time establish. Any director may belong to any number of committees of the Board. The Board may also establish such other committees with such members (whether or not directors) and such duties as the Board may from time to time determine. Section 8. Unless otherwise restricted by the Restated Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 9. The members of the Board of Directors or any committee thereof may participate in a meeting of such Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such a meeting. Section 10. The Board of Directors may establish policies for the compensation of directors and for the reimbursement of the expenses of directors, in each case, in connection with services provided by directors to the corporation. ARTICLE III. OFFICERS Section 1. The Board of Directors, as soon as may be after each annual meeting of the stockholders, shall elect officers of the corporation, including a Chairman of the Board or President and a Secretary. The Board of Directors may also from time to time elect such other officers (including one or more Vice Presidents, a Treasurer, one or more Assistant Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers) as it may deem proper or may delegate to any elected officer of the corporation the power to appoint and remove any such other officers and to prescribe their respective terms of office, authorities and duties. Any Vice President may be designated Executive, Senior or Corporate, or may be given 9 9 such other designation or combination of designations as the Board of Directors may determine. Any two or more offices may be held by the same person. Section 2. All officers of the corporation elected by the Board of Directors shall hold office for such term as may be determined by the Board of Directors or until their respective successors are chosen and qualified. Any officer may be removed from office at any time either with or without cause by the affirmative vote of a majority of the members of the Board then in office, or, in the case of appointed officers, by any elected officer upon whom such power of removal shall have been conferred by the Board of Directors. Section 3. Each of the officers of the corporation elected by the Board of Directors or appointed by an officer in accordance with these By-laws shall have the powers and duties prescribed by law, by the By-Laws or by the Board of Directors and, in the case of appointed officers, the powers and duties prescribed by the appointing officer, and, unless otherwise prescribed by the By-Laws or by the Board of Directors or such appointing officer, shall have such further powers and duties as ordinarily pertain to that office. The Chairman of the Board or the President, as determined by the Board of Directors, shall be the Chief Executive Officer and shall have the general direction of the affairs of the corporation. Section 4. Unless otherwise provided in these By-Laws, in the absence or disability of any officer of the corporation, the Board of Directors may, during such period, delegate such officer's powers and duties to any other officer or to any director and the person to whom such powers and duties are delegated shall, for the time being, hold such office. ARTICLE IV. CERTIFICATES OF STOCK Section 1. The shares of stock of the corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the corporation's stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or the Secretary of the corporation, or as otherwise permitted by law, representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be a facsimile. Section 2. Transfers of stock shall be made on the books of the corporation by the holder of the shares in person or by such holder's attorney upon surrender and cancellation of certificates for a like number of shares, or as otherwise provided by law with respect to uncertificated shares. 10 10 Section 3. No certificate for shares of stock in the corporation shall be issued in place of any certificate alleged to have been lost, stolen or destroyed, except upon production of such evidence of such loss, theft or destruction and upon delivery to the corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors in its discretion may require. ARTICLE V. CORPORATE BOOKS The books of the corporation may be kept outside of the State of Delaware at such place or places as the Board of Directors may from time to time determine. ARTICLE VI. CHECKS, NOTES, PROXIES, ETC. All checks and drafts on the corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers or agent or agents as shall be hereunto authorized from time to time by the Board of Directors. Proxies to vote and consents with respect to securities of other corporations owned by or standing in the name of the corporation may be executed and delivered from time to time on behalf of the corporation by the Chairman of the Board, the President, or by such officers as the Board of Directors may from time to time determine. ARTICLE VII. FISCAL YEAR The fiscal year of the corporation shall begin on the first day of January in each year and shall end on the thirty-first day of December following. ARTICLE VIII. CORPORATE SEAL The corporate seal shall have inscribed thereon the name of the corporation. In lieu of the corporate seal, when so authorized by the Board of Directors or a duly empowered committee thereof, a facsimile thereof may be impressed or affixed or reproduced. 11 11 ARTICLE IX. AMENDMENTS These By-Laws may be amended, added to, rescinded or repealed at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting of the stockholders or, in the case of a meeting of the Board of Directors, in a notice given not less than two days prior to the meeting; provided, however, that, notwithstanding any other provisions of these By-Laws or any provision of law which might otherwise permit a lesser vote of the stockholders, the affirmative vote of the holders of at least 80 percent in voting power of all shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required in order for the stockholders to alter, amend or repeal Section 2 and Section 11 of Article I, Sections 1 and 2 of Article II or this proviso to this Article IX of these By-Laws or to adopt any provision inconsistent with any of such Sections or with this proviso. EX-10.1 4 FORM OF DISTRIBUTION AGREEMENT 1 Exhibit 10.1 DISTRIBUTION AGREEMENT between THE DUN & BRADSTREET CORPORATION and THE NEW DUN & BRADSTREET CORPORATION Dated as of June __, 1998 2 TABLE OF CONTENTS Page ---- ARTICLE I. DEFINITIONS................................................... 2 SECTION 1.1. General.................................................. 2 SECTION 1.2. References; Interpretation............................... 13 ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN COVENANTS..................................................... 13 SECTION 2.1. The Distribution and Other Transactions.................. 13 SECTION 2.2. Intercompany Accounts.................................... 17 SECTION 2.3. Cash balances............................................ 17 SECTION 2.4. Assumption and Satisfaction of Liabilities............... 17 SECTION 2.5. Resignations............................................. 18 SECTION 2.6. Further Assurances....................................... 18 SECTION 2.7. Limited Representations or Warranties.................... 18 SECTION 2.8. Guarantees............................................... 18 SECTION 2.9. Witness Services......................................... 19 SECTION 2.10. Certain Post-Distribution Transactions.................. 19 SECTION 2.11. Transfers Not Effected Prior to the Distribution; Transfers Deemed Effective as of the Distribution Date.. 20 SECTION 2.12. Conveyancing and Assumption Instruments................. 21 SECTION 2.13. Ancillary Agreements.................................... 21 SECTION 2.14. Corporate Names......................................... 21 ARTICLE III. INDEMNIFICATION.............................................. 23 SECTION 3.1. Indemnification by the Corporation....................... 23 SECTION 3.2. Indemnification by New D&B............................... 24 SECTION 3.3. Procedures for Indemnification........................... 24 SECTION 3.4. Indemnification Payments................................. 26 ARTICLE IV. ACCESS TO INFORMATION......................................... 26 SECTION 4.1. Provision of Corporate Records........................... 26 SECTION 4.2. Access to Information.................................... 26 SECTION 4.3. Reimbursement; Other Matters............................. 26 SECTION 4.4. Confidentiality.......................................... 27 SECTION 4.5. Privileged Matters....................................... 27 SECTION 4.6. Ownership of Information................................. 29 SECTION 4.7. Limitation of Liability.................................. 29 SECTION 4.8. Other Agreements Providing for Exchange of Information... 29 ARTICLE V. ADMINISTRATIVE SERVICES........................................ 29 SECTION 5.1. Performance of Services.................................. 29 SECTION 5.2. Independence............................................. 30 SECTION 5.3. Non-exclusivity.......................................... 30 i 3 Page ---- ARTICLE VI. DISPUTE RESOLUTION............................................ 30 SECTION 6.1. Negotiation.............................................. 30 SECTION 6.2. Arbitration.............................................. 30 SECTION 6.3. Continuity of Service and Performance.................... 31 ARTICLE VII. INSURANCE.................................................... 31 SECTION 7.1. Policies and Rights Included Within Assets; Assignment of Policies.............................................. 31 SECTION 7.2. Post-Distribution Date Claims............................ 32 SECTION 7.3. Administration; Other Matters............................ 32 SECTION 7.4. Agreement for Waiver of Conflict and Shared Defense...... 34 SECTION 7.5. Cooperation.............................................. 34 ARTICLE VIII. MISCELLANEOUS............................................... 34 SECTION 8.1. Complete Agreement; Construction......................... 34 SECTION 8.2. Ancillary Agreements..................................... 34 SECTION 8.3. Counterparts............................................. 34 SECTION 8.4. Survival of Agreements................................... 34 SECTION 8.5. Expenses................................................. 34 SECTION 8.6. Notices.................................................. 35 SECTION 8.7. Waivers.................................................. 35 SECTION 8.8. Amendments............................................... 35 SECTION 8.9. Assignment............................................... 36 SECTION 8.10. Successors and Assigns.................................. 36 SECTION 8.11. Termination............................................. 36 SECTION 8.12. Subsidiaries............................................ 36 SECTION 8.13. Third Party Beneficiaries............................... 36 SECTION 8.14. Title and Headings...................................... 36 SECTION 8.15. Schedules and Exhibits.................................. 37 SECTION 8.16. GOVERNING LAW........................................... 37 SECTION 8.17. Consent to Jurisdiction................................. 37 SECTION 8.18. Severability............................................ 37 ii 4 DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT, dated as of June __, 1998, between THE DUN & BRADSTREET CORPORATION, a Delaware corporation (the "Corporation") and THE NEW DUN & BRADSTREET CORPORATION, a Delaware corporation ("New D&B"). WHEREAS, the Corporation acting through its direct and indirect subsidiaries, currently conducts a number of businesses, including, without limitation, (i) providing sales, marketing and publishing services for yellow pages and other directory products (the "Reuben H. Donnelley Business"), (ii) supplying business, commercial-credit and business-marketing information services and receivables management services (the "D&B Opco Inc. Business") and (iii) providing credit ratings on fixed-income securities and other credit obligations (the "Moody's Business"). WHEREAS, the Board of Directors of the Corporation has determined that it is appropriate, desirable and in the best interests of the holders of shares of common stock, par value $1.00 per share, of the Corporation (the "D&B Common Stock"), as well as of the Corporation and its businesses, to reorganize the Corporation to separate from the Corporation all businesses currently conducted by the Corporation other than the Reuben H. Donnelley Business and to cause such businesses to be owned and conducted, directly or indirectly, by New D&B; WHEREAS, in order to effect such separation, the Board of Directors of the Corporation has determined that it is appropriate, desirable and in the best interests of the holders of D&B Common Stock, as well as of the Corporation and its businesses, for the Corporation (i) to take certain steps to reorganize the Corporation's Subsidiaries (as defined herein) and businesses, including prior to the Distribution (as defined herein) (A) to cause Dun & Bradstreet, Inc. ("D&B Opco Inc.") to merge with and into New D&B, with New D&B as the surviving corporation, (B) upon the completion of the transaction described in (A), to cause the Corporation to contribute all of the non-stock assets held directly by the Corporation (other than assets specified herein to remain with the Corporation after the Distribution) to New D&B, (C) upon the completion of the transaction described in (B), to contribute the capital stock held by the Corporation in Moody's Investors Service, Inc. ("Moody's"), Dun & Bradstreet International, Ltd. ("D&B International") and all of the other first-tier subsidiaries of the Corporation other than New D&B and The Reuben H. Donnelley Corporation ("RHD") to New D&B, (D) upon the completion of the transactions described in (C), to cause New D&B to contribute all of its non-stock assets, other than its interest in the corporate headquarters of New D&B to New Dun & Bradstreet, Inc., a newly formed Delaware corporation and wholly-owned subsidiary of New D&B ("New D&B Opco Inc.") and (E) upon the completion of the transactions described in (D) to cause New D&B to contribute the capital stock of all of its first-tier subsidiaries other than Moody's to New D&B Opco Inc. and (ii) upon the completion of such reorganization to distribute to the holders of the D&B Common Stock all the outstanding shares of common stock of New D&B (the "New D&B Common Shares"), together with the associated Rights (as defined herein), as set forth herein; 5 2 WHEREAS, each of the Corporation and New D&B has determined that it is necessary and desirable, on or prior to the Distribution Date (as defined herein), to allocate and transfer those assets and to allocate and assign responsibility for those liabilities in respect of the activities of the businesses of such entities and those assets and liabilities in respect of other businesses and activities of the Corporation and its current and former Subsidiaries and other matters; and WHEREAS, each of the Corporation and New D&B has determined that it is necessary and desirable to set forth the principal corporate transactions required to effect such Distribution and to set forth other agreements that will govern certain other matters following the Distribution. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties hereby agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1. General. As used in this Agreement, the following terms shall have the following meanings: (a) "Action" shall mean any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency, body or commission or any arbitration tribunal. (b) "Affiliate" shall mean, when used with respect to a specified person, another person that controls, is controlled by, or is under common control with the person specified. As used herein, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or other interests, by contract or otherwise. (c) "Agent" shall have the meaning set forth in Section 2.1(b). (d) "Agreement Disputes" shall have the meaning set forth in Section 6.1. (e) "Ancillary Agreements" shall mean all of the written agreements, instruments, assignments or other arrangements (other than this Agreement) entered into in connection with the transactions contemplated hereby, including, without limitation, the Conveyancing and Assumption Instruments, the Data Services Agreement, the Employee Benefits Agreement, the Intellectual Property Agreement, the Shared Transaction Services Agreement, the Tax Allocation Agreement and the Transition Services Agreement. (f) "Assets" shall mean assets, properties and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not 6 3 recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any person, including, without limitation, the following: (i) all accounting and other books, records and files whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other form; (ii) all apparatus, computers and other electronic data processing equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks, aircraft and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property; (iii) all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products; (iv) all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee or otherwise; (v) all interests in any capital stock or other equity interests of any Subsidiary or any other person, all bonds, notes, debentures or other securities issued by any Subsidiary or any other person, all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other person and all other investments in securities of any person; (vi) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments; (vii) all deposits, letters of credit and performance and surety bonds; (viii) all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals, and materials and analyses prepared by consultants and other third parties; (ix) all domestic and foreign patents, copyrights, trade names, trademarks, service marks and registrations and applications for any of the foregoing, mask works, trade secrets, inventions, data bases, other proprietary information and licenses from third persons granting the right to use any of the foregoing; 7 4 (x) all computer applications, programs and other software, including operating software, network software, firmware, middleware, design software, design tools, systems documentation and instructions; (xi) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vendor data, correspondence and lists, product literature, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents; (xii) all prepaid expenses, trade accounts and other accounts and notes receivables; (xiii) all rights under contracts or agreements, all claims or rights against any person arising from the ownership of any asset, all rights in connection with any bids or offers and all claims, chooses in action or similar rights, whether accrued or contingent; (xiv) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution; (xv) all licenses, permits, approvals and authorizations which have been issued by any Governmental Authority; (xvi) cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and (xvii) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements. (g) "Assignee" shall have the meaning set forth in Section 2.1(f). (h) "Business Entity" shall mean any corporation, partnership, limited liability company or other entity which may legally hold title to Assets. (i) "Claims Administration" shall mean the processing of claims made under the Shared Policies, including, without limitation, the reporting of claims to the insurance carriers and the management of the defense of claims. (j) "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder, including any successor legislation. (k) "Commission" shall mean the U.S. Securities and Exchange Commission. 8 5 (l) "Conveyancing and Assumption Instruments" shall mean, collectively, the various agreements, instruments and other documents heretofore entered into and to be entered into to effect the transfer of Assets and the assumption of Liabilities in the manner contemplated by this Agreement, or otherwise arising out of or relating to the transactions contemplated by this Agreement, which shall be in substantially the forms attached hereto as Schedule 1.1(l) for transfers to be effected pursuant to New York law or the laws of one of the other states of the United States, or, if not appropriate for a given transfer, and for transfers to be effected pursuant to non-U.S. laws, shall be in such other form or forms as the parties agree and as may be required by the laws of such non-U.S. jurisdictions. (m) the "Corporation" or "D&B" shall mean The Dun & Bradstreet Corporation, a Delaware corporation, which will change its name at the time of the Distribution to "The Reuben H. Donnelley Corporation". (n) "Corporation Debt" shall have the meaning set forth in Section 2.1(n). (o) "D&B Opco Inc. Business" shall have the meaning set forth in the recitals. (p) "Data Services Agreement" shall mean the Data Services Agreement between the Corporation and New D&B (or Subsidiaries thereof). (q) "Distribution" shall mean the distribution on the Distribution Date to holders of record of shares of D&B Common Stock as of the Distribution Record Date of the New D&B Common Shares owned by the Corporation on the basis of one New D&B Common Share for each outstanding share of D&B Common Stock. (r) "Distribution Date" shall mean July 1, 1998. (s) "Distribution Record Date" shall mean as of the close of business of such date as may be determined by the Corporation's Board of Directors as the record date for the Distribution. (t) "Effective Time" shall mean immediately after the midnight, New York time, ending the 24-hour period comprising June 30, 1998. (u) "Employee Benefits Agreement" shall mean the Employee Benefits Agreement between the Corporation and New D&B. (v) "Governmental Authority" shall mean any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. (w) "Indemnifiable Losses" shall mean any and all losses, liabilities, claims, damages, demands, costs or expenses (including, without limitation, reasonable attorneys' fees and any and all out-of-pocket expenses) reasonably incurred in investigating, preparing for or 9 6 defending against any Actions or potential Actions or in settling any Action or potential Action or in satisfying any judgment, fine or penalty rendered in or resulting from any Action. (x) "Indemnifying Party" shall have the meaning set forth in Section 3.3. (y) "Indemnitee" shall have the meaning set forth in Section 3.3. (z) "Information Statement" shall mean the Information Statement sent to the holders of shares of D&B Common Stock in connection with the Distribution, including any amendment or supplement thereto. (aa) "Insurance Administration" shall mean, with respect to each Shared Policy, the accounting for premiums, retrospectively-rated premiums, defense costs, indemnity payments, deductibles and retentions, as appropriate, under the terms and conditions of each of the Shared Policies; and the reporting to excess insurance carriers of any losses or claims which may cause the per-occurrence, per claim or aggregate limits of any Shared Policy to be exceeded, and the distribution of Insurance Proceeds as contemplated by this Agreement. (ab) "Insurance Proceeds" shall mean those monies (i) received by an insured from an insurance carrier or (ii) paid by an insurance carrier on behalf of an insured, in either case net of any applicable premium adjustment, retrospectively-rated premium, deductible, retention, or cost of reserve paid or held by or for the benefit of such insured. (ac) "Insured Claims" shall mean those Liabilities that, individually or in the aggregate, are covered within the terms and conditions of any of the Shared Policies, whether or not subject to deductibles, co-insurance, uncollectibility or retrospectively-rated premium adjustments. (ad) "Intellectual Property Agreement" shall mean the Intellectual Property Agreement between the Corporation and New D&B. (ae) "Liabilities" shall mean any and all losses, claims, charges, debts, demands, actions, causes of action, suits, damages, obligations, payments, costs and expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities and similar obligations, exonerations, covenants, contracts, controversies, agreements, promises, doings, omissions, variances, guarantees, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, rule, regulation, Action, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all costs and expenses, whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions), order or consent decree of any governmental or other regulatory or administrative agency, body or commission or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement or any Ancillary Agreement, in each case, whether or not recorded or reflected or 10 7 required to be recorded or reflected on the books and records or financial statements of any person. (af) "Moody's" shall have the meaning set forth in the recitals. (ag) "Moody's Business" shall have the meaning set forth in the recitals. (ah) "New D&B Assets" shall mean, collectively, all the rights and Assets owned or held by the Corporation or any Subsidiary of the Corporation immediately prior to the Effective Time, except the RHD Assets. (ai) "New D&B Business" shall mean each and every business conducted at any time by the Corporation or any Subsidiary of the Corporation prior to the Effective Time, except an RHD Business. (aj) "New D&B Common Shares" shall have the meaning set forth in the recitals hereto. (ak) "New D&B Contracts" shall mean all the contracts and agreements to which the Corporation or any of its Affiliates is a party or by which it or any of its Affiliates is bound immediately prior to the Effective Time, except the RHD Contracts. (al) "New D&B Group" shall mean New D&B and each person (other than any member of the RHD Group) that is a Subsidiary of the Corporation immediately prior to the Effective Time. (am) "New D&B Indemnitees" shall mean New D&B, each member of the New D&B Group, each of their respective present and former directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing, except the RHD Indemnitees. (an) "New D&B Liabilities" shall mean collectively, all obligations and Liabilities of the Corporation or any Subsidiary of the Corporation immediately prior to the Effective Time, except the RHD Liabilities. (ao) "New D&B Opco Inc." shall mean a newly formed Delaware corporation and wholly owned subsidiary of D&B Opco Inc. created to hold the assets and liabilities related to, and to operate, the D&B Opco Inc. Business after the Distribution. (ap) "New D&B Policies" shall mean all Policies, current or past, which are owned or maintained by or on behalf of the Corporation or any Subsidiary of the Corporation immediately prior to the Effective Time which do not relate to the RHD Business and which Policies are either maintained by New D&B or a member of the New D&B Group or are assignable to New D&B or a member of the New D&B Group. 11 8 (aq) "1996 Distribution" shall mean the Distribution described in the 1996 Distribution Agreement. (ar) "1996 Distribution Agreement" shall mean the Distribution Agreement among the Corporation, Cognizant Corporation and ACNielsen Corporation dated as of October 28, 1996. (as) "person" shall mean any natural person, corporation, business trust, joint venture, association, company, partnership, other entity or government, or any agency or political subdivision thereof. (at) "Policies" shall mean insurance policies and insurance contracts of any kind (other than life and benefits policies or contracts), including, without limitation, primary, excess and umbrella policies, comprehensive general liability policies, director and officer liability, fiduciary liability, automobile, aircraft, property and casualty, workers' compensation and employee dishonesty insurance policies, bonds and self-insurance and captive insurance company arrangements, together with the rights, benefits and privileges thereunder. (au) "Provider" shall have the meaning set forth in Section 5.1. (av) "Recipient" shall have the meaning set forth in Section 5.1. (aw) "Records" shall have the meaning set forth in Section 4.1. (ax) "RHD" shall mean The Reuben H. Donnelley Corporation, a Delaware corporation and a wholly-owned subsidiary of the Corporation. (ay) "RHD Assets" shall mean: (i) the ownership interests in those Business Entities listed on Schedule 1.1(ay)(i); (ii) any and all Assets that are expressly contemplated by this Agreement, including those on the list of pre-Distribution reorganization transactions attached as Schedule 1.1(ay)(ii) hereto, or any Ancillary Agreement (or included on any Schedule hereto or thereto) as Assets which have been or are to be transferred to the Corporation, RHD or any other member of the RHD Group prior to the Effective Time or are to remain with the Corporation, RHD or any other member of the RHD Group subsequent to the Effective Time; (iii) any Assets reflected on the RHD Balance Sheet or the accounting records supporting such balance sheet and any Assets acquired by or for RHD or any member of the RHD Group subsequent to the date of such balance sheet which, had they been so acquired on or before such date and owned as of such date, would have been reflected on such balance sheet if 12 9 prepared on a consistent basis, subject to any dispositions of any of such Assets subsequent to the date of such balance sheet; (iv) subject to Article VII, any rights of any member of the RHD Group under any of the Policies, including any rights thereunder arising from and after the Effective Time in respect of any Policies that are occurrence policies; (v) any RHD Contracts, any rights or claims arising thereunder, and any other rights or claims or contingent rights or claims primarily relating to or arising from any RHD Asset or the RHD Business; and (vi) any and all Assets of the Corporation from and after the Effective Time. Notwithstanding the foregoing, the RHD Assets shall not in any event include: (w) any rights of the Corporation under the 1996 Distribution Agreement or the Tax Allocation Agreement, Employee Benefits Agreement or the Ancillary Agreements referred to in the 1996 Distribution Agreement; or (x) the Assets listed or described on Schedule 1.1(ay)(x); or (y) any Assets primarily relating to or used in any terminated or divested Business Entity, business or operation formerly owned or managed by or associated with the Corporation, RHD or any RHD Business, except for those Assets primarily relating to or used in those Business Entities, businesses or operations listed on Schedule 1.1(ay)(y); or (z) any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be transferred or conveyed to any member of the New D&B Group. In the event of any inconsistency or conflict which may arise in the application or interpretation of any of the foregoing provisions, for the purpose of determining what is and is not an RHD Asset, any item explicitly included on a Schedule referred to in this Section 1.1(ay) shall take priority over any provision of the text hereof, and clause (ii) shall take priority over clause (iii) hereof of this paragraph (ay). (az) "RHD Balance Sheet" shall mean the combined balance sheet of the RHD Group, including the notes thereto, as of March 31, 1998, set forth as Schedule 1.1(az) hereto. 13 10 (ba) "RHD Business" shall mean (i) the Reuben H. Donnelley Business, (ii) the businesses of the members of the RHD Group, (iii) any other business conducted by the Corporation or any Subsidiary of the Corporation primarily through the use of the RHD Assets, (iv) the businesses of Business Entities acquired or established by or for RHD or any of its Subsidiaries after the date of this Agreement and (v) the business of the Corporation from and after the Effective Time. (bb) "RHD Contracts" shall mean the following contracts and agreements to which the Corporation or any of its Affiliates is a party or by which it or any of its Affiliates or any of their respective Assets is bound, whether or not in writing, except for any such contract or agreement that is not expressly contemplated to be transferred or assigned to the Corporation or any member of the RHD Group prior to the Effective Time or to remain with the Corporation or any member of the RHD Group subsequent to the Effective Time, pursuant to any provision of this Agreement or any Ancillary Agreement: (i) any contracts or agreements listed or described on Schedule 1.1(bb)(i); (ii) any contract or agreement entered into in the name of, or expressly on behalf of, any division, business unit or member of the RHD Group; (iii) any contract or agreement that relates primarily to the RHD Business; (iv) federal, state and local government and other contracts and agreements that are listed or described on Schedule 1.1(bb)(iv) and any other government contracts or agreements entered into after the date hereof and prior to the Effective Time that relate primarily to the RHD Business; (v) any contract or agreement representing capital or operating equipment lease obligations reflected on the RHD Balance Sheet, including obligations as lessee under those contracts or agreements listed on Schedule 1.1(bb)(v); (vi) any contract or agreement that is otherwise expressly contemplated pursuant to this Agreement or any of the Ancillary Agreements to be transferred or assigned to the Corporation or any member of the RHD Group prior to the Effective Time or to remain with the Corporation or any member of the RHD Group subsequent to the Effective Time; and (vii) any guarantee, indemnity, representation or warranty of any member of the RHD Group. (bc) "RHD Group" shall mean RHD, each Business Entity which is contemplated to become a Subsidiary of the Corporation or RHD hereunder prior to the Effective Time or to remain a Subsidiary of the Corporation or RHD hereunder subsequent to the Effective Time, which shall include those identified as such on Schedule 1.1(ay)(i) hereto, which Schedule 14 11 shall also indicate the amount of the Corporation's or RHD's direct or indirect ownership interest therein, and the Corporation from and after the Effective Time. (bd) "RHD Indemnitees" shall mean RHD, each member of the RHD Group, each of their respective present and former directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing. (be) "RHD Liabilities" shall mean: (i) any and all Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto, including Schedule 1.1(be)(i) hereto) as Liabilities to be assumed by the Corporation or any member of the RHD Group prior to the Effective Time or to remain with the RHD Group subsequent to the Effective Time, and all agreements, obligations and Liabilities of the Corporation or any member of the RHD Group under this Agreement or any of the Ancillary Agreements; (ii) all Liabilities (other than Taxes and any employee-related Liabilities subject to the provisions of the Tax Allocation Agreement and the Employee Benefits Agreement, respectively), primarily relating to, arising out of or resulting from: (A) the operation of the RHD Business, as conducted at any time prior to, on or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such person's authority)); (B) the operation of any business conducted by the Corporation or any Subsidiary of the Corporation at any time from and after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such person's authority)); or (C) any RHD Assets; whether arising before, on or after the Effective Time; (iii) all Liabilities reflected as liabilities or obligations on the RHD Balance Sheet or the accounting records supporting such balance sheet, and all Liabilities arising or assumed after the date of such balance sheet which, had they arisen or been assumed on or before such date and been retained as of such date, would have been reflected on such balance sheet, subject to any discharge of such Liabilities subsequent to the date of the RHD Balance Sheet; and 15 12 (iv) the Corporation Debt. Notwithstanding the foregoing, the RHD Liabilities shall not include: (x) any Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by New D&B or any member of the New D&B Group, including any Liabilities set forth in Schedule 1.1(be)(x); (y) any Liabilities primarily relating to, arising out of or resulting from any terminated or divested Business Entity, business or operation formerly owned or managed by or associated with the Corporation or any RHD Business except for Liabilities primarily relating to, arising out of or resulting from those Business Entities, businesses or operations listed in Schedule 1.1(be)(y); or (z) all agreements and obligations of any member of the New D&B Group under this Agreement or any of the Ancillary Agreements. (bf) "RHD Policies" shall mean all Policies, current or past, which are owned or maintained by or on behalf of the Corporation or any Subsidiary of the Corporation immediately prior to the Effective Time, which do not relate to the New D&B Business. (bg) "Rights" shall have the meaning set forth in Section 2.1(c). (bh) "Rules" shall have the meaning set forth in Section 6.2. (bi) "Security Interest" shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever. (bj) "Shared Policies" shall mean all Policies, current or past, which are owned or maintained by or on behalf of the Corporation or any Subsidiary of the Corporation immediately prior to the Effective Time which relate to the New D&B Business and the RHD Business. (bk) "Shared Transaction Services Agreement" shall mean the Shared Transaction Services Agreement between the Corporation and New D&B (or Subsidiaries thereof). (bl) "Subsidiary" shall mean any corporation, partnership or other entity of which another entity (i) owns, directly or indirectly, ownership interests sufficient to elect a majority of the Board of Directors (or persons performing similar functions) (irrespective of whether at the time any other class or classes of ownership interests of such corporation, 16 13 partnership or other entity shall or might have such voting power upon the occurrence of any contingency) or (ii) is a general partner or an entity performing similar functions (e.g., a trustee). (bm) "Tax" shall have the meaning set forth in the Tax Allocation Agreement. (bn) "Tax Allocation Agreement" shall mean the Tax Allocation Agreement between the Corporation and New D&B. (bo) "Third Party Claim" shall have the meaning set forth in Section 3.3. (bp) "Transition Services Agreement" shall mean the Transition Services Agreement between the Corporation and New D&B. SECTION 1.2. References; Interpretation. References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. The words "include", "includes" and "including" when used in this Agreement shall be deemed to be followed by the phrase "without limitation". Unless the context otherwise requires, references in this Agreement to Articles, Sections, Schedules and Exhibits shall be deemed references to Articles and Sections of, and Schedules and Exhibits to, such Agreement. Unless the context otherwise requires, the words "hereof", "hereby" and "herein" and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN COVENANTS SECTION 2.1. The Distribution and Other Transactions. (a) Certain Transactions. On or prior to the Distribution Date: (i) the Corporation shall, on behalf of itself and its Subsidiaries, transfer or cause to be transferred to New D&B or another member of the New D&B Group, effective prior to or as of the Effective Time, all of the Corporation's and its Subsidiaries' right, title and interest in the New D&B Assets. (ii) New D&B shall to the extent not already held by the Corporation or a member of the RHD Group, on behalf of itself and its Subsidiaries, transfer or cause to be transferred to the Corporation or a member of the RHD Group, effective prior to or as of the Effective Time, all of New D&B's and its Subsidiaries' right, title and interest in the RHD Assets. (iii) To the extent not indicated by Schedule 1.1(ay)(i) or (ii) or otherwise agreed by the parties hereto, the Corporation or New D&B, as applicable, shall be entitled to designate the Business Entity within the RHD Group or the New D&B Group, as applicable, to which any Assets are to be transferred pursuant to this Section 2.1(a). 17 14 (b) Stock Dividend to the Corporation. On or prior to the Distribution Date, New D&B shall issue to the Corporation as a stock dividend such number of New D&B Common Shares as will be required to effect the Distribution, as certified by the Corporation's stock transfer agent (the "Agent"). In connection with such issuance, the Corporation shall deliver to New D&B for cancellation the share certificate held by it representing New D&B Common Shares and shall receive a new certificate representing the total number of New D&B Common Shares to be owned by the Corporation after giving effect to such stock dividend. (c) Charters; By-laws; Rights Plans. On or prior to the Distribution Date, all necessary actions shall have been taken to provide for the adoption of the form of Certificate of Incorporation and By-laws and the execution and delivery of the form of Rights Agreement, relating to the preferred share purchase rights relating to the New D&B Common Shares (the "Rights"), filed by New D&B with the Commission as exhibits to New D&B's Registration Statement on Form 10. (d) Directors. On or prior to the Distribution Date, the Corporation as the sole stockholder of New D&B, shall have taken all necessary action on or prior to the Distribution Date to cause the Board of Directors of New D&B to consist of the individuals identified in the Information Statement as directors of New D&B. (e) Certain Licenses and Permits. Without limiting the generality of the obligations set forth in Section 2.1(a), on or prior to the Distribution Date or as soon as reasonably practicable thereafter: (i) all transferable licenses, permits and authorizations issued by any Governmental Authority which do not relate primarily to the RHD Business but which are held in the name of the Corporation or any member of the RHD Group, or in the name of any employee, officer, director, stockholder or agent of the Corporation or any such member, or otherwise, on behalf of a member of the New D&B Group shall be duly and validly transferred or caused to be transferred by the Corporation to the appropriate member of the New D&B Group; and (ii) all transferable licenses, permits and authorizations issued by Governmental Authorities which relate primarily to the RHD Business but which are held in the name of any member of the New D&B Group, or in the name of any employee, officer, director, stockholder, or agent of any such member, or otherwise, on behalf of a member of the RHD Group shall be duly and validly transferred or caused to be transferred by New D&B to the Corporation or the appropriate member of the RHD Group. (f) Transfer of Agreements. Without limiting the generality of the obligations set forth in Section 2.1(a): (i) the Corporation hereby agrees that on or prior to the Distribution Date or as soon as reasonably practicable thereafter, subject to the limitations set forth in this Section 2.1(f), it will, and it will cause each member of the RHD Group to, assign, 18 15 transfer and convey to the appropriate member of the New D&B Group all of the Corporation's or such member of the RHD Group's respective right, title and interest in and to any and all New D&B Contracts; (ii) New D&B hereby agrees that on or prior to the Distribution Date or as soon as reasonably practicable thereafter, subject to the limitations set forth in this Section 2.1(f), it will, and it will cause each member of the New D&B Group to, assign, transfer and convey to the Corporation or the appropriate member of the RHD Group all of New D&B's or such member of the New D&B Group's respective right, title and interest in and to any and all RHD Contracts; (iii) subject to the provisions of this Section 2.1(f), any agreement to which any of the parties hereto or any of their Subsidiaries is a party that inures to the benefit of both the RHD Business and the New D&B Business shall be assigned in part so that each party shall be entitled to the rights and benefits inuring to its business under such agreement; (iv) the assignee of any agreement assigned, in whole or in part, hereunder (an "Assignee") shall assume and agree to pay, perform, and fully discharge all obligations of the assignor under such agreement or, in the case of a partial assignment under paragraph (f)(iii), such Assignee's related portion of such obligations as determined in accordance with the terms of the relevant agreement, where determinable on the face thereof, and otherwise as determined in accordance with the practice of the parties prior to the Distribution; and (v) notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign any agreement, in whole or in part, or any rights thereunder if the agreement to assign or attempt to assign, without the consent of a third party, would constitute a breach thereof or in any way adversely affect the rights of the assignor or Assignee thereof. Until such consent is obtained, or if an attempted assignment thereof would be ineffective or would adversely affect the rights of any party hereto so that the intended Assignee would not, in fact, receive all such rights, the parties will cooperate with each other in any arrangement designed to provide for the intended Assignee the benefits of, and to permit the intended Assignee to assume liabilities under, any such agreement. (g) Consents. The parties hereto shall use their commercially reasonable efforts to obtain required consents to transfer and/or assignment of licenses, permits and authorizations of Governmental Authorities and of agreements hereunder. (h) Delivery of Shares to Agent. The Corporation shall deliver to the Agent the share certificates representing the New D&B Common Shares issued to the Corporation by New D&B pursuant to Section 2.1(b) and shall instruct the Agent to distribute, on or as soon as practicable following the Distribution Date, certificates representing such Common Shares to holders of record of shares of D&B Common Stock on the Distribution Record Date as further 19 16 contemplated by the Information Statement and herein. New D&B shall provide all share certificates that the Agent shall require in order to effect the Distribution. (i) Certain Liabilities. For purposes of this Agreement, including Article III hereof, New D&B agrees with the Corporation that: (i) any and all Liabilities arising from or based upon "controlling person" liability relating to the Form 10 filed by New D&B shall be deemed to be New D&B Liabilities and not RHD Liabilities; and (ii) notwithstanding Section 2.1(m) below, any and all Liabilities arising from or related to the spin-off of Cognizant Corporation and ACNielsen Corporation from the Corporation pursuant to the 1996 Distribution Agreement, other than those set forth on Schedule 2.1(i), shall be deemed to be New D&B Liabilities and not RHD Liabilities. (j) Certain Contingencies. Notwithstanding anything to the contrary herein or in the Tax Allocation Agreement, on or prior to the Distribution Date, each of the Corporation and New D&B agree to take all actions necessary to cause the Corporation's interests in certain prior business transactions set forth in Schedule 2.1(j) to be transferred to New D&B or a member of the New D&B Group, and each of the Corporation and New D&B agree that any rights with respect thereto shall be held by New D&B or a member of the New D&B Group and not by RHD or any member of the RHD Group and any Liabilities arising in connection with such interests and any transactions relating thereto (including, without limitation, any Liabilities for Taxes of any member of the Pre-Distribution D&B Group (as defined in the Tax Allocation Agreement) imposed by reason of audit adjustment or otherwise) shall be New D&B Liabilities and not RHD Liabilities. (k) [Reserved] (l) Other Transactions. On or prior to the Distribution Date, each of the Corporation and New D&B shall consummate those other transactions in connection with the Distribution that are contemplated by the ruling request submissions by the Corporation to the Internal Revenue Service in respect of the ruling granted on April 9, 1998, and not specifically referred to in subparagraphs (a)-(k) above. After the Distribution Date, each of the Corporation and New D&B will exercise good faith commercially reasonable efforts to consummate as promptly as practicable all other transactions which must be consummated in order fully to complete the Distribution and any of the transactions contemplated hereby or by any of the Ancillary Agreements. (m) Undertaking of New D&B. On or prior to the Distribution Date, New D&B will undertake to each of Cognizant Corporation and ACNielsen Corporation to be jointly and severally liable for all "D&B Liabilities" (as defined in the 1996 Distribution Agreement) under the 1996 Distribution Agreement pursuant to an undertaking substantially in the form of Exhibit 2.1(m) hereto. 20 17 (n) Corporation Debt. In connection with the Distribution, the Corporation shall borrow up to an aggregate of $500 million, a portion of the proceeds of which shall be used by the Corporation to repay existing indebtedness to third parties, another portion of the proceeds of which shall be contributed to New D&B to pay the remaining costs and expenses related to the Distribution as described in Section 8.5 and the rest of which shall be used to repay existing intercompany indebtedness of the Corporation or members of the RHD Group to members of the New D&B Group. This indebtedness shall be an obligation of the Corporation after the Distribution. (o) 1996 Distribution. The Corporation agrees that it will not take any action it is required or permitted to take pursuant to the terms of (i) the 1996 Distribution Agreement or (ii) the Indemnity and Joint Defense Agreement, the Tax Allocation Agreement, the Employee Benefits Agreement or any Ancillary Agreement referred to in the 1996 Distribution Agreement, in each such case without the prior written consent of New D&B. (p) D&B Restricted Stock. At the time of the Distribution, the Corporation shall contribute to New D&B any New D&B Common Shares received by the Corporation as a result of the forfeiture of restricted D&B Common Stock by D&B employees who will become New D&B employees in connection with the Distribution. SECTION 2.2. Intercompany Accounts. All intercompany receivables, payables and loans (other than receivables, payables and loans otherwise specifically provided for hereunder or under any Ancillary Agreement, including payables created or required hereby or by any Ancillary Agreement), including, without limitation, in respect of any cash balances, any cash balances representing deposited checks or drafts for which only a provisional credit has been allowed or any cash held in any centralized cash management system between any member of the New D&B Group, on the one hand, and the Corporation or any member of the RHD Group, on the other hand, which exist and are reflected in the accounting records of the relevant parties as of _______ __, 1998 or which arise on or after ______ __, 1998 shall be paid or settled in the ordinary course of business in a manner consistent with the payment or settlement of similar accounts arising from transactions with third parties. SECTION 2.3. Cash balances. In addition to any other obligations hereunder or under any Ancillary Agreement or otherwise, on the Distribution Date, the Corporation shall deliver, in immediately available funds, $___ million to New D&B. SECTION 2.4. Assumption and Satisfaction of Liabilities. Except as otherwise specifically set forth in any Ancillary Agreement, and subject to Section 2.3 hereof, from and after the Effective Time, (i) the Corporation shall, and shall cause each member of the RHD Group to, assume, pay, perform and discharge all RHD Liabilities and (ii) New D&B shall, and shall cause each member of the New D&B Group to, assume, pay, perform and discharge all New D&B Liabilities. To the extent reasonably requested to do so by another party hereto, each party hereto agrees to sign such documents, in a form reasonably satisfactory to such party, as may be reasonably necessary to evidence the assumption of any Liabilities hereunder. 21 18 SECTION 2.5. Resignations. (a) Subject to Section 2.5(b), the Corporation and RHD shall cause all their employees to resign, effective as of the Distribution Date, from all positions as officers or directors of any member of the New D&B Group in which they serve, and New D&B shall cause all its employees to resign, effective as of the Effective Time, from all positions as officers or directors of the Corporation or any members of the RHD Group in which they serve. (b) No person shall be required by any party hereto to resign from any position or office with another party hereto if such person is disclosed in the Information Statement as the person who is to hold such position or office following the Distribution. SECTION 2.6. Further Assurances. In case at any time after the Effective Time any further action is reasonably necessary or desirable to carry out the purposes of this Agreement and the Ancillary Agreements, the proper officers of each party to this Agreement shall take all such necessary action. Without limiting the foregoing, the Corporation and New D&B shall use their commercially reasonable efforts promptly to obtain all consents and approvals, to enter into all amendatory agreements and to make all filings and applications that may be required for the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, including, without limitation, all applicable governmental and regulatory filings. SECTION 2.7. Limited Representations or Warranties. Each of the parties hereto agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement or otherwise, making any representation or warranty whatsoever, as to title or value of Assets being transferred. It is also agreed that, notwithstanding anything to the contrary otherwise expressly provided in the relevant Conveyancing and Assumption Instrument, all Assets either transferred to or retained by the parties, as the case may be, shall be "as is, where is" and that (subject to Section 2.6) the party to which such Assets are to be transferred hereunder shall bear the economic and legal risk that such party's or any of the Subsidiaries' title to any such Assets shall be other than good and marketable and free from encumbrances. Similarly, each party hereto agrees that, except as otherwise expressly provided in the relevant Conveyancing and Assumption Instrument, no party hereto is representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any amendatory agreements and the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable agreements or the requirements of any or all applicable laws or judgments, it being agreed that the party to which any Assets are transferred shall bear the economic and legal risk that any necessary consents or approvals are not obtained or that any requirements of laws or judgments are not complied with. SECTION 2.8. Guarantees. (a) Except as otherwise specified in any Ancillary Agreement, the Corporation and New D&B shall use their commercially reasonable efforts to have, on or prior to the Distribution Date, or as soon as practicable thereafter, the Corporation and any member of the RHD Group removed as guarantor of or obligor for any New D&B Liability, including, without limitation, in respect of those guarantees set forth on Schedule 2.8(a) to the extent that they relate to New D&B Liabilities. 22 19 (b) Except as otherwise specified in any Ancillary Agreement, the Corporation and New D&B shall use their commercially reasonable efforts to have, on or prior to the Distribution Date, or as soon as practicable thereafter, any member of the New D&B Group removed as guarantor of or obligor for any RHD Liability, including, without limitation, in respect of those guarantees set forth on Schedule 2.8(b) to the extent that they relate to RHD Liabilities. (c) If the Corporation or New D&B is unable to obtain, or to cause to be obtained, any such required removal as set forth in clauses (a) or (b) of this Section 2.8, the applicable guarantor or obligor shall continue to be bound as such and, unless not permitted by law or the terms thereof, the relevant beneficiary shall or shall cause one of its Subsidiaries, as agent or subcontractor for such guarantor or obligor to pay, perform and discharge fully all the obligations or other liabilities of such guarantor or obligor thereunder from and after the date hereof. SECTION 2.9. Witness Services. At all times from and after the Distribution Date, each of the Corporation and New D&B shall use their commercially reasonable efforts to make available to the other, upon reasonable written request, its and its Subsidiaries' officers, directors, employees and agents as witnesses to the extent that (i) such persons may reasonably be required in connection with the prosecution or defense of any Action in which the requesting party may from time to time be involved and (ii) there is no conflict in the Action between the requesting party and the Corporation or New D&B as applicable. A party providing witness services to the other party under this Section shall be entitled to receive from the recipient of such services, upon the presentation of invoices therefor, payments for such amounts, relating to disbursements and other out-of-pocket expenses (which shall be deemed to exclude the costs of salaries and benefits of employees who are witnesses), as may be reasonably incurred in providing such witness services. SECTION 2.10. Certain Post-Distribution Transactions. (a) (i) The Corporation shall comply and shall cause its Subsidiaries to comply with and otherwise not take action inconsistent with each representation and statement made to the Internal Revenue Service in connection with the request by the Corporation for a ruling letter in respect of the Distribution as to certain tax aspects of the Distribution and (ii) until two years after the Distribution Date, the Corporation will cause RHD to maintain its status as a company engaged in the active conduct of a trade or business, as defined in Section 355(b) of the Code, will continue to own stock of RHD constituting control (within the meaning of Section 368(c) of the Code) of RHD and will maintain at least ninety percent of the fair market value of the Corporation's assets in stock and securities of RHD and such other assets which, based on an opinion of a law firm reasonably acceptable to New D&B, or a supplemental ruling from the Internal Revenue Service, will not cause the Corporation or RHD to be in violation of the active business requirement under the holding company test. (b)(i) New D&B shall comply and shall cause its Subsidiaries to comply with and otherwise not take action inconsistent with each representation and statement made to the Internal Revenue Service in connection with the request by the Corporation for a ruling letter in respect of the Distribution as to certain tax aspects of the Distribution and (ii) until two years after the 23 20 Distribution Date, New D&B will cause each of Moody's and New D&B Opco Inc. to maintain its status as a company engaged in the active conduct of a trade or business, as defined in Section 355(b) of the Code, will continue to own stock in each of Moody's and New D&B Opco Inc. constituting control (within the meaning of Section 368(c) of the Code) of Moody's and New D&B Opco Inc. and will maintain at least ninety percent of the fair market value of New D&B's assets in stock and securities of Moody's and New D&B Opco Inc. and such other assets which, based on an opinion of a law firm reasonably acceptable to the Corporation, or a supplemental ruling from the Internal Revenue Service, will not cause New D&B, Moody's or New D&B Opco Inc. to be in violation of the active business requirement under the holding company test. (c) The Corporation agrees that until two years after the Distribution Date, it will not (i) merge or consolidate with or into any other corporation, (ii) liquidate or partially liquidate, (iii) sell or transfer all or substantially all of its assets (within the meaning of Rev. Proc. 77-37, 1977 - - 2 C.B. 568) in a single transaction or series of related transactions, (iv) redeem or otherwise repurchase any D&B Common Stock (other than as described in Section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696), or (v) take any other action or actions which in the aggregate would have the effect of causing or permitting one or more persons to acquire directly or indirectly stock representing a 50 percent or greater interest (within the meaning of Section 355(e) of the Code) in the Corporation, unless prior to taking such action the Corporation has obtained (and provided to New D&B) a written opinion of a law firm reasonably acceptable to New D&B, or a supplemental ruling from the Internal Revenue Service, that such action or actions will not result in (i) the Distribution failing to qualify under Section 355(a) of the Code or (ii) the New D&B Common Shares failing to qualify as qualified property for purposes of Section 355(c)(2) of the Code by reason of Section 355(e) of the Code. (d) Notwithstanding anything to the contrary herein or in the Tax Allocation Agreement, if the Corporation or New D&B (or any of their respective Subsidiaries) fails to comply with any of its obligations under Sections 2.10(a), 2.10(b) and 2.10(c) above or takes or fails to take any action on or after the Distribution Date, and such failure to comply, action or omission contributes to a determination that (i) the Distribution fails to qualify under Section 355(a) of the Code or (ii) the New D&B Common Shares fail to qualify as qualified property for purposes of Section 355(c)(2) of the Code by reason of Section 355(e) of the Code, the party shall indemnify and hold harmless the other party and each member of the consolidated group of which the other party is a member from and against any and all federal, state and local taxes, including any interest, penalties or additions to tax, imposed upon or incurred by such other party, any member of its group or any stockholder of either party as a result of the failure of the Distribution to qualify under Section 355(a) of the Code or the application of Section 355(e). The obligation of the Corporation to indemnify New D&B pursuant to the preceding sentence shall not be affected by the delivery of any legal opinion or supplemental ruling under Section 2.10(c). SECTION 2.11. Transfers Not Effected Prior to the Distribution; Transfers Deemed Effective as of the Distribution Date. To the extent that any transfers contemplated by this Article II shall not have been consummated on or prior to the Distribution Date, the parties shall cooperate to effect such transfers as promptly following the Distribution Date as shall be practicable. Nothing herein shall be deemed to require the transfer of any Assets or the 24 21 assumption of any Liabilities which by their terms or operation of law cannot be transferred; provided, however, that the parties hereto and their respective Subsidiaries shall cooperate to seek to obtain any necessary consents or approvals for the transfer of all Assets and Liabilities contemplated to be transferred pursuant to this Article II. In the event that any such transfer of Assets or Liabilities has not been consummated, from and after the Distribution Date the party retaining such Asset or Liability shall hold such Asset in trust for the use and benefit of the party entitled thereto (at the expense of the party entitled thereto) or retain such Liability for the account of the party by whom such Liability is to be assumed pursuant hereto, as the case may be, and take such other action as may be reasonably requested by the party to whom such Asset is to be transferred, or by whom such Liability is to be assumed, as the case may be, in order to place such party, insofar as is reasonably possible, in the same position as would have existed had such Asset or Liability been transferred as contemplated hereby. As and when any such Asset or Liability becomes transferable, such transfer shall be effected forthwith. The parties agree that, as of the Distribution Date, each party hereto shall be deemed to have acquired complete and sole beneficial ownership over all of the Assets, together with all rights, powers and privileges incident thereto, and shall be deemed to have assumed in accordance with the terms of this Agreement all of the Liabilities, and all duties, obligations and responsibilities incident thereto, which such party is entitled to acquire or required to assume pursuant to the terms of this Agreement. SECTION 2.12. Conveyancing and Assumption Instruments. In connection with the transfers of Assets and the assumptions of Liabilities contemplated by this Agreement, the parties shall execute or cause to be executed by the appropriate entities the Conveyancing and Assumption Instruments in substantially the form contemplated hereby for transfers to be effected pursuant to New York law or the laws of one of the other states of the United States or, if not appropriate for a given transfer, and for transfers to be effected pursuant to non-U.S. laws, in such other form as the parties shall reasonably agree, including the transfer of real property with deeds as may be appropriate. The transfer of capital stock shall be effected by means of delivery of stock certificates and executed stock powers and notation on the stock record books of the corporation or other legal entities involved, or by such other means as may be required in any non-U.S. jurisdiction to transfer title to stock and, to the extent required by applicable law, by notation on public registries. SECTION 2.13. Ancillary Agreements. Prior to the Distribution Date, each of the Corporation and New D&B shall enter into, and/or (where applicable) shall cause members of the RHD Group or the New D&B Group, as applicable, to enter into, the Ancillary Agreements and any other agreements in respect of the Distribution reasonably necessary or appropriate in connection with the transactions contemplated hereby and thereby. SECTION 2.14. Corporate Names. (a) Except as otherwise specifically provided in any Ancillary Agreement: (i) on or prior to the Distribution Date, the Corporation shall change its name to remove any reference to "Dun & Bradstreet" therein; 25 22 (ii) as soon as reasonably practicable after the Distribution Date but in any event within six months thereafter, the Corporation will, at its own expense, remove (or, if necessary, on an interim basis, cover up) any and all exterior signs and other identifiers located on any of its property or premises or on the property or premises used by it or its Subsidiaries (except property or premises to be shared with New D&B or its Subsidiaries after the Distribution) which refer or pertain to D&B or which include the Dun & Bradstreet name, logo or other trademark or other intellectual property utilizing D&B; (iii) as soon as reasonably practicable after the Distribution Date but in any event within six months thereafter, the Corporation will, and will cause its Subsidiaries to, remove from all letterhead, envelopes, invoices and other communications media of any kind, all references to D&B, including the "Dun & Bradstreet" name, logo and any other trademark or other intellectual property utilizing D&B (except that the Corporation shall not be required to take any such action with respect to materials in the possession of customers), and neither the Corporation nor its Subsidiaries shall use or display the "Dun & Bradstreet" name, logo or other trademarks or intellectual property utilizing D&B without the prior written consent of New D&B; (iv) as soon as reasonably practicable after the Distribution Date, but in any event within six months thereafter, the Corporation will cause its Subsidiaries to change their corporate names to the extent necessary to remove and eliminate any reference to D&B, including the "Dun & Bradstreet" name; provided, however, that notwithstanding the foregoing requirements of this Section 2.14(a), if the Corporation has exercised good faith efforts to comply with this clause (iv) but is unable, due to regulatory or other circumstance beyond its control, to effect a corporate name change in compliance with applicable law, then the Corporation or its Subsidiary will not be deemed to be in breach hereof if it continues to exercise good faith efforts to effectuate such name change and does effectuate such name change within nine months after the Distribution Date, and, in such circumstances, such party may continue to include in exterior signs and other identifiers and in letterhead, envelopes, invoices and other communications references to the name which includes references to D&B, but only to the extent necessary to identify such party and only until such party's corporate name can be changed to remove and eliminate such references; and (v) notwithstanding the foregoing clauses (i) through (iv), nothing herein or in any Ancillary Agreement shall require the Corporation to take any action to remove any reference to D&B, including the "Dun & Bradstreet" name, from any stock certificate relating to shares of D&B Common Stock outstanding on or prior to the Record Date; provided that from and after the Record Date, any newly issued stock certificates representing D&B Common Stock (which at the Effective Time will become RHD Common Stock) shall not have any reference to D&B, including the "Dun & Bradstreet" name. (b) Except as otherwise specifically provided in any Ancillary Agreement: 26 23 (i) as soon as reasonably practicable after the Distribution Date but in any event within six months thereafter, New D&B will, at its own expense, remove (or, if necessary, on an interim basis, cover up) any and all exterior signs and other identifiers located on any of their respective property or premises owned or used by them or their respective Subsidiaries (except property or premises to be shared with the Corporation or its Subsidiaries after the Distribution) which refer or pertain to RHD or which include the "Reuben H. Donnelley" or "Donnelley" name, logo or other trademark or other RHD intellectual property; (ii) as soon as reasonably practicable after the Distribution Date but in any event within six months thereafter, New D&B will, and will cause its respective Subsidiaries to, remove from all letterhead, envelopes, invoices and other communications media of any kind, all references to RHD, including the "Reuben H. Donnelley" or "Donnelley" name, logo and any other trademark or other RHD intellectual property (except that New D&B shall not be required to take any such action with respect to materials in the possession of customers), and neither New D&B nor any of its Subsidiaries shall use or display the "Reuben H. Donnelley" or "Donnelley" name, logo or other trademarks or RHD intellectual property without the prior written consent of the Corporation; and (iii) as soon as reasonably practicable after the Distribution Date but in any event within six months thereafter, New D&B will, and will cause its Subsidiaries to, change their corporate names to the extent necessary to remove and eliminate any reference to RHD, including the "Reuben H. Donnelley" or "Donnelley" name; provided, however, that notwithstanding the foregoing requirements of this Section 2.14(b), if New D&B has exercised good faith efforts to comply with this clause (iii) but is unable, due to regulatory or other circumstance beyond its control, to effect a corporate name change in compliance with applicable law, then New D&B or its Subsidiary will not be deemed to be in breach hereof if it continues to exercise good faith efforts to effectuate such name change and does effectuate such name change within nine months after the Distribution Date, and, in such circumstances, such party may continue to include in exterior signs and other identifiers and in letterhead, envelopes, invoices and other communications references to the name which includes references to RHD but only to the extent necessary to identify such party and only until such party's corporate name can be changed to remove and eliminate such references. ARTICLE III. INDEMNIFICATION SECTION 3.1. Indemnification by the Corporation. Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, the Corporation shall indemnify, defend and hold harmless the New D&B Indemnitees from and against any and all Indemnifiable Losses of the New D&B Indemnitees arising out of, by reason of or otherwise in connection with the RHD Liabilities or alleged RHD Liabilities, including any breach by the Corporation of any provision of this Agreement or any Ancillary Agreement. 27 24 SECTION 3.2. Indemnification by New D&B. Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, New D&B shall indemnify, defend and hold harmless the RHD Indemnitees from and against any and all Indemnifiable Losses of the RHD Indemnitees arising out of, by reason of or otherwise in connection with the New D&B Liabilities or alleged New D&B Liabilities, including any breach by New D&B of any provision of this Agreement or any Ancillary Agreement. SECTION 3.3. Procedures for Indemnification. (a) Third Party Claims. If a claim or demand is made against an RHD Indemnitee or a New D&B Indemnitee (each, an "Indemnitee") by any person who is not a party to this Agreement (a "Third Party Claim") as to which such Indemnitee is entitled to indemnification pursuant to this Agreement, such Indemnitee shall notify the party which is or may be required pursuant to Section 3.1 or Section 3.2 hereof to make such indemnification (the "Indemnifying Party") in writing, and in reasonable detail, of the Third Party Claim promptly (and in any event within 15 business days) after receipt by such Indemnitee of written notice of the Third Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure (except that the Indemnifying Party shall not be liable for any expenses incurred during the period in which the Indemnitee failed to give such notice). Thereafter, the Indemnitee shall deliver to the Indemnifying Party, promptly (and in any event within five business days) after the Indemnitee's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third Party Claim. If a Third Party Claim is made against an Indemnitee, the Indemnifying Party shall be entitled to participate in the defense thereof and, if it so chooses and acknowledges in writing its obligation to indemnify the Indemnitee therefor, to assume the defense thereof with counsel selected by the Indemnifying Party; provided that such counsel is not reasonably objected to by the Indemnitee. Should the Indemnifying Party so elect to assume the defense of a Third Party Claim, the Indemnifying Party shall, within 30 days (or sooner if the nature of the Third Party Claim so requires), notify the Indemnitee of its intent to do so, and the Indemnifying Party shall thereafter not be liable to the Indemnitee for legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, that such Indemnitee shall have the right to employ counsel to represent such Indemnitee if, in such Indemnitee's reasonable judgment, a conflict of interest between such Indemnitee and such Indemnifying Party exists in respect of such claim which would make representation of both such parties by one counsel inappropriate, and in such event the fees and expenses of such separate counsel shall be paid by such Indemnifying Party. If the Indemnifying Party assumes such defense, the Indemnitee shall have the right to participate in the defense thereof and to employ counsel, subject to the proviso of the preceding sentence, at its own expense, separate from the counsel employed by the Indemnifying Party, it being understood that the Indemnifying Party shall control such defense. The Indemnifying Party shall be liable for the fees and expenses of counsel employed by the Indemnitee for any period during which the Indemnifying Party has failed to assume the defense thereof (other than during the period prior to the time the Indemnitee shall have given notice of the Third Party Claim as provided above). If the Indemnifying Party so elects to assume the defense of any Third Party Claim, all of the Indemnitees shall cooperate with the Indemnifying 28 25 Party in the defense or prosecution thereof, including by providing or causing to be provided, Records and witnesses as soon as reasonably practicable after receiving any request therefor from or on behalf of the Indemnifying Party. If the Indemnifying Party acknowledges in writing responsibility for a Third Party Claim, then in no event will the Indemnitee admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the Indemnifying Party's prior written consent; provided, however, that the Indemnitee shall have the right to settle, compromise or discharge such Third Party Claim without the consent of the Indemnifying Party if the Indemnitee releases the Indemnifying Party from its indemnification obligation hereunder with respect to such Third Party Claim and such settlement, compromise or discharge would not otherwise adversely affect the Indemnifying Party. If the Indemnifying Party acknowledges in writing liability for a Third Party Claim, the Indemnitee will agree to any settlement, compromise or discharge of a Third Party Claim that the Indemnifying Party may recommend and that by its terms obligates the Indemnifying Party to pay the full amount of the liability in connection with such Third Party Claim and releases the Indemnitee completely in connection with such Third Party Claim and that would not otherwise adversely affect the Indemnitee; provided, however, that the Indemnitee may refuse to agree to any such settlement, compromise or discharge if the Indemnitee agrees that the Indemnifying Party's indemnification obligation with respect to such Third Party Claim shall not exceed the amount that would be required to be paid by or on behalf of the Indemnifying Party in connection with such settlement, compromise or discharge. If an Indemnifying Party elects not to assume the defense of a Third Party Claim, or fails to notify an Indemnitee of its election to do so as provided herein, such Indemnitee may compromise, settle or defend such Third Party Claim. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim (and shall be liable for the fees and expenses of counsel incurred by the Indemnitee in defending such Third Party Claim) if the Third Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against the Indemnitee which the Indemnitee reasonably determines, after conferring with its counsel, cannot be separated from any related claim for money damages. If such equitable relief or other relief portion of the Third Party Claim can be so separated from that for money damages, the Indemnifying Party shall be entitled to assume the defense of the portion relating to money damages. (b) In the event of payment by an Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim. (c) The remedies provided in this Article III shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party. 29 26 SECTION 3.4. Indemnification Payments. Indemnification required by this Article III shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or loss, liability, claim, damage or expense is incurred. ARTICLE IV. ACCESS TO INFORMATION SECTION 4.1. Provision of Corporate Records. (a) Other than in circumstances in which indemnification is sought pursuant to Article III (in which event the provisions of such Article will govern), after the Distribution Date, upon the prior written request by New D&B for specific and identified agreements, documents, books, records or files (collectively, "Records") which relate to (x) New D&B or the conduct of the New D&B Business up to the Effective Time, or (y) any Ancillary Agreement to which the Corporation and New D&B are parties, as applicable, the Corporation shall arrange, as soon as reasonably practicable following the receipt of such request, for the provision of appropriate copies of such Records (or the originals thereof if the party making the request has a reasonable need for such originals) in the possession or control of the Corporation or any of its Subsidiaries, but only to the extent such items are not already in the possession or control of the requesting party. (b) Other than in circumstances in which indemnification is sought pursuant to Article III (in which event the provisions of such Article will govern), after the Distribution Date, upon the prior written request by the Corporation for specific and identified Records which relate to (x) the Corporation, RHD or the conduct of the RHD Business up to the Effective Time, or (y) any Ancillary Agreement to which New D&B and the Corporation are parties, as applicable, New D&B shall arrange, as soon as reasonably practicable following the receipt of such request, for the provision of appropriate copies of such Records (or the originals thereof if the party making the request has a reasonable need for such originals) in the possession or control of New D&B or any of its Subsidiaries, but only to the extent such items are not already in the possession or control of the requesting party. SECTION 4.2. Access to Information. Other than in circumstances in which indemnification is sought pursuant to Article III (in which event the provisions of such Article will govern), from and after the Distribution Date, each of the Corporation and New D&B shall afford to the other and its authorized accountants, counsel and other designated representatives reasonable access during normal business hours, subject to appropriate restrictions for classified, privileged or confidential information, to the personnel, properties, books and records of such party and its Subsidiaries insofar as such access is reasonably required by the other party and relates to (x) such other party or the conduct of its business prior to the Effective Time or (y) any Ancillary Agreement to which each of the party requesting such access and the party requested to grant such access are parties. SECTION 4.3. Reimbursement; Other Matters. Except to the extent otherwise contemplated by any Ancillary Agreement, a party providing Records or access to information 30 27 to the other party under this Article IV shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses, as may be reasonably incurred in providing such Records or access to information, as well as reimbursements on a per diem basis for the reasonable costs of any personnel reasonably utilized by the party providing Records or access to information under this Article IV to respond to the relevant request. SECTION 4.4. Confidentiality. Each of (i) the Corporation and its Subsidiaries and (ii) New D&B and its Subsidiaries shall not use or permit the use of (without the prior written consent of the other) and shall keep, and shall cause its consultants and advisors to keep, confidential all information concerning the other parties in its possession, its custody or under its control (except to the extent that (A) such information has been in the public domain through no fault of such party or (B) such information has been later lawfully acquired from other sources by such party or (C) this Agreement or any other Ancillary Agreement or any other agreement entered into pursuant hereto permits the use or disclosure of such information) to the extent such information (w) relates to or was acquired during the period up to the Effective Time, (x) relates to any Ancillary Agreement, (y) is obtained in the course of performing services for the other party pursuant to any Ancillary Agreement, or (z) is based upon or is derived from information described in the preceding clauses (w), (x) or (y), and each party shall not (without the prior written consent of the other) otherwise release or disclose such information to any other person, except such party's auditors and attorneys, unless compelled to disclose such information by judicial or administrative process or unless such disclosure is required by law and such party has used commercially reasonable efforts to consult with the other affected party or parties prior to such disclosure. SECTION 4.5. Privileged Matters. The parties hereto recognize that legal and other professional services that have been and will be provided prior to the Distribution Date have been and will be rendered for the benefit of each of the Corporation, the members of the RHD Group and the members of the New D&B Group, and that each of the Corporation, the members of the RHD Group and the members of the New D&B Group should be deemed to be the client for the purposes of asserting all privileges which may be asserted under applicable law. To allocate the interests of each party in the information as to which any party is entitled to assert a privilege, the parties agree as follows: (a) The Corporation shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information which relates solely to the RHD Business, whether or not the privileged information is in the possession of or under the control of the Corporation or New D&B. The Corporation shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the subject matter of any claims constituting RHD Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by the Corporation, whether or not the privileged information is in the possession of or under the control of the Corporation or New D&B. (b) New D&B shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information which relates solely to the New D&B 31 28 Business, whether or not the privileged information is in the possession of or under the control of the Corporation or New D&B. New D&B shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information which relates solely to the subject matter of any claims constituting New D&B Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by New D&B whether or not the privileged information is in the possession of or under the control of the Corporation or New D&B. (c) The parties hereto agree that they shall have a shared privilege, with equal right to assert or waive, subject to the restrictions in this Section 4.5, with respect to all privileges not allocated pursuant to the terms of Sections 4.5(a) and (b). All privileges relating to any claims, proceedings, litigation, disputes, or other matters which involve both the Corporation and New D&B in respect of which both parties retain any responsibility or liability under this Agreement, shall be subject to a shared privilege among them. (d) No party hereto may waive any privilege which could be asserted under any applicable law, and in which any other party hereto has a shared privilege, without the consent of the other party, except to the extent reasonably required in connection with any litigation with third-parties or as provided in subsection (e) below. Consent shall be in writing, or shall be deemed to be granted unless written objection is made within twenty (20) days after notice upon the other party requesting such consent. (e) In the event of any litigation or dispute between or among any of the parties hereto, any party and a Subsidiary of another party hereto, or a Subsidiary of one party hereto and a Subsidiary of another party hereto, either such party may waive a privilege in which the other party has a shared privilege, without obtaining the consent of the other party, provided that such waiver of a shared privilege shall be effective only as to the use of information with respect to the litigation or dispute between the parties and/or their Subsidiaries, and shall not operate as a waiver of the shared privilege with respect to third parties. (f) If a dispute arises between or among the parties hereto or their respective Subsidiaries regarding whether a privilege should be waived to protect or advance the interest of any party, each party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other parties, and shall not unreasonably withhold consent to any request for waiver by another party. Each party hereto specifically agrees that it will not withhold consent to waiver for any purpose except to protect its own legitimate interests. (g) Upon receipt by any party hereto or by any Subsidiary thereof of any subpoena, discovery or other request which arguably calls for the production or disclosure of information subject to a shared privilege or as to which another party has the sole right hereunder to assert a privilege, or if any party obtains knowledge that any of its or any of its Subsidiaries' current or former directors, officers, agents or employees have received any subpoena, discovery or other requests which arguably calls for the production or disclosure of such privileged information, such party shall promptly notify the other party or parties of the existence of the request and shall provide the other party or parties a reasonable opportunity to review the 32 29 information and to assert any rights it or they may have under this Section 4.5 or otherwise to prevent the production or disclosure of such privileged information. (h) The transfer of all Records and other information pursuant to this Agreement is made in reliance on the agreement of the Corporation and New D&B, as set forth in Sections 4.4 and 4.5, to maintain the confidentiality of privileged information and to assert and maintain all applicable privileges. The access to information being granted pursuant to Sections 4.1 and 4.2 hereof, the agreement to provide witnesses and individuals pursuant to Sections 2.9 and 3.3 hereof, the furnishing of notices and documents and other cooperative efforts contemplated by Section 3.3 hereof, and the transfer of privileged information between and among the parties and their respective Subsidiaries pursuant to this Agreement shall not be deemed a waiver of any privilege that has been or may be asserted under this Agreement or otherwise. SECTION 4.6. Ownership of Information. Any information owned by one party or any of its Subsidiaries that is provided to a requesting party pursuant to Article III or this Article IV shall be deemed to remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such information. SECTION 4.7. Limitation of Liability. (a) No party shall have any liability to any other party in the event that any information exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate. (b) No party or any Subsidiary thereof shall have any liability or claim against any other party or any Subsidiary of any other party based upon, arising out of or resulting from any agreement, arrangement, course of dealing or understanding existing on or prior to the Distribution Date (other than this Agreement or any Ancillary Agreement or any agreement entered into in connection herewith or in order to consummate the transactions contemplated hereby or thereby), unless such agreement, arrangement, course of dealing or understanding is listed on Schedule 4.7(b) hereto, and any such liability or claim, whether or not in writing, which is not reflected on such Schedule, is hereby irrevocably cancelled, released and waived. SECTION 4.8. Other Agreements Providing for Exchange of Information. The rights and obligations granted under this Article IV are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of information set forth in any Ancillary Agreement. ARTICLE V. ADMINISTRATIVE SERVICES SECTION 5.1. Performance of Services. Beginning on the Distribution Date, each party will provide, or cause one or more of its Subsidiaries to provide, to the other party and its Subsidiaries such services on such terms as may be set forth in the Transition Services Agreement. Except as otherwise set forth in the Transition Services Agreement or any Schedule thereto, the party that is to provide the services (the "Provider") will use (and will cause its 33 30 Subsidiaries to use) commercially reasonable efforts to provide such services to the other party (the "Recipient") and its Subsidiaries in a satisfactory and timely manner and as further specified in such Transition Services Agreement. SECTION 5.2. Independence. Unless otherwise agreed in writing, all employees and representatives of the Provider providing the scheduled services to the Recipient will be deemed for purposes of all compensation and employee benefits matters to be employees or representatives of the Provider and not employees or representatives of the Recipient. In performing such services, such employees and representatives will be under the direction, control and supervision of the Provider (and not the Recipient) and the Provider will have the sole right to exercise all authority with respect to the employment (including, without limitation, termination of employment), assignment and compensation of such employees and representatives. SECTION 5.3. Non-exclusivity. Nothing in this Agreement precludes any party from obtaining, in whole or in part, services of any nature that may be obtainable from the other party from its own employees or from providers other than the other party. ARTICLE VI. DISPUTE RESOLUTION SECTION 6.1. Negotiation. In the event of a controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement or the transactions contemplated hereby, including, without limitation, any claim based on contract, tort, statute or constitution (but excluding any controversy, dispute or claim arising out of any agreement relating to the use or lease of real property if any third party is a party to such controversy, dispute or claim) (collectively, "Agreement Disputes"), the general counsels of the parties shall negotiate in good faith for a reasonable period of time to settle such Agreement Dispute, provided such reasonable period shall not, unless otherwise agreed by the parties in writing, exceed 30 days from the time the parties began such negotiations; provided further that in the event of any arbitration in accordance with Section 6.2 hereof, the parties shall not assert the defenses of statute of limitations and laches arising for the period beginning after the date the parties began negotiations hereunder, and any contractual time period or deadline under this Agreement or any Ancillary Agreement to which such Agreement Dispute relates shall not be deemed to have passed until such Agreement Dispute has been resolved. SECTION 6.2. Arbitration. If after such reasonable period such general counsels are unable to settle such Agreement Dispute (and in any event, unless otherwise agreed in writing by the parties, after 60 days have elapsed from the time the parties began such negotiations), such Agreement Dispute shall be determined, at the request of any party, by arbitration conducted in New York City, before and in accordance with the then-existing International Arbitration Rules of the American Arbitration Association (the "Rules"). In any dispute between the parties hereto, the number of arbitrators shall be three. Any judgment or award rendered by the arbitrators shall be final, binding and nonappealable (except upon grounds specified in 9 U.S.C. ss.10(a) as in 34 31 effect on the date hereof). If the parties are unable to agree on the arbitrators, the arbitrators shall be selected in accordance with the Rules; provided that each arbitrator shall be a U.S. national. Any controversy concerning whether an Agreement Dispute is an arbitrable Agreement Dispute, whether arbitration has been waived, whether an assignee of this Agreement is bound to arbitrate, or as to the interpretation of enforceability of this Article VI shall be determined by the arbitrators. In resolving any dispute, the parties intend that the arbitrators apply the substantive laws of the State of New York, without regard to the choice of law principles thereof. The parties intend that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable. The parties agree to comply with any award made in any such arbitration proceeding that has become final in accordance with the Rules and agree to enforcement of or entry of judgment upon such award, by any court of competent jurisdiction, including (a) the Supreme Court of the State of New York, New York County, or (b) the United States District Court for the Southern District of New York, in accordance with Section 8.17 hereof. The arbitrators shall be entitled, if appropriate, to award any remedy in such proceedings, including, without limitation, monetary damages, specific performance and all other forms of legal and equitable relief; provided, however, the arbitrators shall not be entitled to award punitive damages. Without limiting the provisions of the Rules, unless otherwise agreed in writing by or among the parties or permitted by this Agreement, the parties shall keep confidential all matters relating to the arbitration or the award, provided such matters may be disclosed (i) to the extent reasonably necessary in any proceeding brought to enforce the award or for entry of a judgment upon the award and (ii) to the extent otherwise required by law. Notwithstanding Article 32 of the Rules, the party other than the prevailing party in the arbitration shall be responsible for all of the costs of the arbitration, including legal fees and other costs specified by such Article 32. Nothing contained herein is intended to or shall be construed to prevent any party, in accordance with Article 22(3) of the Rules or otherwise, from applying to any court of competent jurisdiction for interim measures or other provisional relief in connection with the subject matter of any Agreement Disputes. SECTION 6.3. Continuity of Service and Performance. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article VI with respect to all matters not subject to such dispute, controversy or claim. ARTICLE VII. INSURANCE SECTION 7.1. Policies and Rights Included Within Assets; Assignment of Policies. (a) Policy Rights. The New D&B Assets shall include (i) any and all rights of an insured party under each of the Shared Policies, subject to the terms of such Shared Policies and any limitations or obligations of New D&B contemplated by this Article VII, specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred prior to the Distribution Date by any party in or in connection with the conduct of the New D&B Business or, to the extent any claim is made against New D&B or any of its Subsidiaries, the conduct of the RHD Business, and which 35 32 claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses may arise out of an insured or insurable occurrence under one or more of such Shared Policies. (b) Assignment of Shared Policies. Subject to the terms and conditions hereof, the Corporation hereby assigns, transfers and conveys to New D&B all of the Corporation's right, title and interest in and to any and all of the Shared Policies, including, without limitation, the right of indemnity, the right to be defended by or at the expense of the insurer and the right to any applicable Insurance Proceeds thereunder; and the Corporation and New D&B shall use their commercially reasonable efforts to obtain any required consents of insurers to the assignment contemplated by this paragraph. SECTION 7.2. Post-Distribution Date Claims. If, subsequent to the Distribution Date, any person shall assert a claim against New D&B or any of its Subsidiaries (including, without limitation, where New D&B or its Subsidiaries are joint defendants with other persons) with respect to any claim, suit, action, proceeding, injury, loss, liability, damage or expense incurred or claimed to have been incurred prior to the Distribution Date in or in connection with the conduct of the New D&B Business or, to the extent any claim is made against New D&B or any of its Subsidiaries (including, without limitation, where New D&B or its Subsidiaries are joint defendants with other persons), in connection with the conduct of the RHD Business, and which claim, suit, action, proceeding, injury, loss, liability, damage or expense may arise out of an insured or insurable occurrence under one or more of the Shared Policies, the Corporation shall, at the time such claim is asserted, to the extent any such Policy may require that Insurance Proceeds thereunder be collected directly by the named insured or anyone other than the party against whom the Insured Claim is asserted, be deemed to designate, without need of further documentation, New D&B as the agent and attorney-in-fact to assert and to collect any related Insurance Proceeds under such Shared Policy. SECTION 7.3. Administration; Other Matters. (a) Administration. From and after the Distribution Date, New D&B shall be responsible for (i) Insurance Administration of the Shared Policies and (ii) Claims Administration under such Shared Policies with respect to RHD Liabilities and New D&B Liabilities; provided that the assumption of such responsibilities by New D&B is in no way intended to limit, inhibit or preclude any right to insurance coverage for any Insured Claim of a named insured under such Policies as contemplated by the terms of this Agreement; provided further that New D&B's assumption of the administrative responsibilities for the Shared Policies shall not relieve the party submitting any Insured Claim of the primary responsibility for reporting such Insured Claim accurately, completely and in a timely manner or of such party's authority to settle any such Insured Claim within any period permitted or required by the relevant Policy; and provided further that all direct or indirect communications with insurers relating to the Shared Policies shall be conducted by New D&B. New D&B may discharge its administrative responsibilities under this Section 7.3 by contracting for the provision of services by independent parties. Each of the parties hereto shall administer and pay any costs relating to defending its respective Insured Claims under Shared Policies to the extent such defense costs are not covered under such Policies and shall be responsible for obtaining or reviewing the appropriateness of releases upon settlement of its respective Insured Claims under Shared Policies. The disbursements, out-of-pocket expenses and direct and indirect costs of employees or agents of New D&B relating to Claims Administration and Insurance 36 33 Administration contemplated by this Section 7.3(a) shall be treated in accordance with the terms of the Transition Services Agreement, if still in effect with respect to insurance and risk management, or, if the Transition Services Agreement shall no longer be in effect with respect to insurance and risk management, then each of the Corporation and New D&B shall be responsible for its own Claims Administration and Insurance Administration. (b) Exceeding Policy Limits. Except as set forth in this Section 7.3(b), the Corporation and New D&B shall not be liable to one another for claims not reimbursed by insurers for any reason not within the control of the Corporation or New D&B, as the case may be, including, without limitation, coinsurance provisions, deductibles, quota share deductibles, self-insured retentions, bankruptcy or insolvency of an insurance carrier, Shared Policy limitations or restrictions, any coverage disputes, any failure to timely claim by the Corporation or New D&B or any defect in such claim or its processing, provided that New D&B shall be responsible for the amount of the difference, if any, between the deductible set forth in any Shared Policy and the deductible allocable to the Corporation as set forth in Schedule 7.3(b) hereto. (c) Allocation of Insurance Proceeds. Insurance Proceeds received with respect to claims, costs and expenses under the Shared Policies shall be paid to New D&B, which shall thereafter administer the Shared Policies by paying the Insurance Proceeds, as appropriate, to the Corporation with respect to RHD Liabilities and to New D&B with respect to New D&B Liabilities. Payment of the allocable portions of indemnity costs of Insurance Proceeds resulting from such Policies will be made by New D&B to the appropriate party upon receipt from the insurance carrier. In the event that the aggregate limits on any Shared Policies are exceeded by the aggregate of outstanding Insured Claims by both of the parties hereto, the parties agree to allocate the Insurance Proceeds received thereunder based upon their respective percentage of the total of their bona fide claims which were covered under such Shared Policy (their "allocable portion of Insurance Proceeds"), and any party who has received Insurance Proceeds in excess of such party's allocable portion of Insurance Proceeds shall pay to the other party the appropriate amount so that each party will have received its allocable portion of Insurance Proceeds pursuant hereto. Each of the parties agrees to use commercially reasonable efforts to maximize available coverage under those Shared Policies applicable to it, and to take all commercially reasonable steps to recover from all other responsible parties in respect of an Insured Claim to the extent coverage limits under a Shared Policy have been exceeded or would be exceeded as a result of such Insured Claim. (d) Allocation of Deductibles. In the event that both parties have bona fide claims under any Shared Policy for which a deductible is payable, the parties agree that the aggregate amount of the deductible paid shall be borne by the parties in the same proportion which the Insurance Proceeds received by each such party bears to the total Insurance Proceeds received under the applicable Shared Policy (their "allocable share of the deductible"), and any party who has paid more than such share of the deductible shall be entitled to receive from the other party an appropriate amount so that each party has borne its allocable share of the deductible pursuant hereto. For purposes of this paragraph 7.3(d), the amount of the relevant deductible under any Shared Policy shall be that set forth in Schedule 7.3(b) hereto. 37 34 (e) Effective as of the Distribution Date, each of New D&B and the Corporation shall be responsible for its applicable deductible for workers' compensation, general liability and automobile liability claims as set forth in Schedule 7.3(e). SECTION 7.4. Agreement for Waiver of Conflict and Shared Defense. In the event that Insured Claims of both of the parties hereto exist relating to the same occurrence, the parties shall jointly defend and waive any conflict of interest necessary to the conduct of the joint defense. Nothing in this Article VII shall be construed to limit or otherwise alter in any way the obligations of the parties to this Agreement, including those created by this Agreement, by operation of law or otherwise. SECTION 7.5. Cooperation. The parties agree to use their commercially reasonable efforts to cooperate with respect to the various insurance matters contemplated by this Agreement. ARTICLE VIII. MISCELLANEOUS SECTION 8.1. Complete Agreement; Construction. This Agreement, including the Schedules and Exhibits, and the Ancillary Agreements shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. Other than Section 2.1(j), Section 2.7, Section 4.5 and Article VI, which shall prevail over any inconsistent or conflicting provisions in any Ancillary Agreement, notwithstanding any other provisions in this Agreement to the contrary, in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of any Ancillary Agreement, such Ancillary Agreement shall control. SECTION 8.2. Ancillary Agreements. Subject to the last sentence of Section 8.1, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements. SECTION 8.3. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties. SECTION 8.4. Survival of Agreements. Except as otherwise contemplated by this Agreement, all covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. SECTION 8.5. Expenses. Except as set forth on Schedule 8.5 or as otherwise set forth in this Agreement or any Ancillary Agreement, all costs and expenses incurred on or prior to the Distribution Date (whether or not paid on or prior to the Distribution Date) in connection with the preparation, execution, delivery and required implementation of this Agreement and any 38 35 Ancillary Agreement, the Information Statement (including any registration statement on Form 10 of which such Information Statement may be a part) and the Distribution and the consummation of the transactions contemplated thereby shall be charged to and paid by the Corporation. Except as set forth on Schedule 8.5 or as otherwise set forth in this Agreement or any Ancillary Agreement, all costs and expenses incurred after the Distribution Date in connection with the required implementation of this Agreement and any Ancillary Agreement, the Distribution or the consummation of the transactions contemplated by this Agreement or any Ancillary Agreement shall be borne by New D&B. Except as otherwise set forth in this Agreement or any Ancillary Agreement, each party shall bear its own costs and expenses incurred after the Distribution Date. Any amount or expense to be paid or reimbursed by any party hereto to any other party hereto shall be so paid or reimbursed promptly after the existence and amount of such obligation is determined and demand therefor is made. SECTION 8.6. Notices. All notices and other communications hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice) and will be deemed given on the date on which such notice is received: To the Corporation: The Reuben H. Donnelley Corporation One Manhattanville Road Purchase, NY 10577 Telecopy: (914) 933-6899 Attn: General Counsel To New D&B: The Dun & Bradstreet Corporation One Diamond Hill Road Murray Hill, NJ 07974 Telecopy: (908) 665-5803 Attn: General Counsel SECTION 8.7. Waivers. The failure of any party to require strict performance by any other party of any provision in this Agreement will not waive or diminish that party's right to demand strict performance thereafter of that or any other provision hereof. SECTION 8.8. Amendments. Subject to the terms of Section 8.11 hereof, this Agreement may not be modified or amended except by an agreement in writing signed by each of the parties hereto. 39 36 SECTION 8.9. Assignment. (a) This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the other parties hereto, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. (b) The Corporation will not distribute to its stockholders any interest in any RHD Business Entity, by way of a spin-off distribution, split-off or other exchange of interests in a RHD Business Entity for any interest in the Corporation held by RHD stockholders, or any similar transaction or transactions, unless the distributed RHD Business Entity undertakes to New D&B to be jointly and severally liable for all RHD Liabilities hereunder. (c) New D&B will not distribute to its stockholders any interest in any New D&B Business Entity, by way of a spin-off distribution, split-off or other exchange of interests in a New D&B Business Entity for any interest in New D&B held by New D&B stockholders, or any similar transaction or transactions, unless the distributed New D&B Business Entity undertakes to the Corporation to be jointly and severally liable for all New D&B Liabilities hereunder. SECTION 8.10. Successors and Assigns. The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. SECTION 8.11. Termination. This Agreement (including, without limitation, Article III hereof) may be terminated and the Distribution may be amended, modified or abandoned at any time prior to the Distribution by and in the sole discretion of the Corporation without the approval of New D&B or the shareholders of the Corporation. In the event of such termination, no party shall have any liability of any kind to any other party or any other person. After the Distribution, this Agreement may not be terminated except by an agreement in writing signed by the parties; provided, however, that Article III shall not be terminated or amended after the Distribution in respect of the third party beneficiaries thereto without the consent of such persons. SECTION 8.12. Subsidiaries. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party or by any entity that is contemplated to be a Subsidiary of such party on and after the Distribution Date. SECTION 8.13. Third Party Beneficiaries. Except as provided in Article III relating to Indemnitees, this Agreement is solely for the benefit of the parties hereto and their respective Subsidiaries and Affiliates and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. SECTION 8.14. Title and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 40 37 SECTION 8.15. Schedules and Exhibits. The Schedules and Exhibits shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION 8.16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK. SECTION 8.17. Consent to Jurisdiction. Without limiting the provisions of Article VI hereof, each of the parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Subject to Article VI hereof, each of the parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the Southern District of New York or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County. Each of the parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction in this Section 8.17. Each of the parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Supreme Court of the State of New York, New York County, or (ii) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 8.18. Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 41 38 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. THE DUN & BRADSTREET CORPORATION By: ----------------------------- Name: Title: THE NEW DUN & BRADSTREET CORPORATION By: ----------------------------- Name: Title: EX-10.2 5 FORM OF TAX ALLOCATION AGREEMENT 1 Exhibit 10.2 TAX ALLOCATION AGREEMENT This TAX ALLOCATION AGREEMENT is dated as of June [ ], 1998, between THE DUN & BRADSTREET CORPORATION, a Delaware corporation (the "Corporation") and THE NEW DUN & BRADSTREET CORPORATION, a Delaware corporation ("New D&B") (collectively, the "Parties"). WHEREAS, as of the date hereof, the Corporation is the common parent of an affiliated group of domestic corporations within the meaning of Section 1504(a) of the Code, including Dun & Bradstreet, Inc. ("D&B Opco Inc."), Dun & Bradstreet International, Ltd. ("D&B International"), Moody's Investors Service, Inc. ("Moody's"), The Reuben H. Donnelley Corporation ("RHD"), and others, and the members of the affiliated group have heretofore joined in filing consolidated federal income tax returns; WHEREAS, the Board of Directors of the Corporation has determined that it is appropriate, desirable and in the best interests of the holders of shares of common stock, par value $1.00 per share, of the Corporation (the "D&B Common Stock") to take certain steps to reorganize the Corporation's Subsidiaries (as defined herein) and businesses and to distribute to the holders of D&B Common Stock all the outstanding shares of common stock of New D&B (the "New D&B Common Shares"), together with associated Rights; WHEREAS, as a result of the Reorganization (as defined herein) and Distribution (as defined herein), New D&B, D&B Opco Inc., D&B International, Moody's, and others, will not be included in the consolidated federal income tax return of the Corporation for the portion of the year following the Distribution or in future years; WHEREAS, the Parties desire to allocate the tax burdens and benefits of transactions which occurred on or prior to the Distribution Date and to provide for certain other tax matters, including the assignment of responsibility for the preparation and filing of tax returns, the payment of taxes, and the prosecution and defense of any tax controversies; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties hereby agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1. General. Capitalized terms used in this Agreement and not defined herein shall have the meanings that such terms have in the Distribution Agreement. As used in this Agreement, the following terms shall have the following meanings: 2 2 (a) "Agreement" shall mean this Tax Allocation Agreement. (b) "Ancillary Agreements" shall mean all of the written agreements, instruments, assignments or other arrangements (other than this Agreement) entered into in connection with the transactions contemplated hereby, including, without limitation, the Distribution Agreement, the Conveyancing and Assumption Instruments, the Employee Benefits Agreement, the Shared Transaction Services Agreement, the Transition Services Agreement, the Data Services Agreement and the Intellectual Property Agreement. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder, including any successor legislation. (d) "Consolidated Return" shall mean the consolidated federal income tax return of the Corporation for the period commencing on January 1, 1998, and including the members of the New D&B Group through the Distribution Date. (e) "Controlled Entity" shall mean any corporation, partnership or other entity of which another entity (i) owns, directly or indirectly, ownership interests sufficient to elect a majority of the Board of Directors (or persons performing similar functions) (irrespective of whether at the time any other class or classes of ownership interests of such corporation, partnership or other entity shall or might have such voting power upon the occurrence of any contingency) or (ii) is a general partner or an entity performing similar functions (e.g., a trustee). (f) "Deferred Compensation Deduction" shall mean a deduction with respect to deferred compensation payments and/or the exercise of stock options in the Corporation by any former employee of the Pre-Distribution D&B Group if such deduction is disallowed for a member of the New D&B Group and may be claimed by any member of the RHD Group. (g) "Distribution" shall mean the distribution on the Distribution Date to holders of record of shares of D&B Common Stock as of the Distribution Record Date of the New D&B Common Shares owned by the Corporation on the basis of one New D&B Common Share for each outstanding share of D&B Common Stock. (h) "Distribution Agreement" shall mean the agreement between the Corporation and New D&B, dated as of June [ ], 1998, to, among other things, allocate certain assets and allocate and assign responsibility for certain liabilities of the Corporation and its current and former Subsidiaries. (i) "Distribution Date" shall mean July 1, 1998. 3 3 (j) "Distribution Record Date" shall mean such date as may be determined by the Corporation's Board of Directors as the record date for the Distribution. (k) "Final Determination" shall mean the final resolution of liability for any Tax for any taxable period, including any related interest or penalties, by or as a result of: (i) a final and unappealable decision, judgment, decree or other order by any court of competent jurisdiction; (ii) a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreement under the laws of other jurisdictions which resolves the entire Tax liability for any taxable period; (iii) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered by the jurisdiction imposing the Tax; or (iv) any other final disposition, including by reason of the expiration of the applicable statute of limitations. (l) "Governmental Authority" shall mean any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. (m) "Income Tax Return" shall mean any Tax Return relating to Income Taxes. (n) "Income Taxes" shall mean any federal, state or local Taxes determined by reference to income, net worth, gross receipts or capital or any federal, state or local Taxes imposed in lieu of income Taxes. (o) "Indemnifying Party" shall have the meaning as defined in Section 3.4. (p) "Indemnitee" shall have the meaning as defined in Section 3.4. (q) "IRS" shall mean the Internal Revenue Service. (r) "New D&B Group" shall mean New D&B, New D&B Opco Inc., D&B International, Moody's and each corporation, partnership, limited liability company, or other entity (other than any member of the RHD Group) that is a Subsidiary of the Corporation immediately prior to the Distribution. (s) "New D&B Opco Inc." shall mean a newly formed Delaware corporation and wholly owned subsidiary of New D&B created to hold the assets and liabilities related to, and to operate, the business of supplying business, commercial-credit and business-marketing information services and receivables management services. 4 4 (t) "Nonperforming Party" shall have the meaning as defined in Section 5.2. (u) "Other Taxes" shall mean any federal, state or local Taxes other than Income Taxes. (v) "Person" shall mean any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. (w) "Pre-Distribution D&B Group" shall mean the Corporation and all of its Subsidiaries (direct and indirect, domestic and foreign) at any time prior to the Distribution. (x) "Reorganization" shall mean the series of contributions and distributions of Controlled Entities and assets, transfers and assumptions of liabilities, and other transactions whereby the New D&B Group and the RHD Group are formed and all Controlled Entities of the Corporation prior to the Distribution (other than New D&B and the other members of the RHD Group) are placed under the control of New D&B in preparation for the Distribution. (y) "Reorganization Tax Payment" shall mean the payment of any Tax for which New D&B is liable pursuant to Section 3.3 of this Agreement and the imposition and/or payment of which will permit the other Party or any of its Subsidiaries to increase deductions, losses or Tax credits or decrease income, gains or recapture of Tax credits for any taxable period or periods beginning after or including but not ending on the Distribution Date. (z) "RHD Group" shall mean the Corporation, RHD and each corporation, partnership, limited liability company or other entity contemplated to remain or become a Subsidiary of the Corporation after the Distribution. (aa) "Separate Company State or Local Income Tax Return" shall mean any state or local Income Tax Return initially filed on a separate basis (whether or not it is subsequently determined that such Income Tax Return should have been filed on a combined basis). (ab) "Subsidiary" shall mean any entity of which another entity's ownership satisfies the 80-percent voting and value test defined in Section 1504(a)(2) of the Code, whether directly or indirectly. (ac) "Tax" or "Taxes" whether used in the form of a noun or adjective, shall mean taxes on or measured by income, capital, net worth, franchise, gross receipts, sales, use, excise, payroll, personal property, real property, ad-valorem, value-added, leasing, leasing use or other taxes, levies, 5 5 imposts, duties, charges or withholdings of any nature. Whenever the term "Tax" or "Taxes" is used (including, without limitation, regarding any duty to reimburse another Party for indemnified taxes or refunds or credits of taxes) it shall include penalties, fines, additions to tax and interest thereon. (ad) "Tax Benefit" shall mean the sum of the amount by which the Tax liability (after giving effect to any alternative minimum or similar Tax) of a corporation or group of affiliated corporations to an applicable taxing authority is reduced (including, without limitation, by deduction, entitlement to refund, credit or otherwise, whether available in the current taxable year, as an adjustment to taxable income in any other taxable year or as a carryforward or carryback, as applicable) plus any interest from such government or jurisdiction relating to such Tax liability. (ae) "Tax Item" shall mean any item of income, capital gain, net operating loss, capital loss, deduction, credit or other Tax attribute relevant to the calculation of a Tax liability. (af) "Tax Returns" shall mean all reports or returns (including information returns) required to be filed or that may be filed for any period with any taxing authority (whether domestic or foreign) in connection with any Tax or Taxes (whether domestic or foreign). (ag) "Timing Adjustment" shall mean any adjustment which (x) decreases deductions, losses or credits or increases income (including any increases in income where no income was previously reported), gains or recapture of Tax credits for the period in question, and for which New D&B is liable pursuant to this Agreement, and (y) will permit any member of the RHD Group to increase deductions, losses or Tax credits or decrease income, gains or recapture of Tax credits for any taxable period or periods beginning after or including but not ending on the Distribution Date. SECTION 1.2. References; Interpretation. References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. The words "include", "includes" and "including" when used in this Agreement shall be deemed to be followed by the phrase "without limitation". Unless the context otherwise requires, references in this Agreement to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, such Agreement. Unless the context otherwise requires, the words "hereof", "hereby" and "herein" and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. 6 6 ARTICLE II. PREPARATION AND FILING OF TAX RETURNS SECTION 2.1. Predistribution Tax Returns. (a) All federal Income Tax Returns of the Pre-Distribution D&B Group that are required to be filed for periods beginning before the Distribution Date shall be prepared and filed by the Corporation. (b) All combined state and local Income Tax Returns of the Pre-Distribution D&B Group that may be or are required to be filed for periods beginning before the Distribution Date shall be prepared and filed by the Corporation. (c) In the case of Tax Returns for foreign, non-combined state and local Income Taxes and Other Taxes of any member of the Pre-Distribution D&B Group that may be or are required to be filed for any period beginning before the Distribution Date, New D&B shall prepare and file such Tax Returns (or shall cause such Tax Returns to be prepared and filed) if they relate to a member of the New D&B Group and the Corporation shall prepare and file such Tax Returns (or shall cause such Tax Returns to be prepared and filed) if they relate to a member of the RHD Group. (d) In the case of any partnership in which a member of the Pre-Distribution D&B Group is the designated tax matters partner, the Corporation or New D&B, as the case may be, shall cause such entity to prepare and file such partnership's Tax Returns for all periods beginning prior to the Distribution Date. SECTION 2.2. Post-Distribution Tax Returns. (a) The filing of all Tax Returns for periods beginning on or after the Distribution Date shall be the responsibility of the Corporation if they relate to any member of the RHD Group and shall be the responsibility of New D&B if they relate to any member of the New D&B Group. (b) In the case of any partnership in which a member of the Pre-Distribution D&B Group is the designated tax matters partner, the Corporation or New D&B, as the case may be, shall cause such entity to continue to prepare and file such partnership's Tax Returns. SECTION 2.3. Manner of Preparation. (a) Unless otherwise required by the IRS, any Governmental Authority or a court, the Parties hereby agree to file all Tax Returns, and to take all other actions, in a manner consistent with the position that the last day on which any member of the New D&B Group was included in the Pre-Distribution D&B Group is the Distribution Date. For any period that includes but does not end on the Distribution Date, to the extent 7 7 permitted by law or administrative practice, the taxable year of each member of the Pre-Distribution D&B Group and any group of such members shall be treated as ending on the Distribution Date. (b) In the case of the Consolidated Return or any 1998 combined state or local Income Tax Return, New D&B shall prepare and provide to the Corporation, at least 90 days prior to the due date (including extensions) of the relevant Tax Return, a separate return for the short taxable year ending on the Distribution Date for any member of the New D&B Group included in the Tax Return. (c) With regard to Tax Returns to be filed by the Corporation or any other member of the RHD Group with respect to which New D&B has liability under section 3.1 hereof, the Corporation shall submit any part of such Tax Return that relates to a member of the RHD Group to New D&B at least 30 days prior to the date on which such Tax Return is due (including extensions). New D&B shall submit its comments to the Corporation within 10 days of receipt of the relevant portions of such Tax Return. The Corporation shall alter such Tax Return to reflect the comments of New D&B unless the Corporation receives an opinion of tax counsel, which counsel shall be reasonably acceptable to New D&B, to the effect that such alteration would create a significant risk of the imposition of a penalty on the Corporation or any other member of the RHD Group. (d) All Tax Returns filed on or after the Distribution Date shall be prepared on a basis that is consistent with the rulings obtained from the IRS or any other Governmental Authority in connection with the Reorganizations or Distribution (in the absence of a controlling change in law or circumstances) and shall be filed on a timely basis (including pursuant to extensions) by the Party responsible for such filing under this Agreement. In the absence of a controlling change in law or circumstances and unless deviation from past practice would have no adverse effect on either Party, all Tax Returns filed after the date of this Agreement shall be prepared on a basis consistent with the elections, accounting methods, conventions, assumptions and principles of taxation used for the most recent taxable periods for which Tax Returns involving similar Tax Items have been filed; provided, however, that a Party filing any Tax Return that does not conform to such past practices shall not be liable for any additional Tax liability imposed, in whole or in part, as a result of such deviation from past practice if: (i) for Tax Returns filed within three years of the Distribution Date, 30 days prior to the filing of such Tax Return, the Party filing such Tax Return notifies the other Party; and (ii) the Party filing such Tax Return establishes that conformity with past practice involves a significant risk of the imposition of a penalty. 8 8 ARTICLE III. PAYMENT OF TAXES SECTION 3.1. Predistribution Taxes. (a) New D&B shall be liable for and shall pay all federal, state, local and foreign Income Taxes (or receive all refunds) for all members of the Pre-Distribution D&B Group for all periods ending on or prior to the Distribution Date, including Taxes arising as a result of an audit adjustment; provided, however, that in the case of any Separate Company State or Local Income Tax Return, the RHD Group and the New D&B Group shall be liable for and shall pay their own liabilities (or receive their own refunds) arising from any audit adjustment (including any state or local audit adjustment resulting from a federal audit adjustment). (b) The RHD Group and the New D&B Group shall be responsible for their own Other Taxes for all periods. (c) In the case of any tax period including but ending after the Distribution Date, New D&B shall be responsible for all Income Tax liabilities of all members of the Pre-Distribution D&B Group attributable to the period up to the Distribution Date. Such apportionment will be done on a closing of the books basis, except that Tax Items that are calculated on an annual basis shall be apportioned on a time basis. The RHD Group and the New D&B Group shall be responsible for their own Tax liabilities attributable to the portion of the tax period after the Distribution Date. SECTION 3.2. Post-Distribution Taxes. Unless otherwise provided in this Agreement: (a) New D&B shall pay all Taxes and shall be entitled to receive and retain all refunds of Taxes with respect to periods beginning on or after the Distribution Date that are attributable to the New D&B Group or any member thereof; and (b) The Corporation shall pay all Taxes and shall be entitled to receive and retain all refunds of Taxes with respect to periods beginning on or after the Distribution Date that are attributable to the RHD Group or any member thereof. SECTION 3.3. Restructuring Taxes. Notwithstanding any statement to the contrary in this Agreement and except as otherwise provided in the Distribution Agreement, to the extent that any Taxes are found to arise out of the Reorganizations, then any such Tax liability incurred by the Parties (or any of their Subsidiaries) shall be the responsibility of New D&B; provided, however, that to the extent specific cash allocations for such Taxes are made in connection with the Distribution, New D&B shall be relieved of its liability for such Taxes. SECTION 3.4. Indemnification. 9 9 (a) Indemnification by New D&B. New D&B shall indemnify, defend and hold harmless the Corporation and RHD (and their respective affiliates) from and against any and all Tax liabilities allocated to New D&B by this Agreement. (b) Indemnification by the Corporation. The Corporation shall indemnify, defend and hold harmless New D&B, New D&B, Inc. and Moody's (and their respective affiliates) from and against any and all Tax liabilities allocated to the Corporation by this Agreement. (c) Indemnity Payments. (i) To the extent that one Party (the "Indemnifying Party") owes money to another Party (the "Indemnitee") pursuant to this Section 3.4, the Indemnitee shall provide the Indemnifying Party with its calculations of the amount required to be paid pursuant to this Section 3.4, showing such calculations in sufficient detail so as to permit the Indemnifying Party to understand the calculations. The Indemnifying Party shall pay the Indemnitee, no later than the later of 30 business days prior to the due date (including extensions) of the relevant Tax Returns and 14 business days after the Indemnifying Party receives the Indemnitee's calculations, the amount that the Indemnifying Party is required to pay or indemnify the Indemnitee under this Section 3.4 unless the Indemnifying Party disagrees with the Indemnitee's calculations (in which case any dispute regarding such calculations shall be resolved in accordance with Section 5.4 of this Agreement). (ii) All indemnity payments shall be calculated on a pre-Tax basis and shall be treated as contributions to capital and/or dividends immediately prior to the Distribution. ARTICLE IV. TAX ATTRIBUTES, TIMING ADJUSTMENTS AND REORGANIZATION TAX PAYMENTS SECTION 4.1. Carrybacks. In the event any net operating loss, capital loss or credit of the Corporation for any taxable period ending on or after the Distribution Date is eligible to be carried back to a taxable period beginning prior to the Distribution Date (any such amount, an "Eligible Amount"), the Corporation will be required, to the extent permitted under applicable Tax law, to elect to carry back such Eligible Amount. To the extent any Eligible Amount is carried back and used by the Corporation for a taxable period beginning prior to the Distribution Date, the Corporation shall be obligated to pay any refund that it receives to New D&B; provided, that in the case of any taxable period including but ending after the Distribution Date, the Corporation shall not be obligated to pay any such refund to New D&B to the extent the refund is attributable to the portion of the taxable period after the Distribution Date (determined in accordance with the principles of Section 3.1(c)). 10 10 The Corporation shall, within 90 days of the close of each taxable period ending on or after the Distribution Date, deliver an officer's certificate to New D&B stating whether or not the Corporation has any Eligible Amount for such taxable period. SECTION 4.2. Deductions or Credits. Except as otherwise provided in Section 3.1(a), the Corporation shall be obligated to pay New D&B any refunds attributable to a net operating loss, capital loss, credit or similar Tax attribute arising in a period beginning prior to the Distribution Date. SECTION 4.3. Timing Adjustments, Reorganization Tax Payments, and Deferred Compensation Deductions. (a) If an audit or other examination of any federal, state or local Tax Return (x) for any period beginning prior to the Distribution Date shall result (by settlement or otherwise) in a Timing Adjustment in favor of the RHD Group or any member thereof, or (y) for any taxable period shall result (by settlement or otherwise) in a Deferred Compensation Deduction in favor of the RHD Group or any member thereof, or if any Reorganization Tax Payment in favor of the RHD Group or any member thereof is made by New D&B, then: (i) The Corporation, shall pay New D&B the amount of any Tax Benefit that results from such Timing Adjustment, Reorganization Tax Payment, or Deferred Compensation Deduction within 30 business days of the date such Tax Benefits are realized; and (ii) Notwithstanding the foregoing, the Corporation, shall only be required to take steps to obtain such Tax Benefit or to pay New D&B if, in the opinion of the Corporation's tax counsel, which counsel shall be reasonably acceptable to New D&B, the reporting of such Tax Benefit shall not expose the Corporation to the imposition of a penalty. (b) Realization of Tax Benefits. (i) For purposes of this Section 4.3, a Tax Benefit shall be deemed to have been realized at the time any refund of Taxes is received or applied against other Taxes due, or at the time of filing of a Tax Return (including any Tax Return relating to estimated Taxes) on which a loss, deduction or credit is applied in reduction of Taxes which would otherwise be payable. Where a Party has other losses, deductions, credits or similar items available to it, such deductions, credits or similar items of such Party may only be applied after the use of any Timing Adjustment, Reorganization Tax Payment, or Deferred Compensation Deduction. (ii) The Corporation may, at its election, pay the amount of any Tax Benefit to New D&B, rather than filing amended returns or otherwise reflecting adjustments or taking positions 11 11 on its Tax Returns. If such an election is made, the Corporation will be treated as having realized a Tax Benefit at the time it would have realized a Tax Benefit had it chosen to file amended returns or otherwise to reflect adjustments or to take positions on its Tax Returns. (c) Tax Benefits Subsequently Denied. If any Tax Benefit realized pursuant to Section 4.3(b)(i) is subsequently denied, then New D&B shall refund the amount of any payment for such Tax Benefit within 30 business days of its notification by the Corporation, as the case may be, that a Final Determination has been reached denying the claimed Tax Benefit. ARTICLE V. TAX AUDITS, TRANSACTIONS AND OTHER MATTERS SECTION 5.1. Tax Audits and Controversies. (a) In the case of any audit, examination or other proceeding ("Proceeding") brought against the Corporation (or a Subsidiary) with respect to Taxes for which New D&B is or may be liable pursuant to this Agreement, the Corporation shall promptly inform New D&B and shall execute or cause to be executed any powers of attorney or other documents necessary to enable New D&B to take all actions desired with respect to such Proceeding. Each Party shall have the right to control, at its own expense, the portion of any such Proceeding that relates to Taxes for which such Party is or may be liable pursuant to this Agreement; provided, however, that New D&B shall have the right to control, at its own expense, all Proceedings in respect of the Consolidated Return and 1998 combined state and local Income Tax Returns. (b) The Party in control of a Proceeding or any part thereof pursuant to Section 5.1(a) above shall consult with the other Party with respect to any issue that may affect such other Party (or Subsidiary). The Party in control of such Proceeding or any part thereof shall not enter into any final settlement or closing agreement that may adversely affect the other Party (or Subsidiary) without the consent of such other Party, which consent may not unreasonably be withheld. Where consent to any final settlement or closing agreement is withheld, the Party withholding consent shall continue or initiate further proceedings, at its own expense, and the liability of the Party in control of such Proceeding shall not exceed the liability that would have resulted from the proposed closing agreement or final settlement (including interest, additions to Tax and penalties which have accrued at that time). SECTION 5.2. Cooperation. The Corporation and New D&B shall cooperate with each other in the filing of any Tax Returns and the conduct of any audit or other proceeding and each shall execute and deliver such powers of attorney and other documents and make available such information and documents as are necessary to carry out the intent of this Agreement. To the 12 12 extent such cooperation involves the services of officers, directors, employees, or agents of either Party, such services shall be made available in accordance with Section 2.9 of the Distribution Agreement. Each Party agrees to notify the other Party of any audit adjustment that does not result in Tax liability but can reasonably be expected to affect Tax Returns of the other Party or any of its Subsidiaries. Notwithstanding any other provision of this Agreement, if a Party (the "Nonperforming Party") fails to give its full cooperation and use its best efforts in the conduct of an audit or other proceeding as provided by this Section 5.2, and such failure results in the imposition of additional Taxes for the period or periods involved in the audit or other proceeding, the Nonperforming Party shall be liable in full for such additional Taxes. SECTION 5.3. Retention of Records; Access. (a) The Corporation and New D&B shall, and shall cause each of their Controlled Entities to, retain adequate records, documents, accounting data and other information (including computer data) necessary for the preparation and filing of all Tax Returns required to be filed by any member of the Pre-Distribution D&B Group or any combination of such members and for any audits and litigation relating to such Tax Returns or to any Taxes payable by any member of the Pre-Distribution D&B Group or any combination of such members. (b) The Corporation and New D&B shall, and shall cause each of their Controlled Entities to, give to the other Party reasonable access to (i) all records, documents, accounting data and other information (including computer data) necessary for the preparation and filing of all Tax Returns required to be filed by any member of the Pre-Distribution D&B Group or any combination of such members and for any audits and litigation relating to such Tax Returns or to any Taxes payable by any member of the Pre-Distribution D&B Group or any combination of such members and (ii) its personnel and premises, for the purpose of the review or audit of such reports or returns to the extent relevant to an obligation or liability of a Party under this Agreement and in accordance with the procedures provided in Article IV of the Distribution Agreement. (c) The obligations set forth above in Sections 5.3(a) and 5.3(b) shall continue until the final conclusion of any litigation to which the records and information relate or until expiration of all applicable statutes of limitations, whichever is longer. For purposes of the preceding sentence, each Party shall assume that no applicable statute of limitations has expired unless such Party has received notification or otherwise has knowledge that such statute of limitations has expired. (d) Notwithstanding any other provision of this Agreement, if a Party fails to comply with any of its obligations set forth in this Section 5.3 and such failure results in the 13 13 imposition of additional Taxes, such nonperforming Party shall be liable in full for such additional Taxes. SECTION 5.4. Dispute Resolution. Any dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement, shall be resolved in the manner set forth in Article VI of the Distribution Agreement. SECTION 5.5. Confidentiality; Ownership of Information; Privileged Information. The provisions of Article IV of the Distribution Agreement relating to confidentiality of information, ownership of information, privileged information and related matters shall apply with equal force to any records and information prepared and/or shared by and among the Parties in carrying out the intent of this Agreement. ARTICLE VI. MISCELLANEOUS SECTION 6.1. Complete Agreement; Construction. This Agreement, including the Exhibits and Schedules, and the Ancillary Agreements shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. SECTION 6.2. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by both Parties. SECTION 6.3. Survival of Agreements. Except as otherwise contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Distribution Date. SECTION 6.4. Expenses. Except as otherwise set forth in this Agreement, all costs and expenses incurred on or prior to the Distribution Date (whether or not paid on or prior to the Distribution Date) in connection with the preparation, execution, delivery and implementation of this Agreement shall be charged to and paid by New D&B. Except as otherwise set forth in this Agreement, each Party shall bear its own costs and expenses incurred after the Distribution Date. SECTION 6.5. Notices. All notices and other communications hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to 14 14 the Parties at the following addresses (or at such other addresses for a Party as shall be specified by like notice) and will be deemed given on the date on which such notice is received: To the Corporation: The Reuben H. Donnelley Corporation One Manhattanville Road Purchase, N.Y. 10577 Attn: General Counsel To New D&B: The Dun & Bradstreet Corporation One Diamond Hill Road Murray Hill, NJ 07974 Attn: General Counsel SECTION 6.6. Waivers. The failure of any Party to require strict performance by the other Party of any provision in this Agreement will not waive or diminish that Party's right to demand strict performance thereafter of that or any other provision hereof. SECTION 6.7. Amendments. This Agreement may not be modified or amended except by an agreement in writing signed by the Parties hereto. SECTION 6.8. Assignment. This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party hereto without the prior written consent of the other Party hereto, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. SECTION 6.9. Successors and Assigns. The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns. SECTION 6.10. Termination. This Agreement may be terminated, amended, modified or abandoned at any time prior to the Distribution by and in the sole discretion of the Corporation without the approval of New D&B or the stockholders of the Corporation. In the event of such termination, no Party shall have any liability of any kind to any other Party or any other person. After the Distribution, this Agreement may not be terminated except by an agreement in writing signed by the Parties. SECTION 6.11. Controlled Entities. Each of the Parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set 15 15 forth herein to be performed by any Controlled Entity of such Party or by any entity that is contemplated to be a Controlled Entity of such Party on and after the Distribution Date. SECTION 6.12. Third Party Beneficiaries. This Agreement is solely for the benefit of the Parties hereto and their respective Subsidiaries and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. SECTION 6.13. Title and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION 6.14. Exhibits and Schedules. The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION 6.15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK. SECTION 6.16. Consent to Jurisdiction. Without limiting the provisions of Section 5.4 hereof, each of the Parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the Southern District of New York or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County. Each of the Parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such Party's respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction in this Section 6.16. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Supreme Court of the State of New York, New York County, or (ii) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 16 16 SECTION 6.17. Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written. THE DUN & BRADSTREET CORPORATION By: ----------------------- Name: Title: THE NEW DUN & BRADSTREET CORPORATION By: ----------------------- Name: Title: EX-10.3 6 FORM OF EMPLOYEE BENEFITS AGREEMENT 1 Exhibit 10.3 EMPLOYEE BENEFITS AGREEMENT This EMPLOYEE BENEFITS AGREEMENT is dated as of June __, 1998 (the "Agreement"), between THE DUN & BRADSTREET CORPORATION, a Delaware corporation (the "Corporation") and THE NEW DUN & BRADSTREET CORPORATION, a Delaware corporation ("New D&B"). WHEREAS, the Board of Directors of Corporation has determined that it is appropriate, desirable and in the best interests of the holders of shares of common stock, par value $1.00 per share, of Corporation (the "Corporation Common Stock") to take certain steps to reorganize Corporation's Subsidiaries (as defined herein) and businesses and then to distribute to the holders of the Corporation Common Stock all the outstanding shares of common stock of New D&B (the "New D&B Common Shares"); and WHEREAS, Corporation and New D&B have determined that it is necessary and desirable to allocate and assign responsibility for certain employee benefit matters in respect of such entities on and after the Effective Time (as defined herein). NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, Corporation and New D&B agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Capitalized terms used in this Agreement shall have the following meanings: "ACNielsen" shall mean the ACNielsen Corporation, a Delaware corporation. "Action" shall mean any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency, body or commission or any arbitration tribunal. "Adjusted Corporation Founders' Awards" shall have the meaning set forth in Section 6.3 of this Agreement. "Affiliate" shall mean, when used with respect to a specified person, another person that controls, is controlled by, or is under common control with the person specified. As used herein, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or other interests, by contract or otherwise. 2 2 "Ancillary Agreements" shall mean all of the written agreements, instruments, assignments or other written arrangements (other than this Agreement and the Distribution Agreement) entered into in connection with the transactions contemplated by this Agreement and the Distribution Agreement, including, without limitation, the Conveyancing and Assumption Instruments, the Data Services Agreements, the Intellectual Property Agreement, the Shared Transaction Services Agreements, the Tax Allocation Agreement and the Transition Services Agreement. "Assets" shall have the meaning set forth in Section 1.1(f) of the Distribution Agreement. "Board of Directors" shall mean, when used with respect to a specified corporation, the board of directors of the corporation so specified. "Business Entity" shall mean any corporation, partnership, limited liability company or other entity which may legally hold title to Assets. "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the regulations promulgated thereunder, including any successor legislation. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, including any successor legislation. "Cognizant" shall mean Cognizant Corporation, a Delaware corporation. "Conveyancing and Assumption Instruments" shall mean, collectively, the various agreements, instruments and other documents heretofore entered into and to be entered into to effect the transfer of Assets and the assumption of Liabilities in the manner contemplated by the Distribution Agreement, or otherwise arising out of or relating to the transactions contemplated in the Distribution Agreement. "Corporation" shall mean The Dun & Bradstreet Corporation, a Delaware corporation. "Corporation Committee" shall mean the Executive Compensation and Stock Option Committee of the Board of Directors of Corporation. "Corporation Common Stock" shall have the meaning set forth in the recitals hereto. "Corporation Employees" shall mean persons who, at any time prior to the Effective Time, were employed by Corporation or its Subsidiaries. 3 3 "Corporation Founders' Award" shall have the meaning set forth in Section 6.3 of this Agreement. "Corporation Group" shall mean The Dun & Bradstreet Corporation and each Business Entity that is a Subsidiary of Corporation. "Corporation Long-Term Disability Plan" shall mean The Dun & Bradstreet Long Term Disability Plan or any other long-term disability plan sponsored by Corporation or any Subsidiary of Corporation prior to the Effective Time. "Corporation SARs" shall have the meaning set forth in Section 6.2 of this Agreement. "Corporation Master Trust" shall mean the trust established in connection with the Corporation Retirement Plan and the DonTech Retirement Plan, as in effect from time to time. "Corporation Master Trust Agreement" shall mean the agreement entered into in connection with the Corporation Master Trust. "Corporation Master Welfare Trust" shall mean the trust established in connection with the Corporation Long-Term Disability Plan, as in effect from time to time. "Corporation Master Welfare Plan Trust Agreement" shall mean the agreement entered into in connection with the Corporation Master Welfare Trust. "Corporation Nonqualified Plans" shall have the meaning as set forth in Section 4.1 of this Agreement. "Corporation Pension BEP" shall mean the Pension Benefit Equalization Plan of The Dun & Bradstreet Corporation, as in effect from time to time. "Corporation Pension BEP Trust" shall mean the trust established in connection with the Corporation Pension BEP, as in effect from time to time. "Corporation Performance Shares" shall have the meaning set forth in Section 6.5 of this Agreement. "Corporation Restricted Stock" shall mean restricted stock awarded under the Corporation Restricted Stock Plan. "Corporation Restricted Stock Plan" shall mean the 1989 Key Employees Restricted Stock Plan for The Dun & Bradstreet Corporation and Subsidiaries. "Corporation Retirees" shall mean persons who (i) were Corporation Employees, (ii) terminated employment from the 4 4 Corporation Group prior to the Effective Time and (iii) are not New D&B Employees or RHD Employees after the Effective Time. "Corporation Retirement Plan" shall mean the Retirement Account Plan of The Dun & Bradstreet Corporation, as in effect from time to time. "Corporation Savings BEP" shall mean the Profit Participation Benefit Equalization Plan of The Corporation, as in effect from time to time. "Corporation Savings Plan" shall mean the Profit Participation Plan of The Dun & Bradstreet Corporation, as in effect from time to time. "Corporation Stock Option" shall have the meaning set forth in Section 6.1 of this Agreement. "Corporation Stock Option Plan" shall mean the 1991 Key Employees Stock Option Plan for The Dun & Bradstreet Corporation and Subsidiaries. "Corporation Supplemental EBP" shall mean the Supplemental Executive Benefit Plan of The Dun & Bradstreet Corporation, as in effect from time to time. "Corporation Supplemental EBP Trust" shall mean the trust established in connection with the Corporation Supplemental EBP as in effect from time to time. "D&B" shall mean The Dun & Bradstreet Corporation, a Delaware corporation, prior to the distribution dated as of October 29, 1996. "Daily Average Trading Price" of a given stock on a given day shall mean the average of the high and low trading prices for such stock on such date on the principal exchange on which the stock trades. "Data Services Agreements" shall mean the Data Services Agreements to be entered into by Corporation and New D&B. "Distribution" shall mean the distribution on the Distribution Date to holders of record of shares of Corporation Common Stock as of the Distribution Record Date of the New D&B Common Shares owned by Corporation on the basis of one New D&B Common Share for each outstanding share of Corporation Common Stock. "Distribution Agreement" shall mean the Distribution Agreement between Corporation and New D&B, dated as of June __, 1998. 5 5 "Distribution Date" shall mean such date as may hereafter be determined by Corporation's Board of Directors as the date as of which the Distribution shall be effected. "Distribution Record Date" shall mean such date as may be determined by Corporation's Board of Directors as the record date for the Distribution. "Dividended Restricted Stock" shall have the meaning set forth in Section 6.4 of this Agreement. "DonTech" shall mean the DonTech Partnership. "DonTech Employees" shall mean persons who, immediately after the Effective Time, are employed by DonTech (including persons who are absent from work by reason of layoff or leave of absence and inactive employees treated as such by agreement therewith). "DonTech Former Employees" shall mean persons who (i) were employees of DonTech and (ii) terminated employment from DonTech prior to the Effective Time and (iii) are not, as of the Effective Time, eligible to receive benefits under the D&B Retirement Plan or the DonTech Retirement Plan. "DonTech Retirees" shall mean persons who (i) were employees of DonTech, (ii) terminated employment from DonTech prior to the Effective Time and (iii) are, as of the Effective Time, eligible to receive benefits under D&B Retirement Plan or the DonTech Retirement Plan. "DonTech Retirement Plan" shall mean the Retirement Plan of the DonTech Corporation, as in effect from time to time. "Effective Time" shall mean 12:01 a.m., New York time, on the Distribution Date. "Employee Benefit Dispute" shall include any controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement, including, without limitation, any claim based on contract, tort, statute or constitution. "Employee Benefit Litigation Liability" shall mean, with respect to a Business Entity, a Liability relating to a controversy, dispute or claim arising out of, in connection with or in relation to the interpretation, performance, nonperformance, validity or breach of an Employee Benefit Plan of such Business Entity or otherwise arising out of, or in any way related to such Employee Benefit Plan, including, without limitation, any claim based on contract, tort, statute or constitution. 6 6 "Employee Benefit Plans" shall mean, with respect to a Business Entity, all "employee benefit plans" (within the meaning of Section 3(3) of ERISA), "multiemployer plans" (within the meaning of Section 3(37) of ERISA), retirement, pension, savings, profit-sharing, welfare, stock purchase, stock option, equity-based, severance, employment, change-in-control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation and all other employee benefit plans, agreements, programs, policies or other arrangements (including any funding mechanisms therefor), whether or not subject to ERISA, whether formal or informal, oral or written, legally binding or not, under which (i) any past, present or future employee of the Business Entity or its Subsidiaries has a right to benefits and (ii) the Business Entity or its Subsidiaries has any Liability. "Employee Benefit Records" shall mean all agreements, documents, books, records or files relating to the Employee Benefit Plans of Corporation and New D&B. "Employee Benefit Welfare Plans" shall mean, with respect to a Business Entity, all Employee Benefit Plans that are "welfare plans" within the meaning of Section 3(1) of ERISA. "Employer Stock" shall mean, after the Distribution Date, New D&B Common Shares credited to the account of a New D&B Employee and RHD Common Stock credited to the account of a RHD Employee in the pooled stock fund of the respective savings plan in which such employee participates, pursuant to Section 3.5. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder, including any successor legislation. "ESOP" shall mean an "employee stock ownership plan" within the meaning of Section 4975(e)(7) of the Code. "Founders' Stock" shall have the meaning set forth in Section 6.3 of this Agreement. "Information Statement" shall mean the Information Statement sent to the holders of shares of Corporation Common Stock in connection with the Distribution, including any amendment or supplement thereto. "Intellectual Property Agreement" shall mean the intellectual property and licensing agreement between Corporation and New D&B. "Liabilities" shall mean any and all losses, claims, charges, debts, demands, actions, causes of action, suits, damages, obligations, payments, costs and expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities and similar obligations, exonerations, covenants, contracts, controversies, agreements, promises, doings, omissions, 7 7 variances, guarantees, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, rule, regulation, Action, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all costs and expenses (including allocated costs of in-house counsel and other personnel), whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions), order or consent decree of any governmental or other regulatory or administrative agency, body or commission or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement, the Distribution Agreement or any Ancillary Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any person. "New D&B" shall mean The New Dun & Bradstreet Corporation, a Delaware corporation. "New D&B Committee" shall mean the Executive Compensation and Stock Option Committee of the Board of Directors of New D&B. "New D&B Common Shares" shall have the meaning set forth in the recitals hereto. "New D&B Disabled Employees" shall mean all employees of the New D&B Group who are receiving benefits under the Dun & Bradstreet Long-Term Disability Plan as of the Effective Time. "New D&B Employees" shall mean persons who, immediately after the Effective Time, are employed by the New D&B Group (including persons who are absent from work by reason of layoff or leave of absence and inactive employees treated as such by agreement therewith). "New D&B Employee Stock Purchase Plan" shall mean the Employee Stock Purchase Plan to be adopted by New D&B pursuant to Section 6.7. "New D&B Group" shall mean New D&B and each Business Entity which is contemplated to remain or become a Subsidiary of New D&B pursuant to the Distribution Agreement. "New D&B Performance Shares" shall have the meaning set forth in Section 6.5 of this Agreement. 8 8 "New D&B Ratio" shall have the meaning set forth in Section 6.1 of this Agreement. "New D&B Replacement Plans" shall mean the replacement plans to be adopted by New D&B pursuant to Section 6.1(b) of this Agreement. "New D&B Restricted Stock" shall have the meaning set forth in Section 6.4 of this Agreement. "Nonemployer Stock" shall mean, after the Distribution Date, New D&B Common Shares credited to the account of a RHD Employee and RHD Common Stock credited to an account of a New D&B Employee in the pooled stock fund in the respective savings plan in which such employee participates, pursuant to Section 3.5. "Participant Election Period" shall mean the period during which the elections described in Section 3.2 are permitted (such period, in no event, to be less than 30 days following notice thereof to persons who are eligible to make the election). "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor entity thereto. "PBGC Assumptions" shall mean the actuarial assumptions set forth in 29 C.F.R. Part 2619, et seq. "person" shall mean any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. "Present Value" shall mean the single sum value of a series of future payments, determined utilizing PBGC Assumptions in effect as of the measurement date. "RHD" shall mean Reuben H. Donnelley, Inc., a Delaware Corporation. "RHD Bifurcated Savings Plan Employees" shall have the meaning set forth in Section 3.2(a) of this Agreement. "RHD Common Stock" shall mean shares of common stock of RHD. "RHD Disabled Employees" shall mean all employees of the RHD Group who are receiving benefits under the Dun & Bradstreet Long-Term Disability Plan as of the Effective Time. "RHD Employees" shall mean persons who, immediately after the Effective Time, are employed by the RHD Group (including persons who are absent from work by reason of layoff or leave of absence and inactive employees treated as such by agreement therewith). 9 9 "RHD Group" shall mean RHD and each Business Entity which is contemplated to remain or become a Subsidiary of RHD pursuant to the Distribution Agreement. "RHD Long-Term Disability Plan" shall mean the long-term disability plan to be adopted by RHD pursuant to Section 5.5 of this Agreement. "RHD Nonqualified Plan Participants" shall have the meaning as set forth in Section 4.2 of this Agreement. "RHD Ratio" shall have the meaning set forth in Section 6.1 of this Agreement. "RHD Retirement Plan Segregation Ratio" shall equal a fraction, the numerator of which is the Present Value of the accrued vested and nonvested benefits (as defined in ERISA Section 4044(a)(1)-(6)) of the RHD Transferred Retirement Plan Employees under the Corporation Retirement Plan at the Effective Time, and the denominator of which is the Present Value of the accrued vested and nonvested benefits (as defined in ERISA Section 4044(a)(1)-(6)) of the Corporation Employees under the Corporation Retirement Plan at the Effective Time. "RHD Retirement Plan" shall mean the defined benefit plan to be adopted by RHD pursuant to Section 2.2(a) of this Agreement. "RHD Retirement Plan Effective Date" shall have the meaning set forth in Section 2.2(a) of this Agreement. "RHD Retirement Plan Transfer Date" shall have the meaning set forth in Section 2.2(b) of this Agreement. "RHD Savings Plan" shall mean the defined contribution plan to be adopted by RHD pursuant to Section 3.2(a) of this Agreement. "RHD Savings Plan Transfer Date" shall have the meaning set forth in Section 3.2(b) of this Agreement. "RHD Transferred Retirement Plan Employees" shall have the meaning set forth in Section 2.2(a) of this Agreement. "RHD Transferred Savings Plan Employees" shall have the meaning set forth in Section 3.2(a) of this Agreement. "Service" shall mean the Internal Revenue Service or any successor entity thereto. "Shared Transaction Services Agreements" shall mean the Shared Transaction Services Agreements between Corporation and New D&B. 10 10 "Subsidiary" shall mean any corporation, partnership or other entity of which another entity (i) owns, directly or indirectly, ownership interests sufficient to elect a majority of the Board of Directors (or persons performing similar functions) (irrespective of whether at the time any other class or classes of ownership interests of such corporation, partnership or other entity shall or might have such voting power upon the occurrence of any contingency) or (ii) is a general partner or an entity performing similar functions (e.g., a trustee). "Tax Allocation Agreement" shall mean the Tax Allocation Agreement between Corporation and New D&B. "Transition Services Agreement" shall mean the Transition Services Agreement between Corporation and New D&B. ARTICLE II CORPORATION & DONTECH RETIREMENT PLANS SECTION 2.1. Assumption by New D&B. Prior to the Effective Time, New D&B shall assume and become the sponsor of the Corporation Retirement Plan and New D&B shall be substituted for Corporation in the Corporation Master Trust Agreement. Active participation of RHD Employees in the Corporation Retirement Plan shall cease immediately after the Effective Time. SECTION 2.2. Transfer to RHD Retirement Plan. (a) As soon as practicable after the Effective Time, but not later than the first day of the fourth calendar month that begins after the Effective Time (herein referred to as the "RHD Retirement Plan Effective Date"), RHD shall establish the RHD Retirement Plan for the benefit of RHD Employees, DonTech Employees and DonTech Former Employees who were participants in the Corporation Retirement Plan immediately prior to the Effective Time (the "RHD Transferred Retirement Plan Employees"). As soon as practicable after the Effective Time, New D&B shall cause the trustee of the Corporation Retirement Plan to segregate the assets of the Corporation Retirement Plan allocable to RHD Transferred Retirement Plan Employees in an amount equal to the sum of (i) and (ii), as follows: (i) the amount allocable to RHD Transferred Retirement Plan Employees under ERISA Section 4044 as of the Effective Time, determined using PBGC Assumptions; and (ii) the excess (if any) of the fair market value of assets of the Corporation Retirement Plan over the Present Value of the vested and nonvested benefits accrued thereunder for all the Corporation Employees as of the Effective Time, multiplied by the RHD Retirement Plan Segregation Ratio. 11 11 (b) As soon as practicable after the Effective Time, the assets allocable to the RHD Transferred Retirement Plan Employees shall be transferred to a separate trust established under the RHD Retirement Plan (such date herein referred to as the "RHD Retirement Plan Transfer Date"); provided, however, that in no event shall such transfer take place until (i) New D&B has made all required filings and submissions to the appropriate governmental agencies and (ii) if requested by New D&B, RHD has furnished to New D&B a favorable determination letter that the RHD Retirement Plan is qualified under Section 401(a) of the Code. The value of such assets to be transferred shall equal the value of segregated assets determined under Section 2.2(a) of this Agreement, adjusted as follows: (i) reduced by the amount of benefit payments made under the Corporation Retirement Plan with respect to RHD Transferred Retirement Plan Employees from the Effective Time to the RHD Retirement Plan Transfer Date; and (ii) increased (or decreased) by the share of the net investment income (or loss) and decreased by the share of investment expenses from the Effective Time to the RHD Retirement Plan Transfer Date attributable to the value of such segregated assets. (c) Unless otherwise agreed to by RHD and New D&B, the form of the assets to be transferred shall consist of an undivided percentage interest in each asset that is held by the Corporation Retirement Plan on the RHD Retirement Plan Transfer Date, such undivided percentage interest being equal to the value of assets allocable to the RHD Transferred Retirement Plan Employees, divided by the fair market value of plan assets. (d) Prior to the RHD Retirement Plan Transfer Date, all benefit payments to RHD Transferred Retirement Plan Employees shall be made from the Corporation Retirement Plan. SECTION 2.3. Allocation of Liabilities. The RHD Group shall retain all Liabilities relating to the participation of RHD Transferred Retirement Plan Employees in the Corporation Retirement Plan. The New D&B Group shall assume all other Liabilities relating to the Corporation Retirement Plan. SECTION 2.4. DonTech Retirement Plan. As soon as practicable after the Effective Time, but not later than the first day of the second calendar month that begins after the Effective Time, RHD shall establish a separate account within the RHD Retirement Plan trust for the DonTech Retirement Plan and New D&B shall cause the assets allocable to the DonTech Retirement Plan to be transferred from the Corporation Master Trust to the separate account established for such plan. 12 12 ARTICLE III CORPORATION AND DONTECH SAVINGS PLANS SECTION 3.1. Assumption by New D&B. Prior to the Effective Time, New D&B shall assume and become the sponsor of the Corporation Savings Plan. Active participation of RHD Employees in the Corporation Savings Plan shall cease immediately after the Effective Time. SECTION 3.2. RHD Savings Plan. (a) As of the Effective Time, RHD shall adopt the RHD Savings Plan for the benefit of RHD Employees who were participants in the Corporation Savings Plan immediately prior to the Effective Time. Prior to the Effective Time, RHD Employees shall be given the right to elect one of the following options with respect to their Corporation Savings Plan account balances (the "Participant Election Period"): (i) RHD Employees may keep their balances in the Corporation Savings Plan (such employees being known as "RHD Bifurcated Savings Plan Employees"); or (ii) RHD Employees may transfer their balances to the RHD Savings Plan (such employees being known as "RHD Transferred Savings Plan Employees"). If a RHD Employee fails to elect any of the foregoing options prior to the end of the Participant Election Period, (i) his or her balance shall be transferred to the RHD Savings Plan, and (ii) such employee shall be treated as a RHD Transferred Savings Plan Employee. (b) Prior to the date on which the transfer of assets and liabilities to the RHD Savings Plan shall occur (the "RHD Savings Plan Transfer Date"), which date shall occur as promptly as practicable following the Participant Election Period, (i) New D&B shall (A) cause the trustee of the Corporation Savings Plan to segregate, in accordance with the spinoff provisions set forth under Section 414(l) of the Code, the assets of the Corporation Savings Plan representing the full account balances of RHD Transferred Savings Plan Employees for all periods of participation through the Effective Time (including, as applicable, all contributions and all earnings attributable thereto); (B) make all required filings and submissions to the appropriate governmental agencies; and (C) make all required amendments to the Corporation Savings Plan and related trust agreement necessary to provide for the segregation and transfer of assets described in this Section 3.2, and (ii) if requested by New D&B, RHD shall furnish to New D&B a favorable determination letter that the RHD Savings Plan is qualified under Section 401(a) of the Code. (c) On the RHD Savings Plan Transfer Date, New D&B shall cause the trustee of the Corporation Savings Plan to transfer to the trustee of the RHD Savings Plan the full account balances (inclusive of loans) of RHD Transferred Savings Plan Employees in kind based on those investment funds in which such account balances are then invested (including, but not limited to, the pooled stock fund); provided, however, that loans to RHD 13 13 Transferred Savings Plan Employees shall be transferred in the form of notes. In consideration of the segregation and transfer of assets described herein, the RHD Savings Plan shall, as of the RHD Savings Plan Transfer Date, assume all Liabilities attributable to such assets. SECTION 3.3. Vesting. As of the Effective Time, the account balances of RHD Employees in the Corporation Savings Plan shall fully vest. Future employer contributions by RHD under the RHD Savings Plan shall vest based on the vesting schedule thereunder. SECTION 3.4. Outstanding Loans. During their employment with RHD, RHD Transferred Savings Plan Employees who have outstanding loans originally made from the Corporation Savings Plan shall be permitted to repay such loans by way of regular deductions from their paychecks, and, prior to the RHD Savings Plan Transfer Date, RHD or New D&B (as the case may be) shall cause all such deductions to be forwarded to the Corporation Savings Plan as promptly as practicable. After the Participant Election Period, no such deductions by RHD shall be made in respect of RHD Bifurcated Savings Plan Employees who have outstanding loans from the Corporation Savings Plan, and all such employees shall be required to repay their loans directly to the Corporation Savings Plan in accordance with the existing terms thereof. SECTION 3.5. Employer Stock Fund. (a) Participants in the Corporation Savings Plan who, immediately prior to the Effective Time, have balances in the Corporation Common Stock fund shall have such balances converted, as of the Effective Time, to the extent applicable, to units in a pooled stock fund consisting of RHD Common Stock and New D&B Common Shares. The initial ratio of stock in the pooled stock fund shall be one share of RHD Common Stock to one share of New D&B Common Shares. The percentage interest of each participant in the pooled stock fund as of the Effective Time shall equal such participant's percentage interest in the Corporation Common Stock fund immediately prior to the Effective Time. The RHD Savings Plan shall maintain a pooled stock fund, to which the pooled stock fund assets of RHD Transferred Savings Plan Employees in the Corporation Savings Plan shall be transferred on the RHD Savings Plan Transfer Date. (b) Prior to the Distribution Date, a participant in the Corporation Savings Plan may make a one-time election to exchange his or her Nonemployer Stock for a number of shares of Employer Stock of equivalent value (as determined below) held immediately after the Distribution Date by another participant who has made such an election. The number of shares of RHD Common Stock that shall be exchanged for each New D&B Common Share shall equal the number of shares of RHD Common Stock so exchanged multiplied by a fraction, the numerator of which equals the average of high and low trading prices of a New D&B Common 14 14 Share over the five trading days occurring immediately after the Distribution Date, and the denominator of which equals the average of high and low trading prices for such five-day period of a share of RHD Common Stock. In the event that there are not enough shares available to satisfy the elections of all participants, each participant's shares shall be exchanged on a pro rata basis. (c) Prior to the six month anniversary of the Distribution Date, each participant shall liquidate his or her units of Nonemployer Stock in the pooled stock fund and invest the proceeds thereof in any other investment option available under the applicable plan. If the participant does not liquidate such units, such units shall be liquidated and invested in a fixed income investment option available under the applicable plan. (d) A participant may not acquire additional shares in the pooled stock fund from or after the Effective Time. SECTION 3.6. Allocation of Liabilities. The RHD Group shall retain all Liabilities relating to the participation of (a) RHD Transferred Savings Plan Employees in the Corporation Savings Plan and (b) RHD Bifurcated Savings Plan Employees in the RHD Savings Plan. The New D&B Group shall assume all other Liabilities relating to the Corporation Savings Plan. SECTION 3.7. DonTech Savings Plan. As soon as practicable after the Effective Time, RHD shall establish a separate account within the RHD Savings Plan trust for the DonTech Savings Plan and New D&B shall cause the trustee of the Corporation Master Trust to transfer to the trustee the full account balances (inclusive of loans) of all participants in the DonTech Savings Plan ("DonTech Participants") in kind based on those investment funds in which such account balances are then invested (including, but not limited to, the pooled stock fund); provided, however, that loans to DonTech Participants shall be transferred in the form of notes. (b) Participants in the DonTech Savings Plan who, immediately prior to the Effective Time, have balances in the DonTech Common Stock fund shall have the units of Corporation Common Stock converted, as of the Effective Time, to the extent applicable, to units in a pooled stock fund consisting of RHD Common Stock and New D&B Common Shares. The initial ratio of stock in the pooled stock fund shall be one share of RHD Common Stock to one share of New D&B Common Shares. The percentage interest of each participant in the pooled stock fund as of the Effective Time shall equal such participant's percentage interest in the DonTech Common Stock fund immediately prior to the Effective Time. 15 15 ARTICLE IV NONQUALIFIED PLANS SECTION 4.1. Corporation Nonqualified Plans. Prior to the Effective Time, New D&B shall assume and become the sponsor of the Corporation Supplemental EBP, the Corporation Supplemental EBP Trust, the Corporation Pension BEP, the Corporation Pension BEP Trust and the Corporation Savings BEP (collectively, the "Corporation Nonqualified Plans") for the benefit of persons who, prior to the Effective Time, were participants thereunder; provided, however, that, with respect to RHD Employees, (i) RHD shall retain the liability for benefits under the Corporation Savings BEP and (ii) New D&B shall retain only those Liabilities for benefits under the Corporation Nonqualified Plans (other than the Corporation Savings BEP) that, prior to the Effective Time, were accrued and to which such participants had earned vested rights thereunder and (iii) the Liabilities retained by New D&B under such plans shall be appropriately adjusted to reflect increases in the contribution limits imposed by Section 415 of the Code. SECTION 4.2. Service Credit. RHD Employees who were participants in the Corporation Nonqualified Plans immediately prior to the Effective Time (the "RHD Nonqualified Plan Participants") shall continue to receive service credit under such plans for their service with the RHD Group from and after the Effective Time, but solely for purposes of satisfying the one-year waiting requirement for a valid election under the Corporation Nonqualified Plans. SECTION 4.3. Consent to Termination. Solely with respect to determining the level of benefits payable under the Corporation Nonqualified Plans, RHD shall have the authority to consent to the termination of employment prior to age 60 of a RHD Nonqualified Plan Participant from the RHD Group. SECTION 4.4. Termination of Employment. Benefits under the Corporation Nonqualified Plans shall not become payable to a RHD Nonqualified Plan Participant until such participant terminates employment from the RHD Group. SECTION 4.5. Noncompetition. Solely with respect to the noncompetition clauses of the Corporation Nonqualified Plans, New D&B hereby consents to the employment of the Corporation Nonqualified Plan Participants by the RHD Group after the Effective Time, whether or not such employment would otherwise trigger such noncompetition clauses. SECTION 4.6. Distributions. RHD Nonqualified Plan Participants who participated in the Corporation Savings BEP immediately prior to the Effective Time shall receive a distribution thereunder from the RHD Group, based on their notional elective deferrals through the Effective Time, at the time distributions are otherwise made under such plan. 16 16 SECTION 4.7. Guarantees; Subrogation. The RHD Group agrees that, in the event the New D&B Group is unable to satisfy its obligations in respect of the benefits of any RHD Employee that have accrued under the Corporation Nonqualified Plans prior to the Effective Time, the RHD Group shall make payment when due with respect to such obligations of the New D&B Group. In the event that the RHD Group is required to make any payment pursuant to this Section 4.7, the RHD Group shall have full rights of subrogation against the New D&B Group. SECTION 4.8. Third-Party Beneficiaries. It is the intention of the parties to this Agreement that the provisions of Section 4.7 shall be enforceable by (a) the RHD Nonqualified Plan Participants and (b) their respective surviving beneficiaries. SECTION 4.9. Joint and Several Liability. RHD and New D&B acknowledge joint and several liability under the Employee Benefits Agreement dated as of October 29, 1996 among D&B, Cognizant and ACNielsen with respect to certain nonqualified plans maintained by Corporation prior to such date. To the extent joint and several liability is imposed on RHD in respect of a liability assumed by New D&B under this Agreement, RHD shall be entitled to contribution from New D&B for the amount of such liability imposed. To the extent joint and several liability is imposed on New D&B in respect of a liability assumed by RHD under this Agreement, New D&B shall be entitled to contribution from RHD for the amount of such liability imposed. ARTICLE V WELFARE PLANS SECTION 5.1. Employee Benefit Welfare Plans. Prior to the Effective Time, the Corporation shall continue to sponsor its Employee Benefit Welfare Plans for the benefit of the Corporation Employees. Except as provided in Section 5.4 and Section 5.6 below, from and after the Effective Time, RHD shall continue to sponsor its Employee Benefit Welfare Plans solely for the benefit of RHD Employees and RHD Disabled Employees. From and after the Effective Time, New D&B shall sponsor its Employee Benefit Welfare Plans for the benefit of New D&B Employees, Corporation Retirees, New D&B Disabled Employees and DonTech Retirees who participated in the Corporation Employee Benefit Welfare Plans immediately prior to the Effective Time. Notwithstanding the foregoing, neither RHD nor New D&B shall have any obligation to sponsor any Employee Benefit Welfare Plan from or after the Effective Time. SECTION 5.2. Pre-Existing Conditions; Dollar Limits. With respect to any medical plan that may be sponsored by New D&B and RHD after the Effective Time, New D&B and RHD (a) shall cause there to be waived any pre-existing condition limitations and (b) shall give effect, in determining any deductible and maximum out-of-pocket limitations, to claims incurred, and amounts paid by, 17 17 and amounts reimbursed to, (in each case during 1998 prior to the Effective Time) New D&B Employees, RHD Employees, Corporation Retirees, New D&B Disabled Employees and RHD Disabled Employees under similar plans maintained by Corporation (or any Affiliate thereof) for their benefit immediately prior to the Effective Time. SECTION 5.3. Severance Plans. The RHD Group shall retain all Liabilities with respect to severance payments made or to be made to RHD Employees. The New D&B Group shall retain all Liabilities with respect to severance payments made or to be made to all other Corporation Employees who terminated employment prior to the Effective Time. For purposes of this Section 5.3, the term "severance payments" shall include any welfare benefit coverage and all other severance related benefits provided under severance plans and agreements. SECTION 5.4. Flexible Spending Accounts. From the Effective Time until December 31, 1998, New D&B shall sponsor its flexible spending accounts for all Corporation Employees; provided, however, that RHD shall cause all deductions from participant paychecks to be forwarded to New D&B as promptly as practicable. SECTION 5.5 VEBA. Prior to the Effective Time, New D&B shall assume and become the sponsor of the Corporation Long-Term Disability Plan and New D&B shall be substituted for Corporation in the Corporation Master Welfare Plan Trust Agreement. Active participation of RHD Employees in the Corporation Long-Term Disability Plan shall cease immediately after the Effective Time. As soon as practicable after the Effective Time, RHD shall establish the RHD Long-Term Disability Plan for the benefit of RHD Employees and the assets, as actuarially calculated, allocable to the RHD Employees who became disabled prior to January 1, 1994 shall be transferred to a separate trust established under such plan. SECTION 5.6. Allocation of Liabilities. (a) The RHD Group shall retain responsibility for and continue to pay all expenses and benefits relating to the Corporation Employee Benefit Welfare Plans with respect to claims incurred from and after the Effective Time by RHD Employees and RHD Disabled Employees as well as their dependents. The New D&B Group shall be responsible for and pay expenses and benefits relating to all Employee Benefit Welfare Plan claims (i) incurred prior to the Effective Time by Corporation Employees, RHD Disabled Employees and their covered dependents and (ii) incurred by New D&B Employees, Corporation Retirees and New D&B Disabled Employees as well as their covered dependents from and after the Effective Time. For purposes of this paragraph, a claim is deemed incurred when the services that are the subject of the claim are performed; in the case of life insurance, when the death occurs; in the case of long-term disability, when the disability occurs; and, in the case of a hospital stay, when the employee first 18 18 enters the hospital. Notwithstanding the foregoing, claims incurred by any employee of a pre-Distribution Subsidiary of Corporation or their covered dependents under any welfare plan maintained by such Subsidiary solely for the benefit of its employees and their dependents shall, whether incurred prior to, on or after the Effective Time, be the sole responsibility and liability of that Subsidiary. (b) The RHD Group shall be responsible for all COBRA coverage for any RHD Employee and his or her covered dependents who participated in a Corporation Employee Benefit Welfare Plan and who had or have a loss of health care coverage due to a qualifying event occurring prior to the Effective Time. The New D&B Group shall be responsible for all COBRA coverage for any other Corporation Employee and his or her covered dependents who participated in a Corporation Employee Benefit Welfare Plan and who had or have a loss of health care coverage due to a qualifying event occurring prior to the Effective Time. Notwithstanding the foregoing, a pre-Distribution Subsidiary of Corporation shall be responsible for all COBRA coverage for its former employees and covered dependents who participated in a plan maintained solely for their benefit whether the applicable event occurs prior to, on or after the Effective Time. COBRA coverage to which a RHD Employee is entitled as a result of a qualifying event occurring at or after the Effective Time shall be the responsibility of the RHD Group. SECTION 5.7. Retiree Welfare Plans. The RHD Group shall be responsible for providing retiree welfare benefits, where applicable, to RHD Employees. The New D&B Group shall be responsible for providing retiree welfare benefits, where applicable, to Corporation Retirees and New D&B Employees ARTICLE VI EQUITY-BASED PLANS SECTION 6.1. Corporation Stock Options. Stock options awarded under the Corporation Stock Option Plans ("Corporation Stock Options") shall be treated as follows: (a) RHD Employees. From and after the Effective Time, each unexercised Corporation Stock Option held by RHD Employees shall remain outstanding pursuant to the terms of the award agreements and the Corporation Stock Option Plans; provided, however, that from and after such time, each unexercised Corporation Stock Option shall be adjusted as follows: (i) the number of shares of RHD Common Stock covered by the adjusted stock option shall be determined by (A) multiplying the number of shares of Corporation Common Stock covered by the Corporation Stock Option by a fraction, the numerator of which equals the average of high and low trading prices of a share of Corporation Common Stock for the five trading days immediately preceding the ex-dividend date, and the denominator of which equals the average 19 19 of high and low trading prices of a share of RHD Common Stock for the five trading days starting on the ex-dividend date ("RHD Ratio") and (B) rounding down the result to a whole number of shares and (ii) the exercise price of the adjusted stock option shall equal the original exercise price multiplied by the reciprocal of the RHD Ratio. (b) New D&B Employees. As of the Effective Time, (i) each unexercised Corporation Stock Option held by New D&B Employees shall be cancelled and (ii) such individuals shall receive replacement stock options awarded under the New D&B Replacement Plans, which shall be adopted by New D&B prior to the Effective Time. The number of New D&B Common Shares covered by each replacement stock option shall be determined by (i) multiplying the number of shares of Corporation Common Stock covered by the cancelled Corporation Stock Option by a fraction, the numerator of which equals the average of high and low trading prices of a share of Corporation Common Stock for the five trading days immediately preceding the ex-dividend date, and the denominator of which equals the average of high and low trading prices of a New D&B Common Share for the five trading days starting on the regular way trading date ("New D&B Ratio") and (ii) rounding down the result to a whole number of shares. The exercise price of each replacement stock option shall be determined by multiplying the exercise price of the cancelled Corporation Stock Option by the reciprocal of the New D&B ratio. Except as otherwise provided in the New D&B Replacement Plans, all other terms of the replacement stock options shall remain substantially identical to the terms of the cancelled Corporation Stock Options. (c) Corporation Retirees; RHD Disabled Employees; and New D&B Disabled Employees. As of the Effective Time, (i) each unexercised D&B Stock Option held by Corporation Retirees, RHD Disabled Employees and New D&B Disabled Employees shall be adjusted in substantially the same manner as employees of the RHD Group and (ii) New D&B shall offer to such Corporation Retirees alternative adjustments or substitutions provided such retirees agree to surrender their adjusted D&B Stock Options. SECTION 6.2. Corporation SARs. All stock appreciation rights awarded under the Corporation Stock Option Plans ("Corporation SARs") shall be adjusted or substituted (as the case may be) in substantially the same manner as the Corporation Stock Options described in Section 6.1 above. SECTION 6.3. Corporation Founders' Match Program. All Founders' Match Program stock options awarded under the Corporation Stock Option Plans ("Corporation Founders' Awards") shall be adjusted or substituted (as the case may be) in substantially the same manner as the Corporation Stock Options described in Section 6.1 above ("Adjusted Corporation Founders' Awards"). Adjusted Corporation Founders' Awards shall vest if performance goals (as established prior to the Effective Time) 20 20 are met at the end of the original vesting period of such awards (based upon the sum of the share prices of the RHD Common Stock and the New D&B Shares and taking into account any dividends after the Effective Time). (a) RHD Employees. Restrictions on stock purchased on the open market pursuant to the Corporation Founders' Match Program ("Founders' Stock") shall lapse according to their original terms. Restrictions on the New D&B Common Shares received in the Distribution as a dividend on such shares shall lapse as of the Effective Time. (b) New D&B Employees. Restrictions on Founders' Stock shall lapse as of the Effective Time. New D&B Common Shares received in the Distribution as a dividend on the Founders' Stock shall be subject to the restrictions originally imposed on the Founders' Stock. SECTION 6.4. Restricted Stock Plan. New D&B Common Shares received in the Distribution as a dividend on Corporation Restricted Stock ("Dividended Restricted Stock") shall be subject to the same restrictions as the Corporation Restricted Stock. In addition, both the Corporation Restricted Stock and the Dividended Restricted Stock shall be treated as follows: (a) RHD Employees. As of Effective Time, Dividended Restricted Stock credited to RHD Employees shall be adjusted pursuant to the Corporation Restricted Stock Plan and each such individual shall receive a number of shares of RHD Restricted Stock, determined by multiplying the number of shares of Dividended Restricted Stock by the RHD Ratio and the reciprocal of the New D&B Ratio, having the same terms as the Corporation Restricted Stock from which they arose. (b) New D&B Employees. As of the Effective Time, Corporation Restricted Stock and Dividended Restricted Stock credited to New D&B Employees shall be forfeited and such individuals shall receive replacement New D&B Common Shares of restricted stock ("New D&B Restricted Stock") equal to (i) the number of shares of forfeited Dividended Restricted Stock plus (ii) the product of the number of shares of forfeited Corporation Restricted Stock multiplied by the New D&B Ratio and the reciprocal of the RHD Ratio, such replacement shares of New D&B Restricted Stock to have the same terms as the Corporation Restricted Stock from which they arose. SECTION 6.5. Performance Unit Plan. Performance shares awarded under the Performance Unit Plan ("Corporation Performance Shares") shall be treated as follows: (a) RHD Employees. As of Effective Time, RHD Employees shall receive (if, for the entire performance cycle, all targets are met) a number of shares of RHD Common Stock equal to (i) the target number of Corporation Performance Shares plus 21 21 (ii) the target number of Corporation Performance Shares multiplied by the RHD Ratio and the reciprocal of the New D&B Ratio. (b) New D&B Employees. As of the Effective Time, grants of Corporation Performance Shares granted to New D&B Employees shall be cancelled and such individuals shall receive (if, for the entire performance cycle, all targets are met) replacement grants of New D&B Performance Shares in an amount equal to (i) the target number of Corporation Performance Shares plus (ii) the product of the target number of Corporation Performance Shares multiplied by the New D&B Ratio and the reciprocal of the RHD Ratio. SECTION 6.6. Allocation of Liabilities. The New D&B Group shall assume all Liabilities with respect to awards granted to New D&B Employees, Corporation Retirees, RHD Disabled Employees and New D&B Disabled Employees pursuant to the New D&B Replacement Option Plan. The RHD Group shall retain all other Liabilities with respect to awards granted pursuant to the Corporation Stock Option Plans (including, but not limited to, awards granted to RHD Employees). ARTICLE VII EMPLOYEE STOCK OWNERSHIP PLAN SECTION 7.1. Employee Stock Ownership Plan. After the Effective Time, RHD and New D&B shall each establish an ESOP for the benefit of their respective employees, but only to the extent required by any letter ruling issued by the Service with respect to the Distribution. ARTICLE VIII OTHER EMPLOYEE BENEFIT ISSUES SECTION 8.1. Employee Benefit Litigation Liabilities. Except as otherwise expressly provided in this agreement or with respect to Articles II, III and VI hereof, the New D&B Group shall assume all Employee Benefit Litigation Liabilities that are asserted by Corporation Employees prior to the Effective Time. SECTION 8.2. Workers' Compensation. The RHD Group shall retain all Liabilities relating to workers' compensation claims that were incurred (a) prior to the Effective Time with respect to Corporation Employees who were employed by the RHD Group after the Effective Time and (b) on and after the Effective Time with respect to RHD Employees. The New D&B Group shall retain all Liabilities relating to workers' compensation claims that were incurred (a) prior to the Effective Time with respect to Corporation Employees who were not employed by the RHD Group, after the Effective Time and (b) on and after the Effective Time with respect to New D&B Employees. For purposes of this 22 22 paragraph, a claim is deemed incurred when the injury that is the subject of the claim occurs. ARTICLE IX BENEFIT PLAN PARTICIPATION SECTION 9.1. Corporation Plans. Except as specifically provided herein, all RHD Employees shall cease participation in all Corporation Employee Benefit Plans as of the Effective Time. SECTION 9.2. RHD Plans. Except as provided in Section 5.6 herein, (a) with respect to any newly created Employee Benefit Plan sponsored by the RHD Group after the Effective Time, the RHD Group shall cause to be recognized (to the extent applicable) each RHD Employee's (i) past service with the Corporation Group to the extent recognized under similar plans maintained by the Corporation Group immediately prior to the Effective Time and (ii) accrued but unused vacation time and sick days, and (b) any RHD Employee who participated in a Corporation Employee Benefit Plan immediately prior to the Effective Time shall be entitled to immediate participation in a similar newly created Employee Benefit Plan sponsored by the RHD Group. SECTION 9.3. New D&B Plans. Except as provided in Section 5.6 herein, (a) with respect to any Employee Benefit Plan sponsored by the New D&B Group after the Effective Time, the New D&B Group shall cause to be recognized (to the extent applicable) each New D&B Employee's (i) past service with the Corporation Group to the extent recognized under similar plans maintained by the Corporation Group immediately prior to the Effective Time and (ii) accrued but unused vacation time and sick days, and (b) any New D&B Employee who participated in a Corporation Employee Benefit Plan immediately prior to the Effective Time shall be entitled to immediate participation in a similar Employee Benefit Plan sponsored by New D&B. SECTION 9.4. Subsequent Employer. Except as provided in Section 5.7 herein, if, during the one-year period following the Effective Time, a RHD Employee or a New D&B Employee terminates employment with his or her employer and then immediately commences employment with the RHD Group or the New D&B Group, the subsequent employer shall cause to be recognized (to the extent applicable) such employee's past service with the Corporation Group, the RHD Group or the New D&B Group to the extent recognized under similar plans maintained by the prior employer. Notwithstanding the foregoing, no past service shall be recognized with respect to pension accruals under the defined benefit plans of the subsequent employer. SECTION 9.5. Right to Amend or Terminate. Except as specifically provided herein, nothing in this Agreement shall be construed or interpreted to restrict the RHD Group's or the New 23 23 D&B Group's right or authority to amend or terminate any of their Employee Benefit Plans following the Effective Time. ARTICLE X ACCESS TO INFORMATION SECTION 10.1. Access to Information. Article IV of the Distribution Agreement shall govern the rights of the RHD Group and the New D&B Group with respect to access to information. The term "Records" in that Article shall be read to include all Employee Benefit Records. ARTICLE XI INDEMNIFICATION SECTION 11.1. Indemnification. Article III of the Distribution Agreement shall govern the rights of the RHD Group and the New D&B Group with respect to indemnification. The term "RHD Liabilities" in that Article shall be read to include all Liabilities assumed or retained by the RHD Group pursuant to this Agreement. The term "New D&B Liabilities" in that Article shall be read to include all Liabilities assumed or retained by the New D&B Group pursuant to this Agreement. ARTICLE XII DISPUTE RESOLUTION SECTION 12.1. Dispute Resolution. Article VI of the Distribution Agreement shall govern the rights of the RHD Group and the New D&B Group with respect to dispute resolution. The term "Agreement Dispute" in that Article shall be read to include all Employee Benefit Disputes. ARTICLE XIII MISCELLANEOUS SECTION 13.1. Complete Agreement; Construction. This Agreement, including the Exhibits and Schedules (if any), and the Distribution Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. Other than Sections 2.7 and 4.5 and Article VI of the Distribution Agreement, which shall prevail over any inconsistent or conflicting provisions in this Agreement, notwithstanding any other provisions in this Agreement to the contrary, in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the 24 24 provisions of the Distribution Agreement, this Agreement shall control. SECTION 13.2. Ancillary Agreements. This Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements. SECTION 13.3. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties. SECTION 13.4. Survival of Agreements. Except as otherwise contemplated by this Agreement, all covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. SECTION 13.5. Expenses. Except as otherwise set forth in this Agreement, the Distribution Agreement or any Ancillary Agreement, all costs and expenses incurred on or prior to the Distribution Date (whether or not paid on or prior to the Distribution Date) in connection with the preparation, execution, delivery and implementation of this Agreement, the Distribution Agreement, any Ancillary Agreement, the Information Statement (including any registration statement on Form 10 of which such Information Statement may be a part) and the Distribution and the consummation of the transactions contemplated thereby shall be charged to and paid by New D&B. Except as otherwise set forth in this Agreement, the Distribution Agreement or any Ancillary Agreement, each party shall bear its own costs and expenses incurred after the Distribution Date. Any amount or expense to be paid or reimbursed by any party hereto to any other party hereto shall be so paid or reimbursed promptly after the existence and amount of such obligation is determined and demand therefor is made. SECTION 13.6. Notices. All notices and other communications hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice) and will be deemed given on the date on which such notice is received: To The Dun & Bradstreet Corporation: One Manhattanville Road Purchase, NY 10577 Telecopy: (914) 933-6899 Attn: Chief Legal Counsel 25 25 To The New Dun & Bradstreet Corporation: One Diamond Hill Road Murray Hill, NJ 07974 Telecopy: (908) 665-5803 Attn: Chief Legal Counsel SECTION 13.7. Waivers. The failure of any party to require strict performance by any other party of any provision in this Agreement will not waive or diminish that party's right to demand strict performance thereafter of that or any other provision hereof. SECTION 13.8. Amendments. Subject to the terms of Section 13.11 hereof, this Agreement may not be modified or amended except by an agreement in writing signed by each of the parties hereto. SECTION 13.9. Assignment. This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the other parties hereto, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. SECTION 13.10. Successors and Assigns. The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. SECTION 13.11. Termination. This Agreement (including, without limitation, Section 4.8 and Article XI hereof) may be terminated and may be amended, modified or abandoned at any time prior to the Distribution by and in the sole discretion of Corporation without the approval of the shareholders of Corporation. In the event of such termination, no party shall have any liability of any kind to any other party or any other person. After the Distribution, this Agreement may not be terminated except by an agreement in writing signed by the parties; provided, however, that Section 4.8 and Article XI shall not be terminated or amended after the Distribution in respect of the third party beneficiaries thereto without the consent of such persons. SECTION 13.12. Subsidiaries. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party or by any entity that is contemplated to be a Subsidiary of such party on and after the Distribution Date. SECTION 13.13. Third Party Beneficiaries. Except as provided in Section 4.8 and Article XI, this Agreement is solely 26 26 for the benefit of the parties hereto and their respective Subsidiaries and Affiliates and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. SECTION 13.14. Title and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. SECTION 13.15. Exhibits and Schedules. The Exhibits and Schedules, if any, shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. SECTION 13.16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK. SECTION 13.17. Consent to Jurisdiction. Without limiting the provisions of Article XII hereof, each of the parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the Southern District of New York or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County. Each of the parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction in this Section 13.17. Each of the parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Supreme Court of the State of New York, New York County, or (ii) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 13.18. Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained 27 27 herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 13.19. Governmental Notices; Cooperation. Notwithstanding anything in this Agreement to the contrary, all actions contemplated herein with respect to Employee Benefit Plans which are to be consummated pursuant to this Agreement shall be subject to such notices to, and/or approvals by, the Service or the PBGC (or any other governmental agency or entity) as are required or deemed appropriate by such Employee Benefit Plan's sponsor. RHD and New D&B agree to use their commercially reasonable efforts to cause all such notices and/or approvals to be filed or obtained, as the case may be. Each party hereto shall reasonably cooperate with the other parties with respect to any government filings, employee notices or any other actions reasonably necessary to maintain and implement the Employee Benefit Plans covered by this Agreement. SECTION 13.20. Further Assurances. From time to time, as and when reasonably requested by any other party hereto, each party hereto shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such other party may reasonably deem necessary or desirable to effect the purposes of this Agreement and the transactions contemplated hereunder. 28 IN WITNESS WHEREOF, the parties have duly executed and entered into this Agreement, as of the date first above written. THE DUN & BRADSTREET CORPORATION by ----------------------- Name: Title: THE NEW DUN & BRADSTREET CORPORATION by ----------------------- Name: Title: EX-99.1 7 INFORMATION STATEMENT 1 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT ON FORM 10 RELATING TO CERTAIN OF THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS PRELIMINARY INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. EXHIBIT 99.1 SUBJECT TO COMPLETION OR AMENDMENT, DATED APRIL 16, 1998 INFORMATION STATEMENT ------------------------ THE NEW DUN & BRADSTREET CORPORATION COMMON STOCK (PAR VALUE $0.01 PER SHARE) ------------------------ THE REUBEN H. DONNELLEY CORPORATION COMMON STOCK (PAR VALUE $1.00 PER SHARE) ------------------------ This Information Statement is being furnished in connection with the distribution (the "Distribution") to holders of common stock, par value $1.00 per share (the "D&B Common Stock"), of The Dun & Bradstreet Corporation ("D&B") of all of the outstanding shares of common stock, par value $0.01 per share (the "New D&B Common Stock"), of The New Dun & Bradstreet Corporation ("New D&B"). As of the Distribution Date (as defined below), New D&B will be comprised of businesses which accounted for approximately 84% of D&B's revenues and 74% of D&B's operating income in 1997. See "The New Dun & Bradstreet Corporation Business". Shares of New D&B Common Stock will be distributed to holders of D&B Common Stock of record as of the close of business on , 1998 (the "Record Date"). Each such holder will receive one share of New D&B Common Stock for every share of D&B Common Stock held on the Record Date. Certificates representing shares of New D&B Common Stock will be mailed on , 1998 or as promptly as practicable thereafter. No consideration will be paid by D&B's stockholders for shares of New D&B Common Stock. Prior to the date hereof, there has not been any established trading market for the New D&B Common Stock, although a "when-issued" market is expected to develop prior to the Distribution. Application will be made for listing the shares of New D&B Common Stock on the New York Stock Exchange (the "NYSE") under the symbol "DNB". See "The Distribution -- Listing and Trading of New D&B Common Stock and Reuben H. Donnelley Common Stock". After the Distribution, D&B's only remaining business will be the Reuben H. Donnelley Business (as defined below), and, therefore, in connection with the Distribution, D&B will change its name to The Reuben H. Donnelley Corporation. See "The Reuben H. Donnelley Corporation Business". The symbol under which shares of D&B Common Stock (which from and after the Distribution will be known as "Reuben H. Donnelley Common Stock") will trade on the NYSE will become "RHD". See "The Distribution -- Listing and Trading of New D&B Common Stock and Reuben H. Donnelley Common Stock". In connection with the Distribution, New D&B will change its name to "The Dun & Bradstreet Corporation". ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY RECIPIENTS OF THE NEW D&B COMMON STOCK AND CONTINUING HOLDERS OF REUBEN H. DONNELLEY COMMON STOCK. ------------------------ NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. Stockholders of D&B with inquiries related to the Distribution should contact First Chicago Trust Company of New York, the Distribution Agent for the Distribution, at (800) 519-3111 or Investor Relations for D&B at (908) 665-5030. The date of this Information Statement is , 1998. 2 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION................ 1 INFORMATION STATEMENT SUMMARY............................... 3 FORWARD-LOOKING STATEMENTS.................................. 11 RISK FACTORS................................................ 12 THE DISTRIBUTION............................................ 17 RELATIONSHIP BETWEEN THE NEW DUN & BRADSTREET CORPORATION AND THE REUBEN H. DONNELLEY CORPORATION AFTER THE DISTRIBUTION.............................................. 21 DIVIDEND POLICIES........................................... 26 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) CAPITALIZATION.................................... 27 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) SELECTED FINANCIAL DATA........................... 28 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) CONSOLIDATED PRO FORMA CONDENSED FINANCIAL STATEMENTS................................................ 30 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 34 THE NEW DUN & BRADSTREET CORPORATION BUSINESS............... 40 THE NEW DUN & BRADSTREET CORPORATION MANAGEMENT AND EXECUTIVE COMPENSATION.................................... 48 THE NEW DUN & BRADSTREET CORPORATION SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................. 56 DESCRIPTION OF THE NEW DUN & BRADSTREET CORPORATION CAPITAL STOCK..................................................... 59 THE REUBEN H. DONNELLEY CORPORATION CAPITALIZATION.......... 66 THE REUBEN H. DONNELLEY CORPORATION SELECTED FINANCIAL DATA...................................................... 67 THE REUBEN H. DONNELLEY CORPORATION PRO FORMA CONDENSED FINANCIAL STATEMENTS...................................... 69 THE REUBEN H. DONNELLEY CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................ 74 THE REUBEN H. DONNELLEY CORPORATION BUSINESS................ 79 THE REUBEN H. DONNELLEY CORPORATION MANAGEMENT AND EXECUTIVE COMPENSATION.............................................. 83 THE REUBEN H. DONNELLEY CORPORATION SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................. 89 AVAILABLE INFORMATION....................................... 90 REPORTS OF THE NEW DUN & BRADSTREET CORPORATION............. 90 INDEX TO FINANCIAL STATEMENTS............................... F-1
3 QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION Q1: WHAT IS THE DISTRIBUTION? A: The Distribution is the method by which The Dun & Bradstreet Corporation will be separated into two publicly traded companies: (i) The New Dun & Bradstreet Corporation, which will consist of two leading global information companies -- Dun & Bradstreet and Moody's Investors Service and (ii) The Reuben H. Donnelley Corporation, a leading provider of yellow pages and directory publishing services. Pursuant to the Distribution, D&B will distribute to its stockholders in a tax-free dividend one share of New D&B Common Stock for each share of D&B Common Stock held. Immediately after the Distribution, D&B's stockholders will still own all of D&B's current businesses, but they will own them as two separate investments rather than as a single investment. Q2: WHAT IS THE NEW DUN & BRADSTREET CORPORATION? A: The New Dun & Bradstreet Corporation is a new company the businesses of which will include Dun & Bradstreet, a leading provider of business-to-business credit, marketing and purchasing information and receivables management services, and Moody's Investors Service, a preeminent debt-rating company and publisher of financial information for investors. In connection with the Distribution, The New Dun & Bradstreet Corporation will change its name to "The Dun & Bradstreet Corporation". Q3: WHAT IS THE REUBEN H. DONNELLEY CORPORATION? A: Reuben H. Donnelley, currently a subsidiary of D&B, provides sales, marketing and publishing services for yellow pages and other directory products and is the largest independent marketer of yellow pages advertising in the United States. Since after the Distribution D&B's only business will be the Reuben H. Donnelley business, in connection with the Distribution, D&B will change its name to "The Reuben H. Donnelley Corporation". Q4: WHY IS D&B SEPARATING ITS BUSINESSES? A: D&B believes that separating its businesses in the Distribution will better position both New D&B and Reuben H. Donnelley to achieve their strategic and financial objectives, benefitting both customers and shareholders of the companies. D&B believes the separation will enhance management focus on the businesses, allowing each company to allocate resources and set compensation policies to meet its own strategic requirements. D&B also believes the separation will provide New D&B with additional financial flexibility to pursue growth opportunities and will lead to better investor understanding of the different businesses. Q5: HAS D&B DONE THIS BEFORE? A: D&B successfully effected a spin-off of Cognizant Corporation and ACNielsen Corporation in November 1996. Since that spin-off, D&B has made significant progress in pursuing its strategic goals and objectives, and the proposed spin-off is expected to continue that progress. Q6: WHY IS THIS TRANSACTION STRUCTURED AS A DISTRIBUTION? A: The Distribution is the most tax-efficient means of separating D&B's businesses. D&B has received a ruling from the Internal Revenue Service that for federal income tax purposes the Distribution of the shares of New D&B Common Stock to D&B stockholders will be tax-free to D&B and its stockholders. Q7: WHAT WILL D&B STOCKHOLDERS RECEIVE IN THE DISTRIBUTION? A: In the Distribution, D&B stockholders will receive one share of New D&B Common Stock, and an associated Right under New D&B's stockholder rights plan, for each share of D&B Common Stock they own. Immediately after the Distribution, D&B's stockholders will still own their shares of D&B 1 4 Common Stock and the same stockholders will still own all of D&B's businesses, but they will own them as two separate investments rather than as a single investment. After the Distribution, the certificates representing the "old" D&B Common Stock will represent such stockholders' interests in the Reuben H. Donnelley business and the certificates representing the New D&B Common Stock that stockholders receive in the Distribution will represent their interest in the New D&B businesses. Q8: WHAT DOES A D&B STOCKHOLDER NEED TO DO NOW? A: D&B stockholders do not need to take any action. The approval of the D&B stockholders is not required to effect the Distribution and D&B is not seeking a proxy from any stockholders. D&B STOCKHOLDERS SHOULD NOT SEND IN THEIR D&B SHARE CERTIFICATES. D&B stockholders will automatically receive their shares of New D&B Common Stock when the Distribution is effected. Q9: WHERE CAN D&B STOCKHOLDERS GET MORE INFORMATION? A: D&B stockholders with additional questions related to the Distribution should contact First Chicago Trust Company of New York, the Distribution Agent for the Distribution, at Mail Suite 4694, P.O. Box 2536, Jersey City, NJ 06303-2536, telephone number: (800) 519-3111. Questions may also be directed to Investor Relations for D&B at One Diamond Hill Road, Murray Hill, NJ 07974, telephone number: (908) 665-5030. 2 5 INFORMATION STATEMENT SUMMARY The following is a summary of certain information contained in this Information Statement. This summary is included for convenience only and should not be considered complete. This summary is qualified in its entirety by the more detailed information and financial statements contained elsewhere in this Information Statement. In this Information Statement, unless the context otherwise requires, "D&B" refers to The Dun & Bradstreet Corporation prior to the Distribution Date, and "Reuben H. Donnelley" refers to D&B's subsidiary with that name prior to the Distribution Date and to D&B (which will change its name to "The Reuben H. Donnelley Corporation") on and after the Distribution Date. In this Information Statement, unless the context otherwise requires, "New D&B" refers to The New Dun & Bradstreet Corporation, which is the company whose shares will be distributed in the Distribution and which will change its name to "The Dun & Bradstreet Corporation" in connection with the Distribution. Certain capitalized terms used in this summary are defined elsewhere in this Information Statement. BUSINESSES OF THE NEW DUN & BRADSTREET CORPORATION AND THE REUBEN H. DONNELLEY CORPORATION The New Dun & Bradstreet Corporation.............. The New Dun & Bradstreet Corporation is a newly created Delaware corporation, the businesses of which will consist of two leading global information companies -- Dun & Bradstreet, Inc. ("D&B Inc."), the leading provider of commercial credit, business marketing and purchasing information and receivables management services; and Moody's Investors Service, Inc. ("Moody's"), a leading provider of credit ratings and analysis covering debt instruments and other obligations issued in global capital markets and a provider of business and financial information for investment research and reference uses (collectively, the "New D&B Business"). Volney Taylor is currently Chairman and Chief Executive Officer of D&B and Chairman and Chief Executive Officer of New D&B. Mr. Taylor will resign from his positions at D&B effective upon the Distribution. At the time of the Distribution, the Board of Directors of New D&B will be composed of the persons who are serving as directors of D&B immediately prior to the Distribution Date, and such persons, other than those named under "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Overlapping Directors", will resign as directors of D&B effective upon the Distribution. See "The New Dun & Bradstreet Corporation Management and Executive Compensation -- The New Dun & Bradstreet Corporation Board of Directors". In addition to Mr. Taylor, the other executive officers of New D&B at the time of the Distribution will be the persons who are serving as executive officers of D&B immediately prior to the Distribution (other than Frank R. Noonan, as described below), and such persons will resign from their positions at D&B effective upon the Distribution. See "The New Dun & Bradstreet Corporation Management and Executive Compensation -- The New Dun & Bradstreet Corporation Executive Officers". The Reuben H. Donnelley Corporation.............. As a result of the Distribution, the yellow pages and other directory sales, marketing and publishing services business (the "Reuben H. Donnelley Business") currently conducted by D&B's subsidiary, The 3 6 Reuben H. Donnelley Corporation, will remain with D&B. Therefore, in connection with the Distribution, D&B will change its name to "The Reuben H. Donnelley Corporation", and such subsidiary will change its name to "Reuben H. Donnelley Inc.". Frank R. Noonan is currently Senior Vice President of D&B and President of Reuben H. Donnelley and will be the President and Chief Executive Officer and a director of Reuben H. Donnelley after the Distribution. Immediately after the Distribution, the other directors of Reuben H. Donnelley will include certain persons who are currently directors of D&B and certain persons who are not currently directors of D&B. See "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Overlapping Directors" and "The Reuben H. Donnelley Corporation Management and Executive Compensation -- The Reuben H. Donnelley Corporation Board of Directors". In addition to Mr. Noonan, the other executive officers of The Reuben H. Donnelley Corporation immediately after the Distribution will be drawn from the current management of D&B and Reuben H. Donnelley. See "The Reuben H. Donnelley Corporation Management and Executive Compensation -- The Reuben H. Donnelley Corporation Executive Officers". THE DISTRIBUTION Form of Transaction; Basis of Presentation............ The Distribution is the method by which D&B will be separated into two publicly traded companies, The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation. In the Distribution, D&B will distribute to its stockholders shares of New D&B Common Stock, which will represent a continuing interest in D&B's businesses to be conducted by New D&B. After the Distribution, D&B's only business will be the Reuben H. Donnelley Business, and the shares of D&B Common Stock held by D&B stockholders will represent a continuing ownership interest only in that business. In connection with the Distribution, (i) D&B will change its name to "The Reuben H. Donnelley Corporation" (and therefore from and after the Distribution, D&B Common Stock will be "Reuben H. Donnelley Common Stock"), and (ii) New D&B will change its name to "The Dun & Bradstreet Corporation". Stockholders should note that notwithstanding the legal form of the Distribution described above whereby D&B expects to spin off New D&B, because of the relative significance of the New D&B Business to D&B, New D&B will be treated as the "accounting successor" to D&B for financial reporting purposes. Therefore, the historical financial information for New D&B included herein is that of D&B with the Reuben H. Donnelley Business treated as a discontinued operation. The historical financial information for Reuben H. Donnelley has been prepared on a stand-alone basis as described in Note 1 to The Reuben H. Donnelley Corporation Financial Statements included elsewhere in this Information Statement. Such historical financial information includes 4 7 allocations of certain D&B corporate headquarters assets, liabilities and expenses relating to Reuben H. Donnelley. Shares to be Distributed... The Distribution will be made to holders of record as of the close of business on the Record Date of issued and outstanding shares of D&B Common Stock. Each holder of D&B Common Stock on the Record Date will receive as a dividend one share of New D&B Common Stock for every share of D&B Common Stock held. Based on the shares of D&B Common Stock outstanding as of , 1998, the Distribution would consist of shares of New D&B Common Stock. The Board of Directors of New D&B expects to adopt a stockholder rights plan. Certificates evidencing shares of New D&B Common Stock issued in the Distribution will therefore represent the same number of New D&B Rights (as defined below) issued under the New D&B Rights Plan. See "Description of The New Dun & Bradstreet Corporation Capital Stock -- The New Dun & Bradstreet Corporation Rights Plan". Unless the context otherwise requires, references herein to the New D&B Common Stock include the related New D&B Rights. D&B stockholders will not have to make any payment or surrender or exchange certificates representing shares of D&B Common Stock in order to receive their pro rata share of the Distribution. NO VOTE OF HOLDERS OF D&B COMMON STOCK IS REQUIRED OR SOUGHT IN CONNECTION WITH THE DISTRIBUTION. Record Date................ The Record Date is , 1998. In order to be entitled to receive shares of New D&B Common Stock in the Distribution, holders of shares of D&B Common Stock must be stockholders as of the close of business on the Record Date. Distribution Date.......... The "Distribution Date" is presently expected to be on or about July 1, 1998. Distribution Agent......... First Chicago Trust Company of New York will be the Distribution Agent (the "Distribution Agent") for the Distribution. Federal Income Tax Consequences of the Distribution............. D&B has received a ruling from the Internal Revenue Service to the effect that the Distribution will be tax-free for Federal income tax purposes. D&B stockholders will apportion their tax basis in D&B Common Stock held immediately before the Distribution among such D&B Common Stock (which will represent each such stockholder's interest in Reuben H. Donnelley after the Distribution), and New D&B Common Stock received in the Distribution, based on the relative fair market values of the D&B Common Stock and the New D&B Common Stock as of the Distribution Date. D&B will provide appropriate information to each holder of record of D&B Common Stock as of the close of business on the Record Date concerning the basis allocation. See "The Distribution -- Federal Income Tax Consequences of the Distribution". Stock Exchange Listing and Trading.................. Prior to the date hereof, there has not been any established trading market for the New D&B Common Stock. Application will be made for listing the shares of New D&B Common Stock on the NYSE under the 5 8 symbol "DNB", and trading is expected to commence on a "when-issued" basis prior to the Distribution Date. On the first NYSE trading day following the Distribution Date, "when-issued" trading in respect of the New D&B Common Stock will end and "regular-way" trading will begin. See "The Distribution -- Listing and Trading of New D&B Common Stock and Reuben H. Donnelley Common Stock". Reuben H. Donnelley Common Stock (i.e. the "old" D&B Common Stock) will continue to trade on the NYSE, but the symbol under which it trades will change from "DNB" to "RHD". However, because of the significant changes that will take place at D&B as a result of the Distribution, the trading market for Reuben H. Donnelley Common Stock after the Distribution may be significantly different from that for D&B Common Stock prior to the Distribution. See "The Distribution -- Listing and Trading of New D&B Common Stock and Reuben H. Donnelley Common Stock". Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution............. After the Distribution, neither New D&B nor Reuben H. Donnelley will have any ownership interest in the other and each of New D&B and Reuben H. Donnelley will be an independent public company. New D&B and D&B will enter into certain agreements governing the relationships between New D&B and Reuben H. Donnelley subsequent to the Distribution and providing for the allocation of tax, employee benefits and certain other liabilities and obligations arising from periods prior to the Distribution, including contingent liabilities relating to certain litigation. In addition, there will be individuals on the Boards of Directors of New D&B and Reuben H. Donnelley who will also serve on the Board of Directors of the other company. See "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution". Certain Indebtedness and Minority-Interest Financing................ In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be an obligation of Reuben H. Donnelley after the Distribution. See "Risk Factors -- Risks Relating to The Reuben H. Donnelley Corporation" and "The Distribution -- Certain Indebtedness and Minority-Interest Financing". New D&B will retain the obligation for approximately $300 million of existing minority interest financing. Dividend Policies.......... The payment and level of cash dividends by New D&B and Reuben H. Donnelley after the Distribution will be subject to the discretion of the New D&B Board of Directors and the Reuben H. Donnelley Board of Directors, respectively. It is anticipated that New D&B and Reuben H. Donnelley will initially pay dividends that in total equal the current D&B annualized dividend of $0.88 per share. However, dividend decisions will be based on, and affected by, a number of factors, including the respective operating results and financial requirements of New D&B and Reuben H. Donnelley on a stand-alone basis as well as applicable legal and contractual restrictions. See "Dividend Policies". 6 9 Antitakeover Provisions.... The Restated Certificate of Incorporation and Amended and Restated By-laws of New D&B are expected to contain provisions that may have the effect of discouraging an acquisition of control of New D&B not approved by its Board of Directors. Such provisions may also have the effect of discouraging third parties from making proposals involving an acquisition or change of control of New D&B, although such proposals, if made, might be considered desirable by a majority of the stockholders of New D&B. Such provisions could further have the effect of making it more difficult for third parties to cause the replacement of the Board of Directors of New D&B. These provisions have been designed to enable New D&B to develop its businesses and foster its long-term growth without disruptions caused by the threat of a takeover not deemed by its Board of Directors to be in the best interests of New D&B and its stockholders. Certain provisions of the Distribution Agreement to be entered into between D&B and New D&B may also have the effect of discouraging third parties from making proposals involving an acquisition or change of control of New D&B. See "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Distribution Agreement". New D&B expects to adopt a stockholder rights plan. The stockholder rights plan is designed to protect stockholders in the event of an unsolicited offer and other takeover tactics which, in the opinion of the New D&B Board of Directors, could impair its ability to represent stockholder interests. The provisions of the stockholder rights plan may render an unsolicited takeover of New D&B more difficult or less likely to occur or might prevent such a takeover. See "Description of The New Dun & Bradstreet Corporation Capital Stock -- The New Dun & Bradstreet Corporation Rights Plan". New D&B will be subject to provisions of Delaware corporate law which may restrict certain business combination transactions. See "Description of The New Dun & Bradstreet Corporation Capital Stock -- Delaware General Corporation Law". See also "Description of The New Dun & Bradstreet Corporation Capital Stock -- Provisions of The New Dun & Bradstreet Corporation Restated Certificate of Incorporation and Amended and Restated By-laws Affecting Change in Control". Risk Factors............... Stockholders should carefully consider the matters discussed under the section entitled "Risk Factors" in this Information Statement. * * * This Information Statement is being furnished by D&B solely to provide information to stockholders of D&B who will receive New D&B Common Stock in the Distribution and who will own Reuben H. Donnelley Common Stock immediately after the Distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any securities of D&B, New D&B or Reuben H. Donnelley. The information contained in this Information Statement is believed by D&B and New D&B to be accurate with respect to D&B, New D&B and Reuben H. Donnelley as of the date set forth on the cover. Changes may occur after that date, and none of D&B, New D&B or Reuben H. Donnelley will update the information except in the normal course of their respective public disclosure practices. 7 10 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) SUMMARY FINANCIAL DATA The Summary Financial Data of New D&B are derived from the audited and unaudited interim financial statements of D&B, which reflect the Reuben H. Donnelley Business as a discontinued operation. The historical financial statements of D&B as of December 31, 1996 and 1997 and for each of the years in the three year period ended December 31, 1997 and as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 are contained elsewhere in this Information Statement. The information set forth below should be read in conjunction with, and is qualified in its entirety by, the information under "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Selected Financial Data", "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Consolidated Pro Forma Condensed Financial Statements" and "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Management's Discussion and Analysis of Financial Condition and Results of Operations" and in D&B's Consolidated Financial Statements and Notes thereto included elsewhere in this Information Statement.
FOR THE THREE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31, --------------------------------------------- ---------------------------------- HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1) ------------------------------ ------------ ------------------- ------------ 1995 1996 1997 1997 1997 1998 1998 -------- -------- -------- ------------ -------- -------- ------------ (AMOUNTS IN MILLIONS, EXCEPT FOR PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Operating Revenues........... $1,734.5 $1,781.7 $1,811.0 $1,811.0 Income (Loss) from Continuing Operations(2).............. $ 94.9 $ (116.7) $ 219.0 $ 238.4 EARNINGS (LOSS) PER SHARE OF COMMON STOCK FROM CONTINUING OPERATIONS: Basic........................ $ 0.56 $ (0.69) $ 1.28 $ 1.40 Diluted...................... $ 0.55 $ (0.68) $ 1.27 $ 1.38 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic........................ 169.5 170.0 170.8 170.8 Diluted...................... 171.6 171.6 172.6 172.6
AS OF DECEMBER 31, AS OF MARCH 31, --------------------------------------------- ------------------------- HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1) ------------------------------ ------------ ---------- ------------ 1995 1996 1997 1997 1998 1998 -------- -------- -------- ------------ ---------- ------------ (AMOUNTS IN MILLIONS) (AMOUNTS IN MILLIONS) BALANCE SHEET DATA: Total Assets(3)............. $3,628.5 $2,209.0 $2,086.0 $1,867.9 Shareholders' Equity........ $1,182.5 $ (431.7) $ (490.2) $ (286.7)
- --------------- (1) See "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Consolidated Pro Forma Condensed Financial Statements". (2) 1995 included a fourth-quarter non-recurring pre-tax charge of $188.5 million partially offset by gains of $90.0 million and $28.0 million for the sale of Interactive Data Corporation and warrants received in connection with the sale of Donnelley Marketing, respectively. 1996 included one-time pre-tax charges of $161.2 million for reorganization costs and the loss on the sale of American Credit Indemnity of $68.2 million. (3) Includes net assets of discontinued operations of $1,652.2 million, $430.6 million and $296.5 million, as of December 31, 1995, 1996 and 1997, respectively. 1995 net assets of discontinued operations include the net assets of Cognizant Corporation and ACNielsen Corporation of $1,207.3 million. 8 11 THE REUBEN H. DONNELLEY CORPORATION SUMMARY FINANCIAL DATA The Summary Financial Data of Reuben H. Donnelley as of December 31, 1996 and 1997, and for each of the years in the three year period ended December 31, 1997, are derived from the audited financial statements of Reuben H. Donnelley. The Summary Financial Data as of December 31, 1995, March 31, 1998 and for the three months ended March 31, 1997 and 1998 are derived from the unaudited financial statements of Reuben H. Donnelley. The historical financial statements of Reuben H. Donnelley contained in this Information Statement are presented as if Reuben H. Donnelley were a stand-alone entity for all periods presented. The information set forth below should be read in conjunction with, and is qualified in its entirety by, the information under "The Reuben H. Donnelley Corporation Pro Forma Condensed Financial Statements", "The Reuben H. Donnelley Corporation Selected Financial Data" and "The Reuben H. Donnelley Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations" and in The Reuben H. Donnelley Corporation Financial Statements and Notes thereto included elsewhere in this Information Statement.
FOR THE YEAR ENDED DECEMBER 31, FOR THE THREE MONTHS ENDED MARCH 31, --------------------------------------------------- -------------------------------------- HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1) ------------------------------------ ------------ ----------------------- ------------ 1995 1996 1997 1997 1997 1998 1998 ---------- ---------- ---------- ------------ ---------- ---------- ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues(2).......... $ 312,940 $ 270,029 $ 239,865 $ 239,865 Income from Partnerships and Related Fees....... $ 137,180 $ 132,945 $ 130,171 $ 130,171 Operating Income(2).......... $ 182,795 $ 167,442 $ 134,739 $ 134,739 Net Income........... $ 108,397 $ 78,085 $ 84,905 $ 59,923 PRO FORMA EARNINGS PER SHARE DATA(3): Basic................ $ 0.64 $ 0.46 $ 0.50 $ 0.35 Diluted.............. $ 0.64 $ 0.46 $ 0.50 $ 0.35 SHARES USED IN COMPUTING PRO FORMA EARNINGS PER SHARE(3): Basic................ 169,522 170,017 170,765 170,765 Diluted.............. 169,883 170,289 171,065 171,065 OTHER FINANCIAL DATA: Gross Advertising Sales(2)(4)........ $1,145,944 $1,115,560 $1,067,242 $1,067,242
AS OF DECEMBER 31, AS OF MARCH 31, --------------------------------------------------- ------------------------- HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1) ------------------------------------ ------------ ---------- ------------ 1995 1996 1997 1997 1998 1998 ---------- ---------- ---------- ------------ ---------- ------------ (AMOUNTS IN THOUSANDS) (AMOUNTS IN THOUSANDS) BALANCE SHEET DATA: Total Asset(2)....... $ 520,214 $ 502,193 $ 382,286 $ 392,786 Long Term Debt....... $ -- $ -- $ -- $ 500,000 Shareholder's Equity (Deficit).......... $ 386,565 $ 379,184 $ 258,675 $ (230,825)
9 12 - --------------- (1) See "The Reuben H. Donnelley Corporation Pro Forma Condensed Financial Statements". (2) The summary financial data above include amounts related to businesses that have been sold and will not be included in Reuben H. Donnelley's results in future periods. The P-West (as hereinafter defined) business was sold in May 1996 and the P-East (as hereinafter defined) business was sold in December 1997. The above summary financial data contain the following amounts applicable to those businesses.
(AMOUNTS IN THOUSANDS) 1995 1996 1997 -------- -------- -------- Revenues....................................... $140,104 $ 97,263 $ 77,979 Operating Income............................... $ 22,250 $ 18,587 $ 10,969 Total Assets................................... $131,751 $ 80,962 $ -- Gross Advertising Sales........................ $133,389 $ 89,939 $ 73,753
(3) The computation of pro forma basic earnings per share for the periods presented is based upon the historical weighted average number of shares of D&B Common Stock outstanding, reflecting the one-for-one distribution ratio. The computation of pro forma diluted earnings per share is based upon the historical weighted average number of shares of D&B Common Stock outstanding and potentially dilutive shares of Reuben H. Donnelly Common Stock. (4) The unaudited gross advertising sales is the billing value of advertisements sold by Reuben H. Donnelley and its partnerships. 10 13 FORWARD-LOOKING STATEMENTS This Information Statement and other materials filed or to be filed by D&B and New D&B with the Securities and Exchange Commission (the "SEC"), as well as information included in oral statements or other written statements made or to be made by D&B and New D&B, contain statements which constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this document and include, but are not limited to, all statements relating to plans for future growth and other business development activities as well as capital expenditures, financing sources and the effects of regulation and competition, the terms of the Distribution and all other statements regarding the intent, plans, belief or expectations of the parties or their directors or officers. Stockholders are cautioned that such forward-looking statements are not assurances of future performance or events and involve risks and uncertainties that could cause actual results and developments to differ materially from those covered in such forward-looking statements. These risks and uncertainties include, but are not limited to, the complexity and uncertainty regarding the development of new high-technology products; loss of market share through competition; introduction of competing products or technologies by other companies; pricing pressures from competitors and/or customers; changes in the business information, risk management and yellow pages industries and markets; the inability to protect proprietary information and technology or to obtain necessary licenses on commercially reasonable terms; decreases in the volume of debt securities issued in global capital markets; the loss of key employees to investment or commercial banks, or elsewhere; the inability to timely and cost-effectively resolve any problems associated with the Year 2000 issue; leverage and debt service (including sensitivity to fluctuations in interest rates); compliance with covenants in loan agreements; the inability to obtain future financing on satisfactory terms; and the final allocation of assets and liabilities in connection with the Distribution. Consequently, all the forward-looking statements contained in this Information Statement are qualified by the information contained or incorporated herein, including, but not limited to, the information contained under this heading and in "Risk Factors", "The Distribution", "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Capitalization", "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Management's Discussion and Analysis of Financial Condition and Results of Operations", "The New Dun & Bradstreet Corporation Business", "The Reuben H. Donnelley Corporation Capitalization", "The Reuben H. Donnelley Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations" and "The Reuben H. Donnelley Corporation Business". Neither D&B nor New D&B has any obligation to publicly release any revision to any forward-looking statement contained or incorporated herein to reflect any future events or occurrences. 11 14 RISK FACTORS RISKS RELATING TO THE NEW DUN & BRADSTREET CORPORATION AND THE REUBEN H. DONNELLEY CORPORATION Potential Taxation D&B has received a ruling from the Internal Revenue Service to the effect that, among other things, the Distribution will qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). The Internal Revenue Service ruling is based on certain factual representations made by D&B. If such factual representations were incorrect in a material respect, such ruling could become invalid. D&B is not aware of any facts or circumstances which would cause such representations to be incorrect in a material respect. Each of D&B and New D&B will agree in the Distribution Agreement to certain restrictions on its future actions to provide further assurances that Section 355 of the Internal Revenue Code will apply to the Distribution. See "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution". If the Distribution were not to qualify under Section 355 of the Internal Revenue Code, then, in general, a corporate tax (which would be very substantial) would be payable by the consolidated group, of which D&B is the common parent. In addition, under the consolidated return rules, each member of the consolidated group would be jointly and severally liable for such tax liability. If the Distribution occurred and it were not to qualify under Section 355 of the Internal Revenue Code, the resulting tax liability would have a material adverse effect on the financial position, results of operations and cash flows of each of New D&B and Reuben H. Donnelley. D&B estimates that the aggregate shared tax liability in this regard of New D&B and Reuben H. Donnelley would be in the range of approximately $1.5 to $2.0 billion. See "The Distribution -- Federal Income Tax Consequences of the Distribution". Moreover, if the Distribution were not to qualify under Section 355 of the Internal Revenue Code, each D&B stockholder receiving shares of New D&B Common Stock in the Distribution would be treated as if such stockholder had received a taxable distribution in an amount equal to the fair market value of the New D&B Common Stock received. See "The Distribution -- Federal Income Tax Consequences of the Distribution". Year 2000 Many existing computer systems and software applications may not properly record or interpret years after the year 1999. Each of New D&B and Reuben H. Donnelley relies on computer hardware, software and related technology, together with data generated therefrom, in the operation of their respective businesses. Such technology and data are used in creating and delivering the respective products and services of New D&B and Reuben H. Donnelley. There can be no assurance that New D&B or Reuben H. Donnelley will be able to timely or cost-effectively complete Year 2000 remediation programs, that such programs will be successful or that the failure by either company or by third parties outside of their control with whom they transact business to adequately address their respective Year 2000 issues will not have a material adverse effect on New D&B or Reuben H. Donnelley. See "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Management's Discussion and Analysis of Financial Condition and Results of Operations" and "The Reuben H. Donnelley Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations". RISKS RELATING TO THE NEW DUN & BRADSTREET CORPORATION Absence of Prior Trading Market for the New D&B Common Stock Prior to the date hereof, there has not been any established trading market for New D&B Common Stock. Application will be made to list the shares of New D&B Common Stock on the NYSE under the symbol "DNB", and trading is expected to commence on a "when-issued" basis prior to the Distribution. See 12 15 "The Distribution -- Listing and Trading of New D&B Common Stock and Reuben H. Donnelley Common Stock". Changes in Trading Prices of New D&B Common Stock There can be no assurance as to the prices at which the New D&B Common Stock will trade before, on or after the Distribution Date. Until the New D&B Common Stock is fully distributed and an orderly market develops in the New D&B Common Stock, the price at which such stock trades may fluctuate significantly and may be lower or higher than the price that would be expected for a fully distributed issue. Prices for the New D&B Common Stock will be determined in the marketplace and may be influenced by many factors, including (i) the depth and liquidity of the market for New D&B Common Stock, (ii) developments affecting the businesses of New D&B generally and the impact of those factors referred to below in particular, (iii) investor perception of New D&B and (iv) general economic and market conditions. Risk of Interest Rate and Exchange Rate Fluctuations New D&B expects to fund its operations primarily through its commercial paper program and other short-term bank lines of credit. Since New D&B will operate in more than 38 countries, it will be exposed to market risk from changes in interest rates and foreign exchange rates which could affect its results of operations and financial condition. In order to reduce the risk from fluctuations in interest rate and foreign currencies, New D&B may enter into interest rate swap agreements and/or forward foreign exchange contracts. These derivative financial instruments are viewed by New D&B as risk management tools that are entered into for hedging purposes only; New D&B does not intend to use derivative financial instruments for trading or speculative purposes. However, there can be no assurance that New D&B will attempt to or be able to hedge all of its interest rate and foreign exchange exposure at a satisfactory cost or that such rate fluctuations will not adversely affect the results of operations and financial condition of New D&B. Technology New D&B will compete in businesses which require sophisticated information systems, software and other technology. The types of systems which New D&B's businesses require can be expected to be subject to refinements as such systems and underlying technologies are upgraded and advanced, and there can be no guarantee that as various systems and technologies become outdated, New D&B will be able to replace them, to replace them as quickly as New D&B's competition or to develop and market new and better products and services in the future on a cost-effective basis. Litigation On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming as defendants D&B, A.C. Nielsen Company and IMS International Inc. (the "IRI Action"). The complaint alleges, among other things, various violations of the antitrust laws and damages in excess of $350 million, which amount IRI has asked to be trebled under the antitrust laws. IRI also seeks punitive damages in an unspecified amount. In connection with such action, D&B, ACNielsen Corporation ("ACNielsen") and Cognizant Corporation ("Cognizant") entered into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense Agreement") pursuant to which ACNielsen agreed to be responsible for any potential liabilities which may ultimately be incurred by D&B or Cognizant as a result of such action, up to a maximum amount to be determined by an independent investment bank if and when any such liabilities are incurred. The determination of such maximum amount will be based on ACNielsen's ability to satisfy such liabilities and remain financially viable, subject to certain assumptions and limitations. However, D&B and Cognizant have agreed that to the extent that ACNielsen is unable to satisfy any such liabilities in full and remain financially viable, D&B and Cognizant will each be responsible for 50% of the difference between the amount, if any, which may be payable as a result of such litigation and the maximum amount which ACNielsen is then able to pay as determined by such investment bank. Under the terms of the Distribution Agreement, dated as of October 28, 1996, among D&B, Cognizant and ACNielsen (the "1996 Distribution Agreement"), as a condition to the Distribution, New D&B is 13 16 required to undertake to be jointly and severally liable with D&B to Cognizant and ACNielsen. Pursuant to the Distribution Agreement, New D&B will assume and indemnify Reuben H. Donnelley against any payments to be made in respect of the IRI Action under the Indemnity and Joint Defense Agreement, the Distribution Agreement or otherwise, including any ongoing legal fees and expenses related thereto. Management of New D&B is unable to predict at this time the final outcome of the IRI Action or whether the resolution of such matter could materially affect New D&B's results of operations, cash flows or financial position. Certain Antitakeover Provisions The Restated Certificate of Incorporation and Amended and Restated By-laws of New D&B contain provisions that may have the effect of discouraging an acquisition of control of New D&B not approved by its Board of Directors. Such provisions may also have the effect of discouraging third parties from making proposals involving an acquisition or change of control of New D&B, although such proposals, if made, might be considered desirable by a majority of the stockholders of New D&B. Such provisions could further have the effect of making it more difficult for third parties to cause the replacement of the Board of Directors of New D&B. These provisions have been designed to enable New D&B to develop its businesses and foster its long-term growth without disruptions caused by the threat of a takeover not deemed by its Board of Directors to be in the best interests of New D&B and its stockholders. Certain provisions of the Distribution Agreement may also have the effect of discouraging third parties from making proposals involving an acquisition or change of control of New D&B. See "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Distribution Agreement". New D&B expects to adopt a stockholder rights plan. This stockholder rights plan is designed to protect stockholders in the event of an unsolicited offer and other takeover tactics which, in the opinion of the New D&B Board of Directors, could impair its ability to represent stockholder interests. The provisions of this stockholder rights plan may render an unsolicited takeover of New D&B more difficult or less likely to occur or might prevent such a takeover. See "Description of The New Dun & Bradstreet Corporation Capital Stock -- The New Dun & Bradstreet Corporation Rights Plan". New D&B will be subject to the provisions of Delaware corporate law which may restrict certain business combination transactions. See "Description of The New Dun & Bradstreet Corporation Capital Stock -- Delaware General Corporation Law". RISKS RELATING TO REUBEN H. DONNELLEY Dependence on Key Contracts Reuben H. Donnelley's business is dependent upon several significant partnership and agency agreements. These include the DonTech partnership ("DonTech"), a partnership with Ameritech advertising services, a subsidiary of Ameritech Corporation ("Ameritech"), and the CenDon partnership ("CenDon"), a partnership with Centel Directory Company, a subsidiary of Sprint Corporation ("Sprint"), as well as sales agency agreements with Bell Atlantic Yellow Pages Company, a subsidiary of Bell Atlantic Corporation ("Bell Atlantic"), and Sprint Publishing and Advertising, a subsidiary of Sprint. The equity income from the DonTech partnership and the fees from the other arrangement with Ameritech, as well as the equity income from the CenDon partnership, are not included in Reuben H. Donnelley's revenues but are included in its operating income. The DonTech partnership, which is perpetual, and other arrangements with Ameritech represented approximately 86% of Reuben H. Donnelley's operating income in 1997. The CenDon partnership represented approximately 9% of Reuben H. Donnelley's operating income in 1997. The Bell Atlantic sales agency agreement, the CenDon partnership sales agency agreement and the Sprint sales agency agreement represented approximately 36%, 12% and 5% of Reuben H. Donnelley's revenues in 1997, respectively. Under their existing terms, the CenDon partnership and the Sprint sales agency agreements continue through 2004 and the Bell Atlantic sales agency agreement continues through 2005. While these partnerships and sales agency agreements currently extend for significant periods, no assurance can be given that Reuben H. Donnelley will be able to maintain these agreements and relationships after expiration of the 14 17 current terms or that a termination, expiration or significant modification of these arrangements would not have a material adverse effect on Reuben H. Donnelley's business, financial condition or results of operations. Certain of these agreements are subject to termination upon a change of control of Reuben H. Donnelley. Substantial Indebtedness In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be an obligation of Reuben H. Donnelley after the Distribution. After the Distribution, Reuben H. Donnelley will have indebtedness that is substantial in relation to its stockholders' equity. While management believes Reuben H. Donnelley's cash flow will be sufficient to service its debt and to reinvest in its business, a substantial portion of Reuben H. Donnelley's cash flow will be dedicated to payments of principal and interest on debt, thereby reducing funds available for other purposes such as investment in new technologies, acquisitions or other enhancements to its business. Covenants in the credit facility or other financing agreements relating to such debt may restrict Reuben H. Donnelley's ability to dispose of assets, incur additional indebtedness, repay other indebtedness, pay dividends, create liens on assets, make investments or acquisitions, engage in mergers or consolidations, make capital expenditures or engage in other corporate activities. In addition, Reuben H. Donnelley's ability to obtain additional financing on favorable terms may be impaired in the future. Competition There is competition to varying degrees from other yellow pages publishers in the markets that Reuben H. Donnelley serves. While the largest potential competitor in each market is the local telephone company, in most of its markets, Reuben H. Donnelley has a contractual relationship with that company. There is also competition for advertising dollars by newspapers, radio, direct mail, online information services and television, and advances in technology have brought in new industry participants, new products and new channels. The increasing use of the Internet by consumers as a means to transact commerce may result in new technologies being developed and services provided that could compete with Reuben H. Donnelley's products and services. There can be no assurance that Reuben H. Donnelley will be successful in responding quickly and cost-effectively to any such developments. Effect of Distribution on Trading Market of Reuben H. Donnelley Common Stock Reuben H. Donnelley Common Stock (i.e. the "old" D&B Common Stock) will continue to trade on the NYSE after the Distribution, but the symbol under which it trades will change from "DNB" to "RHD". However, because of the significant changes that will take place as a result of the Distribution, the trading market for Reuben H. Donnelley Common Stock after the Distribution may be significantly different from that for D&B Common Stock prior to the Distribution. After the Distribution, D&B's only remaining business will be the Reuben H. Donnelley Business and the shares of Reuben H. Donnelley Common Stock held by D&B stockholders will represent their continuing interest in that business. The market may view Reuben H. Donnelley as a "new" company after the Distribution, and due to its smaller size, it may not be the subject of significant research analyst coverage. There can be no assurance as to the prices at which the Reuben H. Donnelley Common Stock will trade before, on or after the Distribution Date, and until an orderly market develops in the Reuben H. Donnelley Common Stock, the price at which it trades may fluctuate significantly. Prices for Reuben H. Donnelley Common Stock will be determined in the marketplace and may be influenced by many factors, including (i) the depth and liquidity of the market for Reuben H. Donnelley Common Stock, (ii) developments affecting the businesses of Reuben H. Donnelley including the impact of the factors referred to in this section, (iii) investor perception of Reuben H. Donnelley and (iv) general economic and market conditions. 15 18 Access to Capital as an Independent Company Prior to the Distribution, Reuben H. Donnelley has relied on D&B for various financial and administrative services as well as for certain funding. After the Distribution, Reuben H. Donnelley will be an independent entity responsible for financing its own operations. To the extent that Reuben H. Donnelley needs additional funding to finance its operations and capital expenditures, no assurance can be given that Reuben H. Donnelley will be able to access the capital markets or otherwise obtain necessary financing in the future, or that any such financing can be obtained in a timely manner or on commercially favorable terms. Technology Reuben H. Donnelley competes in a business which requires sophisticated information systems, software and other technology. The classified directory advertising market is subject to changes arising from developments in technology (including with respect to methods for distributing information) and users' technological preferences. As a result of these factors, Reuben H. Donnelley's growth and future financial performance may depend upon its ability to develop and market new products and services and to create new distribution channels, while enhancing existing products, services and distribution channels, in order to accommodate the latest technological advances and user preferences, including use of the Internet. A failure by Reuben H. Donnelley to anticipate or respond adequately to changes in technology and user preferences, or an inability to finance the necessary capital expenditures to do so, could have a material adverse effect on Reuben H. Donnelley's business, operating results or financial condition. 16 19 THE DISTRIBUTION INTRODUCTION On December 17, 1997, the Board of Directors of D&B announced a plan to distribute the New D&B Common Stock to all holders of outstanding D&B Common Stock. On , 1998, the D&B Board of Directors formally approved the Distribution and declared a dividend payable to each holder of record at the close of business on the Record Date of one share of New D&B Common Stock for each share of D&B Common Stock held by such holder at the close of business on the Record Date. D&B has received a tax ruling from the Internal Revenue Service that the receipt by D&B stockholders of the New D&B Common Stock in the Distribution will be tax-free to such stockholders and D&B for Federal income tax purposes. On or before the Distribution Date, D&B will deliver all of the outstanding shares of New D&B Common Stock to the Distribution Agent for transfer and distribution to the holders of record of D&B Common Stock at the close of business on the Record Date. The Distribution will be made on or about , 1998. Questions relating to the Distribution prior to the Distribution Date or relating to transfers of New D&B Common Stock after the Distribution Date should be directed to: First Chicago Trust Company of New York, Mail Suite 4694, P.O. Box 2536, Jersey City, NJ 06303-2536, telephone number: (800) 519-3111. REASONS FOR THE DISTRIBUTION The Board of Directors of D&B believes that the Distribution is in the best interests of D&B and D&B's stockholders and that the separation of New D&B will provide each of New D&B and Reuben H. Donnelley with greater managerial and operational flexibility to respond to changing market conditions in their different business environments as well as provide New D&B with additional financial flexibility to pursue growth opportunities. The discussion of the reasons for the Distribution set forth herein includes forward-looking statements that are based upon numerous assumptions with respect to the trading characteristics of the New D&B Common Stock, the ability of New D&B management to successfully take advantage of growth opportunities and the ability of Reuben H. Donnelley to successfully operate as a stand-alone company. Many of such factors are discussed above under the captions "Forward-Looking Statements" and "Risk Factors". Management Considerations. At present, the Reuben H. Donnelley Business and the New D&B Business are conducted as separate operating groups under the direction of D&B. The Distribution should be beneficial to each of D&B's operating groups, allowing the management of each group to design and implement corporate policies and strategies that are based primarily on the business characteristics of the group and to concentrate its financial resources wholly on its own operations. The Distribution will also permit each of New D&B and Reuben H. Donnelley to design incentive compensation programs that relate more directly to its own business characteristics and performance and will provide each company with a "pure play" publicly traded equity for use in its compensation programs. Provide Independent Access to Capital Markets; Facilitate Growth of The New Dun & Bradstreet Corporation. New D&B intends to pursue growth opportunities in its business areas and the separation of the businesses is expected to provide New D&B with additional financial flexibility to do so. After the Distribution, New D&B will have a capital structure that is expected to facilitate the acquisitions, joint ventures, partnerships and internal expansion that are important to remaining competitive in the information services business. Management of D&B believes that the Distribution will facilitate New D&B's growth in part because it believes that the New D&B Common Stock will generally trade at higher price-earnings multiples than those at which D&B Common Stock has recently traded. Such higher multiples would make such stock a more attractive acquisition currency for New D&B to deliver, and to the extent such stock is perceived to be a higher-growth stock, a generally more attractive investment opportunity for the typical seller of a business to New D&B. In addition, New D&B would be able to finance additional growth opportunities through the sale of capital stock with a higher price-earnings multiple. 17 20 Investor Understanding; Public Relations. Investors should be able to evaluate better the financial performance of each of New D&B and Reuben H. Donnelley and their respective strategies, thereby enhancing the likelihood that each will achieve appropriate market valuation. In addition, each of the businesses will be able to focus its public relations efforts on cultivating its own separate identity. FORM OF TRANSACTION; BASIS OF PRESENTATION The Distribution is the method by which D&B will be separated into two publicly traded companies, New D&B and Reuben H. Donnelley. In the Distribution, D&B will distribute to its stockholders shares of New D&B Common Stock, which will represent a continuing interest in D&B's businesses to be conducted by New D&B. After the Distribution, D&B's only business will be the Reuben H. Donnelley Business, and the shares of D&B Common Stock held by D&B stockholders will represent a continuing ownership interest only in that business. At the time of the Distribution, (i) D&B will change its name to "The Reuben H. Donnelley Corporation" (and therefore from and after the Distribution, D&B Common Stock will be "Reuben H. Donnelley Common Stock") and (ii) New D&B will change its name to "The Dun & Bradstreet Corporation". Stockholders should note that notwithstanding the legal form of the Distribution described above whereby D&B expects to spin off New D&B, because of the relative significance of the New D&B Business to D&B, New D&B will be treated as the "accounting successor" to D&B for financial reporting purposes. Therefore, the historical financial information for New D&B included herein is that of D&B with the Reuben H. Donnelley Business treated as a discontinued operation. The historical financial information for Reuben H. Donnelley has been prepared on a stand-alone basis as described in Note 1 to The Reuben H. Donnelley Corporation Financial Statements included elsewhere in this Information Statement. Such historical financial information includes allocations of certain D&B corporate headquarters assets, liabilities and expenses relating to Reuben H. Donnelley. MANNER OF EFFECTING THE DISTRIBUTION The Distribution will be made on the Distribution Date to stockholders of record of D&B at the close of business on the Record Date. Based on the shares of D&B Common Stock outstanding as of , 1998, the Distribution would consist of shares of New D&B Common Stock. Prior to the Distribution Date, D&B will deliver all outstanding shares of New D&B Common Stock to the Distribution Agent for distribution. The Distribution Agent will mail, on or about the Distribution Date, certificates representing the shares of New D&B Common Stock to D&B stockholders of record at the close of business on the Record Date. D&B stockholders will not be required to pay for shares of New D&B Common Stock received in the Distribution, or to surrender or exchange certificates representing shares of D&B Common Stock in order to receive shares of New D&B Common Stock. No vote of D&B stockholders is required or sought in connection with the Distribution. IN ORDER TO BE ENTITLED TO RECEIVE SHARES OF NEW D&B COMMON STOCK IN THE DISTRIBUTION, D&B STOCKHOLDERS MUST BE STOCKHOLDERS AT THE CLOSE OF BUSINESS ON THE RECORD DATE, , 1998. The Board of Directors of New D&B expects to adopt a stockholder rights plan. Certificates evidencing shares of New D&B Common Stock issued in the Distribution will therefore represent the same number of New D&B Rights issued under the New D&B Rights Plan. See "Description of The New Dun & Bradstreet Corporation Capital Stock -- The New Dun & Bradstreet Corporation Rights Plan". Unless the context otherwise requires, references herein to the New D&B Common Stock include the related New D&B Rights. 18 21 FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION D&B has received a ruling letter from the Internal Revenue Service to the effect that, among other things, the Distribution will qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code. Under Section 355 of the Internal Revenue Code, in general: 1. Holders of D&B Common Stock will not recognize any income, gain or loss as a result of the Distribution. 2. Holders of D&B Common Stock will apportion the tax basis of their D&B Common Stock between such D&B Common Stock and New D&B Common Stock received by such holder in the Distribution in proportion to the relative fair market values of such stock on the Distribution Date. D&B will provide appropriate information to each holder of record of D&B Common Stock as of the close of business on the Record Date concerning the basis allocation. 3. The holding period for the New D&B Common Stock received in the Distribution by holders of D&B Common Stock will include the period during which such holder held the D&B Common Stock with respect to which the Distribution was made, provided that such D&B Common Stock is held as a capital asset by such holder on the Distribution Date. 4. The Distribution will not be treated as a taxable disposition of New D&B by D&B. Current Treasury regulations require each holder of D&B Common Stock who receives New D&B Common Stock pursuant to the Distribution to attach to his or her Federal income tax return for the year in which the Distribution occurs a detailed statement setting forth such data as may be appropriate in order to show the applicability of Section 355 of the Internal Revenue Code to the Distribution. D&B will convey the appropriate information to each holder of record of D&B Common Stock as of the close of business on the Record Date. The Internal Revenue Service ruling is based on certain factual representations made by D&B. If such factual representations were incorrect in a material respect, such ruling could become invalid. D&B is not aware of any facts or circumstances which would cause such representations to be incorrect in a material respect. Each of D&B and New D&B has agreed to certain restrictions on its future actions to provide further assurances that Section 355 of the Internal Revenue Code will apply to the Distribution. See "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution". If the Distribution were not to qualify under Section 355 of the Internal Revenue Code, then in general, a corporate tax (which, as noted below, would be very substantial) would be payable by the consolidated group, of which D&B is the common parent, based upon the difference between (x) the fair market value of the New D&B Common Stock and (y) the adjusted basis of such New D&B Common Stock. In addition, under the consolidated return rules, each member of the consolidated group would be jointly and severally liable for such tax liability. If the Distribution occurred and it were not to qualify under Section 355 of the Internal Revenue Code, the resulting tax liability would have a material adverse effect on the financial position, results of operations and cash flows of each of New D&B and Reuben H. Donnelley. D&B estimates that the aggregate shared tax liability in this regard of New D&B and Reuben H. Donnelley would be in the range of approximately $1.5 to $2.0 billion. Furthermore, if the Distribution were not to qualify as a tax-free spin-off, each D&B stockholder receiving shares of New D&B Common Stock in the Distribution would be treated as if such stockholder had received a taxable distribution in an amount equal to the fair market value of New D&B Common Stock received, which would result in (i) a dividend to the extent of such stockholder's pro rata share of D&B's current and accumulated earnings and profits, (ii) a reduction in such stockholder's basis in D&B Common Stock to the extent the amount received exceeds such stockholder's share of earnings and profits and (iii) a capital gain to the extent the amount received exceeds the sum of the amount treated as a dividend and the stockholder's basis. 19 22 The foregoing summary of the anticipated Federal income tax consequences of the Distribution is for general information only. D&B STOCKHOLDERS SHOULD CONSULT THEIR OWN ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCE OF THE DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL TAX LAWS. LISTING AND TRADING OF NEW D&B COMMON STOCK AND REUBEN H. DONNELLEY COMMON STOCK Prior to the date hereof, there has not been any established trading market for New D&B Common Stock. Application will be made to list the shares of New D&B Common Stock on the NYSE under the symbol "DNB", and trading is expected to commence on a "when-issued" basis at least two days prior to the Record Date. On the first NYSE trading day following the Distribution Date, "when-issued" trading in respect of the New D&B Common Stock will end and "regular-way" trading will begin. There can be no assurance as to the prices at which the New D&B Common Stock will trade before, on or after the Distribution Date. Until the New D&B Common Stock is fully distributed and an orderly market develops in the New D&B Common Stock, the price at which it trades may fluctuate significantly and may be lower or higher than the price that would be expected for a fully distributed issue. Prices for the New D&B Common Stock will be determined in the marketplace and may be influenced by many factors, including (i) the depth and liquidity of the market for New D&B Common Stock, (ii) developments affecting the businesses of New D&B generally and the impact of the factors referred to in "Risk Factors" above, (iii) investor perception of New D&B and (iv) general economic and market conditions. Shares of New D&B Common Stock distributed to D&B stockholders will be freely transferable, except for shares of New D&B Common Stock received by persons who may be deemed to be "affiliates" of New D&B under the Securities Act of 1933, as amended (the "Securities Act"). Persons who may be deemed to be affiliates of New D&B after the Distribution generally include individuals or entities that control, are controlled by, or are under common control with, New D&B, and may include certain officers and directors of New D&B, as well as principal stockholders of New D&B. Persons who are affiliates of New D&B will be permitted to sell their shares of New D&B Common Stock only pursuant to an effective registration statement under the Securities Act or an exemption for the registration requirements of the Securities Act, such as the exemption afforded by Section 4(1) of the Securities Act or Rule 144 thereunder. Reuben H. Donnelley Common Stock (i.e. the "old" D&B Common Stock) will continue to trade on the NYSE after the Distribution, but the symbol under which it trades will change from "DNB" to "RHD". However, because of the significant changes that will take place as a result of the Distribution, the trading market for Reuben H. Donnelley Common Stock after the Distribution may be significantly different from that for D&B Common Stock prior to the Distribution. The market may view Reuben H. Donnelley as a "new" company after the Distribution, and due to its smaller size it may not be the subject of significant research analyst coverage. There can be no assurance as to the prices at which Reuben H. Donnelley Common Stock will trade before, on or after the Distribution Date and until an orderly market develops in the Reuben H. Donnelley Common Stock, the price at which it trades may fluctuate significantly. Prices for Reuben H. Donnelley Common Stock will be determined in the marketplace and may be influenced by many factors, including (i) the depth and liquidity of the market for Reuben H. Donnelley Common Stock, (ii) developments affecting the businesses of Reuben H. Donnelley, including the impact of the factors referred to in "Risk Factors" above, (iii) investor perception of Reuben H. Donnelley and (iv) general economic and market conditions. CERTAIN INDEBTEDNESS AND MINORITY INTEREST FINANCING In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be an obligation of Reuben H. Donnelley after the Distribution. While the final form of such financing has not yet been determined, it is expected that approximately $350 million will come from a senior secured credit facility and the remainder will come from the issuance of senior subordinated notes. New D&B will retain the obligation for approximately $300 million of existing minority interest financing. 20 23 RELATIONSHIP BETWEEN THE NEW DUN & BRADSTREET CORPORATION AND THE REUBEN H. DONNELLEY CORPORATION AFTER THE DISTRIBUTION New D&B is presently wholly owned by D&B, and the results of operations of entities that are or will be its subsidiaries have been included in D&B's consolidated financial results. After the Distribution, D&B (which will change its name to "The Reuben H. Donnelley Corporation") will not have any ownership interest in New D&B, and New D&B will be an independent public company. In addition, after the Distribution, New D&B will not have any ownership interest in Reuben H. Donnelley, and Reuben H. Donnelley will be an independent public company. Furthermore, except as described below, all contractual relationships existing prior to the Distribution between D&B and New D&B will be terminated except for contracts specifically set forth in a schedule to the Distribution Agreement. Prior to the Distribution, D&B and New D&B will enter into certain agreements, described below, governing the relationship between Reuben H. Donnelley and New D&B subsequent to the Distribution and providing for the allocation of tax, employee benefits and certain other liabilities and obligations arising from periods prior to the Distribution. Copies of the forms of such agreements have been filed as exhibits to the Registration Statement of New D&B in respect of the registration of the New D&B Common Stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition, D&B will file a Current Report on Form 8-K in connection with the Distribution, and the agreements will be filed as exhibits to such Report. Such agreements may be amended by D&B prior to the Distribution Date. In addition, there will be individuals on the Boards of Directors of New D&B and Reuben H. Donnelley who will also serve on the Board of Directors of the other company. See "The New Dun & Bradstreet Corporation Management and Executive Compensation -- Board of Directors" and "The Reuben H. Donnelley Corporation Management and Executive Compensation -- Board of Directors". The following description summarizes certain terms of such agreements, but is qualified by reference to the text of such agreements, which are incorporated herein by reference. DISTRIBUTION AGREEMENT D&B and New D&B will enter into the Distribution Agreement providing for, among other things, certain corporate transactions required to effect the Distribution and other arrangements between Reuben H. Donnelley and New D&B subsequent to the Distribution. In particular, the Distribution Agreement defines the assets and liabilities which are being allocated to and assumed by New D&B and those which will remain with Reuben H. Donnelley. The Distribution Agreement also defines what constitutes the "New D&B Business" and what constitutes the "Reuben H. Donnelley Business". Pursuant to the Distribution Agreement, D&B is obligated to transfer or cause to be transferred all its right, title and interest in the assets comprising the New D&B Business and other assets not specifically included in the Reuben H. Donnelley Business to New D&B and New D&B is obligated to transfer or cause to be transferred all its right, title and interest in the assets comprising the Reuben H. Donnelley Business to D&B. All assets are being transferred without any representation or warranty, "as is-where is", and the relevant transferee bears the risk that any necessary consent to transfer is not obtained. Each party also agrees to exercise its respective commercially reasonable efforts promptly to obtain any necessary consents and approvals and to take such actions as may be reasonably necessary or desirable to carry out the purposes of the Distribution Agreement and the other agreements summarized below. In general, pursuant to the terms of the Distribution Agreement, all assets of D&B prior to the Distribution Date, other than those relating to the Reuben H. Donnelley Business, will become assets of New D&B. The Distribution Agreement also provides for assumptions of liabilities and cross indemnities designed to allocate generally, effective as of the Distribution Date, financial responsibility for all liabilities of D&B, other than those specified to be transferred to Reuben H. Donnelley on or prior to the Distribution Date or to remain with Reuben H. Donnelley subsequent to the Distribution Date (which liabilities primarily relate to the Reuben H. Donnelley Business or the indebtedness to be incurred in connection with the Distribution), to 21 24 New D&B. For a discussion of the respective businesses of New D&B and Reuben H. Donnelley, see "The New Dun & Bradstreet Corporation Business" and "The Reuben H. Donnelley Corporation Business". The Distribution Agreement provides for the allocation generally of the financial responsibility for the liabilities arising out of or in connection with former businesses, other than those formerly conducted by Reuben H. Donnelley prior to the Distribution, to New D&B. Pursuant to the terms of the 1996 Distribution Agreement, as a condition to the Distribution, New D&B is required to undertake to be jointly and severally liable with D&B to Cognizant and ACNielsen for any liabilities arising thereunder. Pursuant to the Distribution Agreement, all liabilities of D&B under the 1996 Distribution Agreement and related agreements will be liabilities of New D&B, and New D&B will indemnify Reuben H. Donnelley against such liabilities. In addition, any rights of D&B arising under the 1996 Distribution Agreement and related agreements will be rights of New D&B. The Distribution Agreement provides that immediately prior to the Distribution, D&B will transfer $ million in cash to New D&B (or its affiliates). The Distribution Agreement includes provisions governing the administration of certain insurance programs and the procedures for making claims. The Distribution Agreement also allocates the right to proceeds and the obligation to incur deductibles under certain insurance policies. In the event that any transfers contemplated by the Distribution Agreement are not effected on or prior to the Distribution Date, the parties will be required to cooperate to effect such transfers as promptly as practicable following the Distribution Date, and pending any such transfers, to hold any asset not so transferred in trust for the use and benefit of the party entitled thereto (at the expense of the party entitled thereto), and to retain any liability not so transferred for the account of the party by whom such liability is to be assumed. The Distribution Agreement provides that D&B (which will become Reuben H. Donnelley) and New D&B will comply with and otherwise not take action inconsistent with each representation and statement made to the Internal Revenue Service in connection with D&B's request for a ruling letter as to certain tax aspects of the Distribution. Each of D&B and New D&B agrees to maintain its status as a company engaged in the active conduct of a trade or business, as defined in Section 355(b) of the Internal Revenue Code, to continue to own stock of certain operating subsidiaries constituting control (within the meaning of Section 368(c) of the Internal Revenue Code) of such operating subsidiaries and to maintain at least 90% of the fair market value of its assets in the form of stock and securities of certain operating subsidiaries or other assets which will not cause D&B or New D&B to be in violation of the active business requirement under the holding company test pursuant to Section 355 of the Internal Revenue Code, in each case until the second anniversary of the Distribution Date. Neither D&B nor New D&B expects this limitation to inhibit its financing or other activities or its ability to respond to unanticipated developments. Under the Distribution Agreement, D&B agrees that until two years after the Distribution Date it will not (i) merge or consolidate with another corporation, (ii) liquidate or partially liquidate, (iii) sell or transfer all or substantially all of its assets, (iv) redeem or repurchase its stock (except in certain limited circumstances), or (v) take any other action which would result in one or more persons acquiring a 50 percent or greater interest in D&B, unless, prior to taking such action, it obtains a written opinion of a law firm reasonably acceptable to New D&B or a supplemental ruling from the Internal Revenue Service that such action will not affect the tax-free treatment of the Distribution. As a result of the representations in the request for a ruling letter and the covenants in the Distribution Agreement, the acquisition of control of each of Reuben H. Donnelley and New D&B prior to the second anniversary may be more difficult or less likely to occur because of the potential substantial liabilities associated with a breach of such representations or covenants. The Distribution Agreement requires a party that takes or fails to take any action which contributes to a determination that the Distribution is not tax-free to D&B, New D&B or their stockholders to indemnify the other party and its stockholders from any taxes arising therefrom. Under the Distribution Agreement, each of D&B and New D&B agrees to provide to the other party, subject to certain conditions, access to certain corporate records and information and to provide certain 22 25 services on such terms as are set forth in a Data Services Agreement, a Shared Transaction Services Agreement and a Transition Services Agreement between such parties. The Distribution Agreement also provides that, except as otherwise set forth therein or in any other agreement, all costs or expenses in connection with the Distribution will be borne by New D&B. New D&B will agree to be liable for any claims arising from or based upon "controlling person" liability relating to the Registration Statement on Form 10 filed with the SEC by New D&B. Except as set forth in the Distribution Agreement or any related agreement, each party shall bear its own costs and expenses incurred after the Distribution Date. TAX ALLOCATION AGREEMENT D&B and New D&B will enter into a Tax Allocation Agreement to the effect that New D&B will generally be liable for all income taxes of D&B and its subsidiaries attributable to periods prior to the Distribution, provided that in the case of any separate company state or local income taxes, Reuben H. Donnelley and its subsidiaries and New D&B and its subsidiaries will be liable for their own liabilities arising from any audit adjustment. For income taxes attributable to periods beginning after the Distribution, New D&B will be liable for taxes relating to New D&B and its subsidiaries and Reuben H. Donnelley will be liable for taxes relating to Reuben H. Donnelley and its subsidiaries. For all other taxes, New D&B and its subsidiaries and Reuben H. Donnelley and its subsidiaries will be responsible for their own liabilities for all periods. EMPLOYEE BENEFITS AGREEMENT D&B and New D&B will enter into an Employee Benefits Agreement (the "Employee Benefits Agreement"), which allocates responsibility for certain employee benefits matters on and after the Distribution Date. The Employee Benefits Agreement provides that Reuben H. Donnelley will adopt a new defined benefit pension plan for its employees and that New D&B will assume and become the sponsor of the current D&B plan for the benefit of its employees and in general former employees who terminated employment on or prior to the Distribution Date. Assets and liabilities of the current D&B pension plan that are attributable to Reuben H. Donnelley employees will be transferred to the new Reuben H. Donnelley plan. In addition, Reuben H. Donnelley will adopt a new savings plan for its employees, and New D&B will assume and become the sponsor of the D&B savings plan for the benefit of its employees and former employees who terminated employment on or prior to the Distribution Date. The account balances of Reuben H. Donnelley employees will be transferred to the new Reuben H. Donnelley plan. New D&B will assume and become the sponsor of D&B's nonqualified supplemental pension plans for the benefit of persons who, prior to the Distribution Date were participants thereunder; provided, however, that with respect to Reuben H. Donnelley employees, New D&B generally will retain only those liabilities that were vested prior to the Distribution Date. Reuben H. Donnelley will guarantee payment of the benefits under these plans to its employees in the event that New D&B is unable to satisfy its obligations. The Employee Benefits Agreement also provides that Reuben H. Donnelley will continue to sponsor its welfare plans for its employees. As of the Distribution Date, New D&B will adopt welfare plans for the benefit of its employees and former employees who terminated employment on or prior to the Distribution Date. Reuben H. Donnelley will be responsible for providing retiree welfare benefits, where applicable, to its employees and New D&B will be responsible for providing retiree welfare benefits, where applicable, to its employees and former employees who terminated employment on or prior to the Distribution Date. New D&B and Reuben H. Donnelley will generally retain the severance liabilities of their respective employees who terminated employment prior to the Distribution Date. With respect to equity-based plans, the Employee Benefits Agreement provides that unexercised D&B stock options held by Reuben H. Donnelley employees as of the Distribution Date will be adjusted to reflect 23 26 the Distribution. The number of shares of Reuben H. Donnelley Common Stock covered by the adjusted stock options will be determined by (i) multiplying the number of shares of D&B Common Stock covered by the unexercised D&B stock option by a fraction, the numerator of which is the average of the Daily Average Trading Prices per share of D&B Common Stock for the five consecutive trading days immediately preceding the first date on which D&B Common Stock is traded ex-dividend, and the denominator of which is the average of the Daily Average Trading Prices per share of Reuben H. Donnelley Common Stock for the five consecutive trading days starting on the first date on which Reuben H. Donnelley Common Stock is traded ex-dividend (the "Reuben H. Donnelley Ratio"), and (ii) rounding down the result to a whole number of shares. The Daily Average Trading Price of a given stock on a given day means the average of the high and low trading prices for such stock on such date. The exercise price per share of an adjusted Reuben H. Donnelley stock option will be determined by multiplying the exercise price per share of an unexercised D&B stock option by the reciprocal of the Reuben H. Donnelley Ratio. Unexercised D&B stock options held by New D&B employees as of the Distribution Date will be converted into options that are exercisable into shares of New D&B Common Stock. Specifically, each unexercised D&B stock option held by a New D&B employee will be cancelled, and such individual will receive a replacement stock option exercisable into shares of New D&B Common Stock. The number of shares of New D&B Common Stock covered by the replacement stock option will be determined by (i) multiplying the number of shares of D&B Common Stock covered by the cancelled D&B stock option by a fraction, the numerator of which is the average of the Daily Average Trading Prices per share of D&B Common Stock for the five consecutive trading days immediately preceding the first date on which D&B Common Stock is traded ex-dividend, and the denominator of which is the average of the Daily Average Trading Prices per share of New D&B Common Stock for the five consecutive trading days starting on the first date on which New D&B Common Stock is traded regular way (the "New D&B Ratio"), and (ii) rounding down the result to a whole number of shares. The exercise price per share of a replacement stock option will be determined by multiplying the exercise price per share of the cancelled D&B stock option by the reciprocal of the New D&B Ratio. Except as otherwise provided in the applicable plans, all other terms of the replacement stock options will remain substantially identical to the terms of the cancelled D&B stock options. The issuance of the replacement stock options will not result in a compensation charge to New D&B. Unexercised D&B stock options held by former employees who terminated employment on or prior to the Distribution Date will be adjusted in substantially the same manner as options held by Reuben H. Donnelley employees, and New D&B will offer such former employees, alternative adjustments or substitutions, provided such former employees agree to surrender their adjusted stock options. All limited stock appreciation rights will be adjusted or converted in substantially the same manner as the unexercised D&B stock options. See "The Reuben H. Donnelley Corporation Management and Executive Compensation -- Option Grants on D&B Common Stock to The Reuben H. Donnelley Corporation Executives in Last Fiscal Year" and "The New Dun & Bradstreet Corporation Management and Executive Compensation -- Option Grants on D&B Common Stock to The New Dun & Bradstreet Corporation Executives in Last Fiscal Year". D&B restricted stock held by New D&B employees and New D&B restricted stock credited to New D&B employees as a dividend shall be forfeited and such individuals shall receive replacement New D&B restricted stock equal to (i) the number of shares of forfeited New D&B restricted stock plus (ii) the number of shares of forfeited D&B restricted stock multiplied by the New D&B Ratio and the reciprocal of the Reuben H. Donnelley Ratio, such replacement New D&B restricted stock to have the same terms as the D&B restricted stock from which they arose. If performance targets are met pursuant to the D&B Performance Unit Plan, Reuben H. Donnelley employees shall receive promptly after the Distribution Date a number of shares of Reuben H. Donnelley Common Stock equal to (i) the pro rated target number of performance shares plus (ii) the target number of performance shares multiplied by the Reuben H. Donnelley Ratio and the reciprocal of the New D&B Ratio. Outstanding opportunities for New D&B employees to earn performance shares under the D&B Performance Unit Plan shall be cancelled and each individual shall receive a replacement opportunity to earn a number of 24 27 New D&B performance shares equal to (i) the target number of D&B performance shares plus (ii) the target number of D&B performance shares multiplied by the New D&B Ratio and the reciprocal of the Reuben H. Donnelley Ratio. The Employee Benefits Agreement also provides that New D&B will generally retain all employee benefit litigation liabilities that are asserted prior to the Distribution Date (but not such liabilities that relate to the transferred retirement and savings plan assets of Reuben H. Donnelley employees). Except as otherwise provided in the Employee Benefits Agreement, as of the Distribution Date, Reuben H. Donnelley employees will generally cease participation in D&B employee benefit plans, and Reuben H. Donnelley will generally recognize, among other things, their respective employees' past service with D&B under their respective employee benefit plans. Except as specifically provided therein, nothing in the Employee Benefits Agreement restricts Reuben H. Donnelley's or New D&B's ability to amend or terminate any of their respective employee benefit plans after the Distribution Date. INTELLECTUAL PROPERTY AGREEMENT D&B and New D&B will enter into an Intellectual Property Agreement (the "IP Agreement") which provides for the allocation and recognition by and between these companies of rights under patents, copyrights, software, technology, trade secrets and certain other intellectual property owned by New D&B and Reuben H. Donnelley and their respective subsidiaries as of the Distribution Date. See "The New Dun & Bradstreet Corporation Business -- Intellectual Property" and "The Reuben H. Donnelley Corporation Business -- Intellectual Property". SHARED TRANSACTION SERVICES AGREEMENT D&B and New D&B will enter into a Shared Transaction Services Agreement providing for the orderly continuation, for a transitional period after the Distribution Date, of certain of the shared transaction and other services (such as payroll, accounts payable, general accounting and computer processing and support) currently being provided. DATA SERVICES AGREEMENT D&B and New D&B will enter into a Data Services Agreement providing for the orderly continuation, for a transitional period after the Distribution Date, of certain specified computer processing and related services to be provided by one party to the other. TRANSITION SERVICES AGREEMENT D&B and New D&B will enter into a Transition Services Agreement pursuant to which the respective parties have agreed to certain basic terms governing the provision by one party to the other of specified pension investment management services, insurance services or other support services for a transitional period after the Distribution Date. OVERLAPPING DIRECTORS After the Distribution Date, there will be individuals on the Boards of Directors of New D&B and Reuben H. Donnelley who will also serve on the Board of Directors of the other company. will serve on the Boards of Directors of both companies. See "The New Dun & Bradstreet Corporation Management and Executive Compensation -- Board of Directors" and "The Reuben H. Donnelley Corporation Management and Executive Compensation -- Board of Directors". 25 28 DIVIDEND POLICIES The payment and level of cash dividends by New D&B and Reuben H. Donnelley after the Distribution will be subject to the discretion of the New D&B Board of Directors and the Reuben H. Donnelley Board of Directors, respectively. It is anticipated that New D&B and Reuben H. Donnelley will initially pay dividends that in total equal the current D&B annualized dividend of $0.88 per share. However, the payment and level of cash dividends by New D&B and Reuben H. Donnelley will be based on, and affected by, a number of factors, including the respective operating results and financial requirements of New D&B and Reuben H. Donnelley on a stand-alone basis as well as applicable legal and contractual restrictions. There can be no assurance that any dividends will be declared or paid after the Distribution. 26 29 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) CAPITALIZATION The following table sets forth the capitalization of D&B as of March 31, 1998, and as adjusted to give effect to the Distribution and the transactions contemplated thereby. The following data is qualified in its entirety by the Consolidated Financial Statements of D&B and other information contained elsewhere in this Information Statement. See "Forward-Looking Statements".
HISTORICAL MARCH 31, AS ADJUSTED FOR 1998 THE DISTRIBUTION ---------- --------------------- (DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) Cash and Cash Equivalents................................... (1) ------- ------- Notes Payable............................................... (1) ------- ------- Minority Interest........................................... ------- ------- Preferred Stock, authorized -- 10,000,000 shares $1.00 par value per share -- historical $0.01 par value per share -- adjusted..................... (2) Series Common Stock, authorized -- 10,000,000 shares $0.01 par value per share -- adjusted..................... (2) Common Stock, authorized -- 400,000,000 shares $1.00 par value per share, 188,420,996 shares issued -- historical $0.01 par value per share, 170,567,344 shares issued -- adjusted..................................... (2) Capital Surplus............................................. (2) Retained Earnings........................................... (1)(2)(3) Treasury Stock, at cost, 17,853,652 shares -- historical.... (2) Cumulative Translation Adjustment........................... Minimum Pension Liability................................... ------- ------- Total Equity........................................... ------- ------- Total Capitalization.............................. ======= =======
- --------------- (1) In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be an obligation of Reuben H. Donnelley after the Distribution. The adjusted balance represents a reduction in commercial paper outstanding as of March 31, 1998 of $ million with the remaining proceeds of $ million reflected as an increase to cash and cash equivalents. (2) To reflect the recapitalization of New D&B in connection with the Distribution, including the elimination of treasury stock which shares will be treasury shares of Reuben H. Donnelley, the adjustment of the par value of the Preferred and Common Stock to $0.01 per share and the authorization of Series Common Stock. (3) To reflect the dividend (for accounting purposes only) of the net assets of the Reuben H. Donnelley Business in connection with the Distribution. 27 30 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) SELECTED FINANCIAL DATA The following data is qualified in its entirety by the Consolidated Financial Statements of D&B and other information contained elsewhere in this Information Statement. The financial data as of and for each of the years in the five year period ended December 31, 1997 have been derived from the audited financial statements of D&B, which financial statements as of December 31, 1996 and 1997 and for each of the years in the three year period ended December 31, 1997 are contained elsewhere in this Information Statement. The financial data as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 have been derived from the unaudited interim financial statements of D&B contained elsewhere in this Information Statement. Due to the relative significance of the New D&B Business to D&B, the transaction will be accounted for as a reverse spin-off, and as such, the New D&B Business has been classified as a continuing operation and the Reuben H. Donnelley Business has been classified as a discontinued operation. See "The Distribution -- Form of Transaction; Basis of Presentation". The following financial data should also be read in conjunction with the information set forth under "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Consolidated Pro Forma Condensed Financial Statements" and "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Management's Discussion and Analysis of Financial Condition and Results of Operations" and D&B's Consolidated Financial Statements and Notes thereto appearing elsewhere in this Information Statement.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- HISTORICAL PRO FORMA(1) ---------------------------------------------------- ------------ 1993 1994 1995 1996 1997 1997 -------- -------- -------- -------- -------- ------------ (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) RESULTS OF OPERATIONS: Operating Revenues....... $1,676.3 $1,684.8 $1,734.5 $1,781.7 $1,811.0 $1,811.0 Costs and Expenses(2).... 1,513.7 1,337.9 1,522.2 1,725.1 1,407.3 1,407.3 -------- -------- -------- -------- -------- -------- Operating Income......... 162.6 346.9 212.3 56.6 403.7 403.7 Non-Operating (Expense) Income -- Net.......... 1.6 (35.1) (68.0) (71.2) (71.3) (38.4) -------- -------- -------- -------- -------- -------- Income from Continuing Operations before Provision for Income Taxes.................. 164.2 311.8 144.3 (14.6) 332.4 365.3 Provision for Income Taxes.................. 50.4 110.3 49.4 102.1 113.4 126.9 -------- -------- -------- -------- -------- -------- Income (Loss) from: Continuing Operations........... 113.8 201.5 94.9 (116.7) 219.0 238.4 ======== Discontinued Operations, Net of Income Taxes(3)...... 166.4 428.0 225.9 72.3 92.0 -------- -------- -------- -------- -------- Income (Loss) before Cumulative Effect of Accounting Changes..... 280.2 629.5 320.8 (44.4) 311.0 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit(4)............. (242.1) -- -- -- (150.6) -------- -------- -------- -------- -------- Net Income (Loss)........ $ 38.1 $ 629.5 $ 320.8 $ (44.4) $ 160.4 ======== ======== ======== ======== ======== BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Continuing Operations.... $ 0.65 $ 1.18 $ 0.56 $ (0.69) $ 1.28 $ 1.40 ======== Discontinued Operations............. 0.94 2.52 1.33 0.43 0.54 -------- -------- -------- -------- -------- Before Cumulative Effect of Accounting Changes................ 1.59 3.70 1.89 (0.26) 1.82 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit(4)............. (1.36) -- -- -- (0.88) -------- -------- -------- -------- -------- Basic Earnings (Loss) Per Share of Common Stock.... $ 0.23 $ 3.70 $ 1.89 $ (0.26) $ 0.94 ======== ======== ======== ======== ======== FOR THE THREE MONTHS ENDED MARCH 31, ---------------------------------- HISTORICAL PRO FORMA(1) ------------------- ------------ 1997 1998 1998 -------- -------- ------------ (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) RESULTS OF OPERATIONS: Operating Revenues....... Costs and Expenses(2).... Operating Income......... Non-Operating (Expense) Income -- Net.......... Income from Continuing Operations before Provision for Income Taxes.................. Provision for Income Taxes.................. Income (Loss) from: Continuing Operations........... Discontinued Operations, Net of Income Taxes(3)...... Income (Loss) before Cumulative Effect of Accounting Changes..... Cumulative Effect of Accounting Changes, Net of Income Tax Benefit(4)............. Net Income (Loss)........ BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Continuing Operations.... Discontinued Operations............. Before Cumulative Effect of Accounting Changes................ Cumulative Effect of Accounting Changes, Net of Income Tax Benefit(4)............. Basic Earnings (Loss) Per Share of Common Stock....
28 31
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- HISTORICAL PRO FORMA(1) ---------------------------------------------------- ------------ 1993 1994 1995 1996 1997 1997 -------- -------- -------- -------- -------- ------------ (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Continuing Operations.... $ 0.64 $ 1.17 $ 0.55 $ (0.68) $ 1.27 $ 1.38 ======== Discontinued Operations............. 0.93 2.50 1.32 0.42 0.53 -------- -------- -------- -------- -------- Before Cumulative Effect of Accounting Changes................ 1.57 3.67 1.87 (0.26) 1.80 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit(4)............. (1.35) -- -- -- (0.87) -------- -------- -------- -------- -------- Diluted Earnings (Loss) Per Share of Common Stock.... $ 0.22 $ 3.67 $ 1.87 $ (0.26) $ 0.93 ======== ======== ======== ======== ======== OTHER DATA: Dividends Per Share........ $ 2.40 $ 2.56 $ 2.63 $ 1.82 $ 0.88 Dividends Paid............. $ 423.0 $ 435.2 $ 446.1 $ 310.8 $ 150.6 Weighted Average Number of Shares Outstanding -- Basic.................... 177.2 169.9 169.5 170.0 170.8 170.8 Diluted.................. 179.1 171.7 171.6 171.6 172.6 172.6 FOR THE THREE MONTHS ENDED MARCH 31, ---------------------------------- HISTORICAL PRO FORMA(1) ------------------- ------------ 1997 1998 1998 -------- -------- ------------ (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Continuing Operations.... Discontinued Operations............. Before Cumulative Effect of Accounting Changes................ Cumulative Effect of Accounting Changes, Net of Income Tax Benefit(4)............. Diluted Earnings (Loss) Per Share of Common Stock.... OTHER DATA: Dividends Per Share........ Dividends Paid............. Weighted Average Number of Shares Outstanding -- Basic.................... Diluted..................
AS OF DECEMBER 31, ------------------------------------------------------------------- HISTORICAL PRO FORMA(1) ---------------------------------------------------- ------------ 1993 1994 1995 1996 1997 1997 -------- -------- -------- -------- -------- ------------ (AMOUNTS IN MILLIONS) BALANCE SHEET: Total Assets(5)......... $3,558.7 $3,743.2 $3,628.5 $2,209.0 $2,086.0 $1,867.9 Shareholders' Equity.... $1,111.3 $1,318.6 $1,182.5 $ (431.7) $ (490.2) $ (286.7) AS OF MARCH 31, ------------------------- HISTORICAL PRO FORMA(1) ---------- ------------ 1998 1998 ---------- ------------ (AMOUNTS IN MILLIONS) BALANCE SHEET: Total Assets(5)......... Shareholders' Equity....
- --------------- (1) See "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Consolidated Pro Forma Condensed Financial Statements". (2) 1993 included restructuring expense of $158.8 million partially offset by gains of $13.6 million for the redemption of preferred shares received from the 1991 sale of Donnelley Marketing, $9.5 million on the sale of Donnelley Marketing and $8.9 million for the redemption of notes related to the 1992 sale of Datastream International. 1994 included restructuring expense and a non-recurring charge of $66.7 million partially offset by a gain on the sale of DunsNet of $36.0 million. 1995 included a fourth-quarter non-recurring charge of $188.5 million partially offset by gains of $90.0 million and $28.0 million for the sale of Interactive Data Corporation and warrants received in connection with the sale of Donnelley Marketing, respectively. 1996 included one-time charges of $161.2 million for reorganization costs and the loss on the sale of American Credit Indemnity of $68.2 million. (3) Income taxes on discontinued operations were $109.0 million, $139.4 million, $73.4 million, $145.1 million and $52.2 million in 1993, 1994, 1995, 1996 and 1997, respectively. (4) 1993 included the impact of $127.1 million or $.72 per share basic and $.71 per share diluted for the adoption of SFAS No. 112 and $115.0 million or $.64 per share (basic and diluted) for the adoption of SFAS No. 106. 1997 included the impact of a change in revenue recognition policies (see Note 1 to the D&B Consolidated Financial Statements). (5) Includes net assets of discontinued operations of $1,626.0 million, $1,809.3 million, $1,652.2 million, $430.6 million and $296.5 million as of December 31, 1993, 1994, 1995, 1996 and 1997, respectively. 1993, 1994 and 1995 net assets of discontinued operations included the net assets of Cognizant Corporation and ACNielsen Corporation of $1,186.4 million, $1,342.3 million and $1,207.3 million, respectively. 29 32 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) CONSOLIDATED PRO FORMA CONDENSED FINANCIAL STATEMENTS The following unaudited consolidated pro forma condensed financial statements have been prepared giving effect to the Distribution as if it occurred on December 31, 1997 for the pro forma condensed balance sheet and January 1, 1997 for the pro forma condensed statements of operations. The pro forma condensed balance sheet and statements of operations set forth below do not purport to represent what New D&B's financial position actually would have been had the Distribution occurred on the date indicated or to project New D&B's operating results for any future period. The pro forma adjustments are based upon available information and certain assumptions that D&B management believes are reasonable. The consolidated pro forma condensed financial statements set forth below should be read in conjunction with, and are qualified in their entirety by, the information under "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Selected Financial Data" and "The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the D&B Consolidated Financial Statements and Notes thereto included elsewhere in this Information Statement. 30 33 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) CONSOLIDATED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 -------------------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA ------------ ------------- ----------- (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) OPERATING REVENUES......................................... $1,811.0 $1,811.0 -------- -------- Operating Costs............................................ 487.0 487.0 Selling and Administrative Expenses........................ 788.4 788.4 Depreciation and Amortization.............................. 131.9 131.9 -------- -------- OPERATING INCOME........................................... 403.7 403.7 -------- -------- Interest Income............................................ 1.8 1.8 Interest Expense........................................... (53.4) $32.9(A) (20.5) Other Expense -- Net....................................... (19.7) (19.7) -------- ----- -------- Non-Operating Expense -- Net............................... (71.3) 32.9(A) (38.4) -------- ----- -------- Income from Continuing Operations before Provision for Income Taxes............................................. 332.4 32.9 365.3 Provision for Income Taxes................................. 113.4 13.5(B) 126.9 -------- ----- -------- INCOME FROM CONTINUING OPERATIONS.......................... $ 219.0 $19.4 $ 238.4 ======== ===== ======== EARNINGS PER SHARE OF COMMON STOCK FROM CONTINUING OPERATIONS: Basic.................................................... $ 1.28 $ 1.40 Diluted.................................................. $ 1.27 $ 1.38 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic.................................................... 170.8 170.8 Diluted.................................................. 172.6 172.6
- --------------- (A) In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be the obligation of Reuben H. Donnelley after the Distribution. The adjustment represents the reduction in actual interest expense on debt outstanding during the year, up to a maximum of $500 million, assuming the debt was repaid as of January 1, 1997. (B) To reflect the tax effect of the pro forma adjustment at the statutory tax rate. 31 34 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) CONSOLIDATED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 ---------------------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA ------------ ------------- ----------- (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) OPERATING REVENUES....................................... Operating Costs.......................................... Selling and Administrative Expenses...................... Depreciation and Amortization............................ OPERATING INCOME......................................... Interest Income.......................................... Interest Expense......................................... (A) Other Expense -- Net..................................... Non-Operating Expense -- Net............................. (A) Income from Continuing Operations before Provision for Income Taxes........................................... Provision for Income Taxes............................... (B) INCOME FROM CONTINUING OPERATIONS........................ EARNINGS PER SHARE OF COMMON STOCK FROM CONTINUING OPERATIONS: Basic.................................................. Diluted................................................ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic.................................................. Diluted................................................
- --------------- (A) In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be the obligation of Reuben H. Donnelley after the Distribution. The adjustment represents the reduction in actual interest expense on debt outstanding during the period, up to a maximum of $500 million, assuming the debt was repaid as of January 1, 1997. (B) To reflect the tax effect of the pro forma adjustment at the statutory tax rate. 32 35 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) CONSOLIDATED PRO FORMA CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1997 -------------------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA ------------ ------------- ----------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) ASSETS: Cash and Cash Equivalents.................................. $ 81.8 $ 78.4(A) $ 160.2 Other Current Assets....................................... 723.7 723.7 -------- ------- -------- Total Current Assets............................. 805.5 78.4 883.9 Non-Current Assets......................................... 984.0 984.0 Net Assets of Discontinued Operations...................... 296.5 (296.5)(B) -- -------- ------- -------- Total Assets............................................... $2,086.0 $(218.1) $1,867.9 ======== ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Notes Payable.............................................. $ 451.5 $(421.6)(A) $ 29.9 Accrued and Other Current Liabilities...................... 1,045.5 1,045.5 -------- ------- -------- Total Current Liabilities........................ 1,497.0 (421.6) 1,075.4 Long-term Liabilities...................................... 777.3 777.3 Minority Interest.......................................... 301.9 301.9 Shareholders' Equity: Preferred Stock -- authorized -- 10,000,000 shares $1.00 par value per share -- historical $0.01 par value per share -- pro forma Series Common Stock, authorized -- 10,000,000 shares $0.01 par value per share -- pro forma Common Stock authorized -- 400,000,000 shares $1.00 par value per share, 188,420,996 shares issued -- historical $0.01 par value per share, 170,567,344 shares issued -- pro forma................................... 188.4 (17.9)(C) 1.7 (168.8)(D) Capital Surplus............................................ 80.2 168.8(D) 249.0 Retained Earnings (Deficit)................................ 405.2 500.0(A) (337.4) (296.5)(B) (946.1)(C) Treasury Stock, at cost, 17,853,652 shares -- historical... (964.0) 964.0(C) -- Cumulative Translation Adjustment.......................... (162.6) (162.6) Minimum Pension Liability Adjustment....................... (37.4) (37.4) -------- ------- -------- Total Shareholders' Equity....................... (490.2) 203.5 (286.7) -------- ------- -------- Total Liabilities and Shareholders' Equity....... $2,086.0 $(218.1) $1,867.9 ======== ======= ========
- --------------- (A) In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness. This approximately $500 million of debt will be the obligation of Reuben H. Donnelley after the Distribution. The adjustment represents the reduction in commercial paper outstanding as of December 31, 1997 of $421.6 million with the remaining proceeds of $78.4 million reflected as an increase to cash and cash equivalents. (B) To reflect (for accounting purposes only) the dividend of the net assets of the Reuben H. Donnelley Business in connection with the Distribution. (C) To reflect the elimination of treasury stock which shares will be treasury shares of Reuben H. Donnelley after the Distribution. (D) To reflect the adjustment of the par value of the Common Stock to $0.01 per share. 33 36 THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR TO D&B) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As described under "The Distribution -- Form of Transaction; Basis of Presentation", for financial reporting purposes, New D&B will be treated as the "accounting successor" to D&B. Therefore, the historical financial information for New D&B included herein and management's discussion and analysis thereof set forth below are those of D&B, with the Reuben H. Donnelley Business treated as a discontinued operation. OVERVIEW On December 17, 1997, the Board of Directors of D&B announced a plan to separate into two publicly traded companies -- New D&B and Reuben H. Donnelley. The separation of the two companies will be accomplished through a tax-free dividend to D&B's stockholders of New D&B Common Stock, which will represent a continuing interest in businesses to be conducted by New D&B. After the Distribution, D&B's only business will be the Reuben H. Donnelley Business, and the shares of D&B Common Stock held by D&B stockholders will represent a continuing ownership interest only in that business. At the time of the Distribution, D&B will change its name to "The Reuben H. Donnelley Corporation" (and therefore from and after the Distribution, D&B Common Stock will be "Reuben H. Donnelley Common Stock"), and New D&B will change its name to "The Dun & Bradstreet Corporation". D&B has received a ruling from the Internal Revenue Service to the effect that the Distribution will be tax-free for Federal income tax purposes. New D&B will consist of D&B Inc. and Moody's. On November 1, 1996, D&B reorganized into three publicly traded independent companies by spinning off through a tax-free distribution (the "1996 Distribution") two new companies, (1) Cognizant and (2) ACNielsen, to shareholders. In conjunction with the 1996 Distribution, D&B also disposed of Dun & Bradstreet Software ("DBS") and NCH Promotional Services ("NCH"). After the transaction was completed, D&B's continuing operations consisted of D&B Inc., Moody's and the Reuben H. Donnelley Business. For purposes of effecting the 1996 Distribution and governing certain of the ongoing relationships among D&B, Cognizant and ACNielsen after the 1996 Distribution and to provide for an orderly transition, D&B, Cognizant and ACNielsen entered into various agreements, as described in Note 2 to D&B's consolidated financial statements. Pursuant to Accounting Principles Board Opinion ("APB") No. 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the consolidated financial statements of D&B have been reclassified to reflect both the Distribution and the 1996 Distribution. Accordingly, revenues, costs and expenses and cash flows of Reuben H. Donnelley, Cognizant, ACNielsen, DBS and NCH have been excluded from the respective captions in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows. The net operating results of these entities have been reported, net of applicable income taxes, as "Income (Loss) from Discontinued Operations," and the net cash flows of these entities have been reported as "Net Cash (Used In) Provided by Discontinued Operations". The assets and liabilities of the Reuben H. Donnelley Business have been excluded from the respective captions in the Consolidated Balance Sheets and have been reported as "Net Assets of Discontinued Operations". RESULTS OF OPERATIONS Three months ended March 31, 1998 Compared with Three months ended March 31, 1997 [To come] Year ended December 31, 1997 Compared with Year ended December 31 1996 D&B's basic earnings per share from continuing operations were $1.28 in 1997, up $1.97 from a loss of $.69 per share reported in 1996. On a diluted basis, D&B reported earnings per share from continuing operations of $1.27 per share compared with a loss of $.68 per share reported in 1996. The 1996 loss included all corporate overhead expenses associated with D&B prior to the 1996 Distribution and certain transaction- 34 37 related expenses. D&B's basic earnings per share in 1997 were $.94, up $1.20 from a loss of $.26 per share reported in 1996. On a diluted basis, D&B reported earnings per share of $.93 compared with a loss of $.26 in 1996. The 1997 results include a one-time, non-cash charge for the cumulative effect of accounting changes ($.88 per share basic, $.87 per share diluted), with respect to certain of D&B's revenue recognition methods. Effective January 1, 1997, D&B changed its revenue recognition method for its Credit Information Services business and changed certain of its revenue recognition methods in the Marketing Information Services, Receivables Management Services and Moody's businesses. In accordance with APB No. 20, "Accounting Changes," the cumulative effect of these accounting changes resulted in a pre-tax non-cash charge of $254.7 million ($150.6 million after-tax). Operating revenues grew 1.6% to $1,811.0 million from $1,781.7 million in 1996. Excluding the results of American Credit Indemnity ("ACI"), which was divested in 1996, revenue growth would have increased 5.4% from 1996. Moody's reported revenues of $457.4 million in 1997, up 18.7% from 1996, driven by gains in corporate bonds, increased coverage in the mortgage-backed market and continued expansion outside the U.S. Corporate bonds displayed strong volume growth, especially in the high-yield market, where volumes were 30% above the prior year. D&B Inc.'s 1997 revenues were up 1.7% to $1,353.6 million. D&B U.S. revenues were up 6.4%, including increases in Marketing Information Services of 14.3% and Receivables Management Services of 9.9%. D&B Europe's 1997 revenues of $426.1 million were 4.3% lower than 1996, resulting from the increased strength of the U.S. dollar. Excluding the impact of foreign exchange, D&B Europe would have reported a 4.0% increase in revenues. Other D&B regions reported an 8.8% decrease in operating revenues to $93.8 million from $102.8 million, primarily as a result of phasing out certain unprofitable operations in Latin America. Operating income in 1997 of $403.7 million increased $347.1 million from $56.6 million in 1996. 1996 operating income included $161.2 million in transaction costs incurred in conjunction with D&B's 1996 Distribution and a $68.2 million loss attributable to the sale of ACI. Excluding these non-recurring items, 1997 operating income would have been up 41.2% from $286.0 million in 1996. Operating income growth reflected strong growth at Moody's and growth in D&B U.S., partially offset by declines in the international operations of D&B Inc. 1997 operating costs and selling and administrative expenses increased by 3.7% to $1,226.6 million, excluding corporate expenses in each year, since 1996 included costs associated with the corporate structure prior to the 1996 Distribution. Non-operating expense-net of $71.3 million in 1997, which primarily included interest expense on notes payable, and minority interest costs (included in other expense-net), was essentially unchanged compared with 1996. Interest expense in 1997, included a $3.2 million charge to mark-to-market certain interest rate swaps and a $2.9 million charge as a result of interest rate swap cancellations. These charges were offset by lower financing costs in 1997. In 1997, D&B's effective tax rate from continuing operations was 34.1%. Due to tax implications of the 1996 Distribution, discussed below, the 1996 effective tax rate was 698.4%. The underlying effective tax rate, excluding these one-time items for 1996, was approximately 34%. Income from discontinued operations, net of income taxes, was $92.0 million in 1997 and $230.5 million in 1996. Operating results of the Reuben H. Donnelley Business comprised the income from discontinued operations in 1997, while 1996 includes operating results of the Reuben H. Donnelley Business and NCH for the full year and Cognizant, ACNielsen and DBS for the ten months ended October 31, 1996. The Reuben H. Donnelley Business operating income included a gain on the sale of the East Coast proprietary operations of the Reuben H. Donnelley Business ("P-East") of $9.4 million in 1997 and a loss on the sale of the West Coast proprietary operations of the Reuben H. Donnelley Business ("P-West") of $28.5 million in 1996. Also recorded in 1996 was a loss on the disposition of DBS of $220.6 million ($158.2 million after-tax). Additionally, D&B sold NCH in the fourth quarter of 1996. No gain or loss resulted from the sale. Year ended December 31, 1996 Compared with Year ended December 1995 D&B incurred a loss from continuing operations in 1996 of $116.7 million, or $.69 basic earnings per share ($.68 diluted earnings per share) compared with earnings of $94.9 million, or $.56 basic earnings per 35 38 share ($.55 diluted earnings per share) in 1995. 1996 results included all corporate overhead expenses associated with D&B prior to the 1996 Distribution and certain transaction-related expenses. 1995 results included certain non-recurring charges and gains. Operating revenues from continuing operations for the year ended December 31, 1996 grew 2.7% to $1,781.7 million from $1,734.5 million in 1995. Excluding the results of divested businesses, revenue growth would have increased 6.6% from 1995. Moody's reported revenues of $385.3 million in 1996, up 16.9% from 1995, driven by strong corporate and municipal bond market volumes during the year. D&B Inc.'s 1996 revenues were up 4.0% to $1,331.5 million. D&B U.S. revenues were up 4.0%, including increases in Marketing Information Services of 9.7% and Receivables Management Services of 12.2%. D&B Europe and other D&B regions were up 3.1% and 7.8%, respectively. Operating income in 1996 of $56.6 million decreased from $212.3 million in the prior year. Included in operating income in 1996 was $161.2 million in transaction costs incurred in connection with D&B's 1996 Distribution. These costs included $75.0 million for professional and consulting fees and $86.2 million primarily for settlement of executive compensation plans and retention bonuses. Also included in 1996 operating income was the $68.2 million loss incurred as a result of the sale of ACI in October of 1996. 1995 operating costs included gains on both the sales of Interactive Data Corporation ("IDC") of $90.0 million and warrants received in connection with the previous divestiture of Donnelley Marketing of $28.0 million, offset by a non-recurring charge of $188.5 million recorded in the fourth quarter of 1995. This charge primarily reflected an impairment loss in connection with the adoption of the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ($93.7 million), a provision for postemployment benefits ($56.3 million) under D&B's severance plan, an accrual for contractual obligations that have no future economic benefits and for penalties to cancel certain contracts ($19.8 million) and other asset revaluations ($18.7 million). Operating costs and selling and administrative expenses, excluding the effects of divestitures, transaction costs associated with the 1996 Distribution and the fourth-quarter non-recurring charge, increased 8.6% in 1996 compared with 1995. The increase reflects D&B's investments in new products and services. D&B reported 1996 non-operating expense-net of $71.2 million compared with non-operating expense-net of $68.0 million in 1995. The increase was attributable, in part, to lower interest income earned due to the high cash requirements of the 1996 Distribution and the sale of ACI, which held $111.5 million of marketable securities at the date of the sale. Despite a loss from continuing operations, the provision for income taxes was $102.1 million in 1996. D&B's effective tax rate was 698.4% in 1996 and 34.2% in 1995. In 1996, the higher effective tax rate primarily reflected the non-deductibility of certain transaction costs, lower tax benefits on losses from divested businesses and certain foreign taxes incurred in connection with the 1996 Distribution. The underlying effective tax rate, excluding these one-time items for 1996, was approximately 34%. Income from discontinued operations, net of income taxes, was $230.5 million in 1996 compared with $225.9 million in the prior year. 1996 includes the operating results of the Reuben H. Donnelley Business and NCH for the full year and Cognizant, ACNielsen and DBS for the ten months ended October 31, 1996, while 1995 includes the operating results of all of those entities for the full year. The Reuben H. Donnelley Business' 1996 results include a loss on the disposition of P-West of $28.5 million. D&B also reported a loss on the disposition of DBS, which was completed in the fourth quarter of 1996, of $220.6 million ($158.2 million after tax). Additionally, D&B sold NCH in the fourth quarter of 1996, with no resulting gain or loss recorded on the disposition. The 1995 results were affected by the fourth-quarter non-recurring charge of $206.3 million after tax. ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share" ("SFAS No. 128"), which simplifies existing computational guidelines, revises disclosure requirements and increases the comparability of earnings per share data on an international basis. D&B adopted the statement in 1997, which required restatement of all prior-period per share data presented. 36 39 In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15,1997, and requires reclassification of prior-period financial statements. D&B is currently considering the various presentation options of SFAS No. 130. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), which revises disclosure requirements about operating segments and establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 requires that public business enterprises report financial and descriptive information about their reportable operating segments. The statement is effective for fiscal years beginning after December 15, 1997, and requires restatement of prior years in the initial year of application. SFAS No. 131 is expected to affect D&B's segment disclosures, but will not affect D&B's results of operations, financial position or cash flows. D&B is in the process of evaluating the disclosure requirements. NON-U.S. OPERATING AND MONETARY ASSETS D&B has operations in 38 countries. D&B's non-U.S. operations generated approximately 32% of total revenues, including approximately 26% from European operations. Thirty-eight percent of D&B's assets are located outside the U.S., and no one country had a significant concentration of cash. At December 31, 1997, D&B had approximately $117 million in forward foreign exchange contracts outstanding, with various expiration dates through March 1998 (see Note 5 to D&B's consolidated financial statements). MARKET RISK SENSITIVE INSTRUMENTS D&B funds its operations primarily through its commercial paper program and other short-term bank lines of credit. As D&B operates in 38 countries, D&B is exposed to market risk from changes in interest rates and foreign exchange rates which could affect its results of operations and financial condition. In order to reduce the risk from fluctuations in interest rates and foreign currencies, D&B uses interest rate swap agreements and forward foreign exchange contracts. These derivative financial instruments are viewed by D&B as risk management tools that are entered into for hedging purposes only. D&B does not use derivative financial instruments for trading or speculative purposes. D&B also has investments in fixed income marketable securities. Consequently, D&B is exposed to fluctuations in rates on these marketable securities. Market risk associated with investments in marketable securities is immaterial and has been excluded from the sensitivity discussions. A discussion of D&B's accounting policies for derivative financial instruments is included in the Summary of Significant Accounting Policies in Note 1 to D&B's consolidated financial statements, and further disclosure relating to financial instruments is included in Note 5 -- Financial Instruments with Off-Balance Sheet Risks. The following analysis presents the sensitivity of the fair value of D&B's market risk sensitive instruments to changes in market rates and prices. Interest Rate Risk D&B is exposed to market risk through its commercial paper program, where it borrows at prevailing short-term commercial paper rates, and through its variable-rate short-term bank borrowings. D&B enters into interest rate swap agreements to manage exposure to changes in interest rates. Specifically, D&B is exposed to fluctuations in both short-term commercial paper and short-term bank rates. Interest rate swaps allow D&B to raise funds at floating rates and effectively swap them into fixed rates that are lower than those available to it if fixed-rate borrowings were made directly. At December 31, 1997, D&B had $300.0 million of these interest rate swaps. The fair value for interest rate risk is calculated by D&B utilizing estimates of the termination value of D&B's interest rate swaps, commercial paper borrowings and short-term bank borrowings based upon a 10% 37 40 increase, or decrease in interest rates from their December 31, 1997 levels. Fair values are the present value of projected future cash flows based on the market rates and prices chosen. At December 31, 1997 the unrealized fair value of the interest rate swaps was a loss of $11.1 million. Assuming an instantaneous parallel upward shift in the yield curve of 10% from December 31, 1997 levels, the unrealized fair value of D&B's interest rate swaps, commercial paper borrowings and short-term bank borrowings would result in a loss of $2.5 million. Assuming an instantaneous parallel downward shift in the yield curve of 10% from December 31, 1997 levels, the unrealized fair value of D&B's interest rate swaps, commercial paper borrowings and short-term bank borrowings would result in a loss of $20.5 million. Foreign Exchange Risk D&B follows a policy of hedging substantially all cross-border intercompany transactions denominated in a currency other than the functional currency applicable to each of its various subsidiaries. D&B only uses forward foreign exchange contracts to implement its hedging strategy. Typically, these contracts have maturities of 12 months or less. These forward contracts are executed with creditworthy institutions and are denominated primarily in British Pound, German Mark, Swedish Krona and Japanese Yen. The fair value of foreign currency risk is calculated by using estimates of the cost of closing out all outstanding forward foreign exchange contracts given a 10% increase or decrease in forward rates from December 31, 1997 levels. At December 31, 1997, net unrealized gains related to D&B's forward contracts were $1.1 million. If forward rates increased by 10% from December 31, 1997 levels, the unrealized loss on these contracts would be $4.7 million. If forward rates decreased by 10% from December 31, 1997 levels, the unrealized gain on these contracts would be $6.9 million. However, the estimated potential gain or loss on forward contracts is expected to be offset by changes in the underlying transactions. Therefore, the impact of a 10% movement in foreign exchange rates will be immaterial. LIQUIDITY AND FINANCIAL POSITION D&B generates significant, predictable cash flows from its business operations. Management believes that these cash flows are sufficient to fund its operating needs, service debt and pay dividends. At December 31, 1997, cash and cash equivalents totaled $81.8 million, a decrease from $127.8 million in 1996. Net cash provided by operating activities increased by $200.1 million to $380.0 million in 1997. This increase is primarily due to the absence of transaction and divestiture-related costs as a result of the 1996 Distribution. Net cash used in investing activities totaled $121.6 million in 1997 compared with $29.6 million in 1996. In 1997 spending for capital expenditures, computer software and other intangibles totaled $129.1 million. In 1996 proceeds received from the sale of ACI was $93.9 million, and spending for capital expenditures, computer software and other intangibles totaled $152.0 million. D&B utilizes the commercial paper market as its primary source of financing. D&B has two committed bank facilities that support the commercial paper borrowings. One facility permits borrowings of up to $750 million and matures in August 2001; the other permits borrowings of up to $150 million and matures in August 1998. D&B has the ability to borrow under these facilities at prevailing short-term interest rates. D&B also has available non-committed lines of credit of $111 million. As of December 31, 1997, $29.9 million was borrowed against these facilities. On April 1, 1997, D&B completed a $300.0 million minority interest financing. Funds raised by this financing were used to repay a portion of the outstanding short-term debt in April 1997. Also during the second quarter of 1997, D&B reentered the commercial paper market and used the proceeds to repay the additional amounts outstanding on the short-term debt facility. D&B had $421.6 million in commercial paper outstanding at December 31, 1997. In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be an obligation of Reuben H. Donnelley after the Distribution. D&B has interest rate swap agreements, which effectively fix interest rates on $300.0 million of variable-rate debt through January 2005, at a weighted average fixed rate of 6.84% (see Note 5 to D&B's consolidated financial statements). Currently, a portion of the swaps is marked-to-market through earnings. In connection with the repayment of the outstanding notes payable at the time of the Distribution, D&B will cancel its 38 41 outstanding interest rate swap agreements and recognize into income any previously unrecognized loss. At December 31, 1997, the unrealized fair value of these agreements was a loss of $11.1 million, of which $3.2 million had been recorded, as interest expense in 1997. Management estimates that one-time cash outlays of approximately $25 million to $30 million, including the costs to terminate the swaps, will be required to complete the Distribution. These costs will be recorded as incurred. In January 1997, D&B announced a continuation of its systematic stock repurchase plan, authorizing the purchase of up to 9.8 million shares of D&B Common Stock. The stock was held in treasury and issued upon exercise of employee stock options and for compensation plans. Under this plan, D&B repurchased 2,271,851 shares of its D&B Common Stock for $60.1 million in 1997. In connection with the Distribution, these shares will be treasury shares of Reuben H. Donnelley. New D&B intends to start a new systematic stock repurchase plan in 1998. D&B also paid dividends of $150.6 million during 1997. YEAR 2000 D&B relies on computer hardware, software and related technology, together with data, in the operation of its businesses. Such technology and data are used in creating and delivering D&B's products and services, as well as in D&B's internal operations, such as billing and accounting. D&B has initiated an enterprise-wide program to prepare for the year 2000. D&B has created a Year 2000 program office, reporting to the Chief Executive Officer and to the Chief Information Officer, to coordinate and oversee D&B's Year 2000 program. In addition, responsible Year 2000 executives have been appointed, and Year 2000 teams have been established at each of D&B's operating units. D&B has evaluated the technology and data used in the creation and delivery of its products and services and in its internal operations, has identified Year 2000 issues related thereto and developed and has begun to implement a plan to remediate such Year 2000 issues. The plan includes remediating D&B's Year 2000 issues that are related to its customers, suppliers and distributors, but there can be no assurances that such third parties will successfully remediate their own Year 2000 issues over which D&B has no control. D&B believes that it will substantially complete the implementation of its Year 2000 plan prior to the commencement of the year 2000, and that upon substantial completion of such implementation, and assuming that D&B's customers, suppliers and distributors successfully remediate their own Year 2000 issues over which D&B has no control, D&B will have no material business risk from such Year 2000 issues. The total cost of D&B's Year 2000 program is estimated to be $70 to $75 million. Of this amount, approximately $11 million was incurred in 1997. It is estimated that approximately $40 million, $15 million to $20 million and $4 million will be incurred in 1998, 1999 and 2000, respectively. Maintenance and modification costs are expensed as incurred, while the costs of new hardware and software purchased by D&B are capitalized. DIVIDENDS D&B paid a quarterly dividend of $.22 per share in 1997, resulting in a full-year dividend per share of $.88, a decline of 51.6% from the 1996 dividend of $1.82 per share. In 1996, D&B reorganized into three publicly traded independent companies: D&B, Cognizant and ACNielsen. Consequently, D&B paid quarterly dividends of $.66 per share for the first half of 1996, and in the second half of 1996, D&B paid quarterly dividends of $.25 per share, reflecting the revised dividend policies of each of the three companies. Of the $.25 per share dividend declared for the third and fourth quarters of 1996, $.22 was attributable to D&B and $.03 was attributable to Cognizant. On December 17, 1997, the Board of Directors approved a first-quarter 1998 dividend of $.22 per share, payable March 10, 1998, to shareholders of record at the close of business on February 20, 1998. Subject to Board of Directors approval, it is anticipated that New D&B and Reuben H. Donnelley will initially pay dividends that in total equal the current annualized dividend of $0.88 per share; however, the allocation between the two independent companies is currently being formulated. 39 42 THE NEW DUN & BRADSTREET CORPORATION BUSINESS As described under "The Distribution -- Form of Transaction; Basis of Presentation", for financial reporting purposes, New D&B will be treated as the "accounting successor" to D&B. Therefore, the historical financial information included herein with respect to New D&B is that of D&B with Reuben H. Donnelley treated as a discontinued operation. The following description of the New D&B Business is derived from the D&B Form 10-K for the year ended December 31, 1997, but it does not include a description of the Reuben H. Donnelley Business from which the New D&B Business is being separated in the Distribution. For a description of the Reuben H. Donnelley Business, see "The Reuben H. Donnelley Corporation Business" included elsewhere in this Information Statement. DUN & BRADSTREET, INC. General D&B Inc. is the world's largest provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B Inc. operates offices in 36 countries, conducts operations in two other countries through minority interests in joint venture companies, and operates through independent correspondents in over 150 additional countries. D&B Inc. gathers data through telephone and personal interviews with business managers and through third party sources. At the core of D&B Inc.'s products and services are its worldwide database containing information on more than 48 million businesses, the D-U-N-S Numbering System (a numerical identification system used to identify corporate affiliations), and its ability to integrate business information from multiple sources and create decision support tools. Companies throughout the world use D&B Inc.'s products and services to evaluate and make decisions about their working relationships with customers and suppliers; to improve efficiency and productivity; to identify growth opportunities and market their products more successfully; and to take actions that increase revenue, cash flow and profits. D&B Inc. conducts business in three general regions: United States; Europe, Africa and Middle East; and Asia-Pacific, Canada and Latin America. DUN & BRADSTREET, U.S. In the United States, D&B Inc. provides Value-Added Products, Credit Information Services, Marketing Information Services and Receivable Management Services, as described below. Value-Added Products Value-Added Products, which include Database Marketing Services, Predictive Scoring Services, Decision Support Services, Supplier Evaluation and Management Services, Software Partner Marketing and Internet Access, provide easy, open access to D&B Inc.'s databases and allow D&B Inc. to embed its information in its customers' business processes and technology. These products and services are scalable for use on individual desktops, in networks and on computer hosts, and are designed to improve customers' decision making, speed-of-action and productivity and to help customers realize the full value of their information and technology investments. The D-U-N-S Numbering System is a critical component in D&B Inc.'s Valued-Added Products. As a unique, universal identifier of more than 48 million businesses around the world, the D-U-N-S Number can help customers tap revenue and customer service opportunities by uncovering prospects and linking related customer accounts, identifying cross-selling opportunities within the same corporate family, eliminating duplicate file entries in customer and supplier databases, reducing operating costs and increasing purchasing power by linking interrelated suppliers. Database Marketing Services help give D&B Inc.'s customers a better understanding of the profitability and performance of their customers by enhancing internal customer data with external information and analysis that can help target the most profitable customers and prospects, analyze market penetration, territory alignment and market segmentation and perform demand estimation. Predictive Scoring Services, such as the 40 43 Commercial Credit Score, Industry-specific Credit Scores and OneScore, use statistical models to help D&B Inc.'s customers predict the likelihood of delinquent payment or failure to pay within terms, while the Financial Stress Score is a statistical model that helps D&B Inc.'s customers predict the likelihood that a customer or prospect will discontinue operations or file for bankruptcy. Decision Support Services include desktop decision support systems such as Risk Assessment Manager and Supplier Assessment Manager. These systems use the customers' rules to automate credit and purchasing decisions, respectively, using internal and external information, including D&B Inc.'s predictive scores. Supplier Evaluation and Management Services provide information and analyses that help customers identify suppliers and assess the risk of doing business with them. Through alliances being developed with major business application software providers, Software Partner Marketing can cleanse, consolidate and migrate legacy customer and vendor data to a business' new enterprise application system, as well as provide real-time, online access to D&B Inc. information. Internet access allows customers to access D&B information directly from D&B Inc.'s web site using secure transaction services and from the web sites of certain third parties. D&B Inc. is also developing custom access to its databases through customers' intranets. Value-Added Products, while a market leader in its industry, faces competition from various information services and software providers. Credit Information Services D&B Inc. provides business credit information on more than 11 million U.S. businesses. Its core credit information is available through a variety of company-specific reports, including the Business Information Report, Payment Analysis Report, Alert Services and business reference directories. Customers can access this information through D&B Inc.'s web site, personal computer, mail, telephone, fax and customized connections between D&B Inc. and a customer's computer systems. Credit Information Services also distributes its products via a number of other firms, including leading vendors of online information services and the web sites of certain third parties. The Business Information Report contains commercial credit information that may include the D&B Inc. Rating, PAYDEX Score, financials, summary information, public record data and payment history. The Payment Analysis Report provides information on a company's payment record and includes the PAYDEX Score, historical trends and industry comparisons. Alert Services provide businesses with the ability to monitor accounts or their portfolio for significant changes that could impact a customer, supplier or partner. The Dun & Bradstreet Reference Book of American Business contains approximately 3.4 million business listings in the U.S. and Puerto Rico. Customers use D&B Inc.'s Credit Information Services to extend commercial credit, approve loans and leases, underwrite insurance, evaluate vendors, and make other financial and risk assessment decisions. D&B Inc.'s largest customers for this information are major manufacturers and wholesalers, insurance companies, banks, and other credit and financial institutions. Traditionally, Credit Information Services were offered pursuant to an annual contract requiring a minimum volume commitment. In January 1998, D&B Inc. began to offer customers a choice of how to pay for these services. Customers can now continue to commit to a standard, annual discounted contract or opt for a flexible, monthly, pay-as-you-go discount plan, with no minimum usage requirement. Credit Information Services is the leading commercial credit-reporting agency in the U.S. However, it faces competition from in-house operations of the businesses it seeks as customers and from other general and specialized credit reporting agencies and other information services providers. It believes the principal attributes in judging the competition are information quality, availability, service and price. Marketing Information Services Marketing Information Services provides business-to-business marketing information and analysis. This information is derived from D&B Inc.'s database of information on more than 48 million businesses in 200 countries. The information is delivered in print, on diskette, magnetic tape and CD-ROM, through online 41 44 information services and other third parties, and via D&B Inc.'s web site and the web sites of certain third parties. These products and services help businesses conduct market segmentation, customer profiling, prospect selection and marketing list development. Market Data Retrieval ("MDR") offers marketing information that helps businesses sell to the education market. MDR's database includes information on course offerings, facilities and more than 4 million educators in 250,000 pre-school, elementary, secondary and higher educational institutions and libraries in the United States and Canada. Marketing Information Services, while a market leader in its industry, faces competition from data providers who have competitive distribution channels, delivery formats and data quality. Receivable Management Services Receivable Management Services ("RMS") provides its customers with a full range of accounts receivable management services, including third-party collection of accounts, letter demand services and receivables management outsourcing programs. These services substitute and/or enhance its customers' own internal management of accounts receivable. RMS services and collects delinquent receivables on behalf of 30,000 customers primarily in the business-to-business market. Principal markets include insurance, telecommunications, and transportation services. Customers select the applicable RMS service that best meets their receivable portfolio needs. RMS uses the Dun & Bradstreet name to communicate with debtors about delinquent accounts for collection services. Revenues are generally earned on a contingent fee basis. Receivables outsourcing programs are selected when customers seek to outsource their accounts receivable function to a third party vendor. Services include debt verification and collection, customer service functions and analytical reporting. RMS has sold franchises to third parties, which are given permission to sell debt collection services under the RMS name. These franchises cover portions of 27 states. RMS uses franchises to complement its field sales and telesales forces. These franchises are located in less concentrated markets where local presence is preferred. RMS continues to be responsible for all product fulfillment. Customer ownership remains with RMS with franchisees retaining exclusive access in their markets. Certain states require licensing for consumer and commercial debt collection. RMS, and in some instances the individual collectors, must be licensed in order to conduct business in these states. The laws under which such licenses are granted generally require annual license renewal and provide for denial, suspension or revocation for improper actions or other reasons. Internationally, RMS provides cross-border receivable services in which the RMS worldwide offices service cross-border claims for one another. This service has grown significantly, but comprises only 2 percent of RMS' total revenue. RMS is considered to be a leader in the commercial receivables management industry in the U.S. There are several consumer collection agencies that have larger receivables portfolios, particularly health care and credit card collection providers. The third-party commercial collection market is highly fragmented with over 5,000 collection agencies. The outsourcing market has significantly fewer competitors due to the need for larger scale operations by the receivables providers. Both markets are very price competitive with status and statistical reporting and speed of service as key qualitative attributes. DUN & BRADSTREET EUROPE/AFRICA/MIDDLE EAST AND DUN & BRADSTREET ASIA-PACIFIC, CANADA, LATIN AMERICA Outside the U.S., D&B Inc. operates through Dun & Bradstreet Europe/Africa/Middle East and Dun & Bradstreet Asia-Pacific, Canada, Latin America ("D&B Europe" and "D&B Asia-Pacific, Canada, Latin America", respectively), which opened their first overseas office in 1857 and today conduct operations in offices and branches located throughout Europe, Latin America, Africa, the Middle East, Asia, Japan, the Pacific Rim and Canada. 42 45 D&B Europe and D&B Asia-Pacific, Canada, Latin America provide substantially the same business-to-business credit, marketing and purchasing information and receivable management services outside the U.S. as those provided domestically by D&B Inc., D&B Europe and D&B Asia-Pacific, Canada, Latin America's major products and services include company-specific reports, analytical tools to help the customer make better business decisions, local and international credit-reference publications, marketing publications, marketing information systems, consumer-credit information, as well as receivables management services. Customers can access information through D&B's web site and the web sites of certain third parties, personal computer, mail, fax, CD-ROM, online information services and other third parties. In 1996, D&B Asia-Pacific, Canada, Latin America reorganized its operations in Brazil, Mexico, Chile and Venezuela. It continues to provide cross-border services originating in Latin America through local affiliates, small local operations centers and an operations center in Florida, and in the Asia-Pacific region, it is exploring possible joint venture and distribution arrangements to leverage its staff and data sourcing and distribution capabilities. D&B Europe continues to invest in data systems and is continuing its rollout to the European market of a range of new cross-border products. D&B Europe has also continued investing heavily in a new technology platform, which is expected to result in enhanced product/service flexibility as well as opportunities to streamline operations. D&B Europe and D&B Asia-Pacific, Canada, Latin America's operations are subject to the usual risks inherent in carrying on business in certain countries outside of the U.S., including currency fluctuations and possible nationalization, expropriation, price controls, changes in the availability of data from public sector sources, limits on providing information across borders or other restrictive governmental actions. Management believes that the risks of nationalization or expropriation are reduced because its basic service is the delivery of information, rather than the production of products that require manufacturing facilities or the use of natural resources. D&B Europe and D&B Asia-Pacific, Canada, Latin America face competition from banks, consumer information companies, application software developers, online content providers and in-house operations of businesses as well as direct competition from businesses providing similar services. D&B Europe is believed to be the largest single supplier of credit information services in Europe. The competition is primarily local and there are no competitors offering a comparable range of global services or capabilities. D&B INC.'S STRATEGY D&B Inc. intends to focus its business strategy on supplying business information. Customers realize that their internal information can be made more powerful by coupling it with external information. In this way, D&B Inc.'s products and services become embedded in the customer's processes. This strategy will focus on the following opportunities: Expand the Use of Traditional Products. Traditional products, principally the Business Information Report, will continue to be distributed as in the past. Additional distribution of these products will occur through new customer sales efforts and through expanded use of the Internet. Because many of these products are used in conjunction with or are accessed through Value-Added Products, opportunity exists to leverage the sale of traditional products globally through sales of Value-Added Products. Focus Resources on the Development and Deployment of Value-Added Products. Value-Added Products include a range of new products and services in the credit, business marketing, purchasing and receivable management service areas. These products represented 21% of D&B Inc.'s U.S. revenue in 1997. Revenue from Value-Added Products grew 26% in 1997. D&B Inc. intends to accelerate deployment of these products through global distribution and alliances being developed with business partners. Improve the Profitability of International Operations. The roll-out of Value-Added Products, which have previously only been available in the U.S., to markets outside of the U.S. will be a key driver for improving international profitability. D&B Inc. has established Global Marketing, Technology and Sales groups to help focus the deployment of these products internationally, focus efforts with global 43 46 customers, and centralize related technology development to eliminate duplicate development efforts. In addition, cost structures will be reviewed with the intent of implementing further efficiencies. MOODY'S INVESTORS SERVICE, INC. Moody's publishes credit opinions on investment securities, assigning ratings to fixed-income securities and other credit obligations. It also provides a broad range of business and financial information. Credit ratings help investors to agree upon the true value of fixed-income securities. Ratings also reduce inefficiency in fixed-income markets. For issuers, Moody's services increase market liquidity and reduce transaction costs. Moody's employs approximately 600 analysts and has a total of more than 1,500 associates located in offices in 12 countries around the world. Moody's provides ratings and information on governmental and commercial entities in over 95 countries. Moody's customers include investors (both institutional and individual); banks and other financial intermediaries; and a wide range of corporate and governmental issuers of securities. Moody's publishes rating opinions on a broad range of credit obligations. These include various U.S. corporate and governmental obligations, Eurosecurities, structured finance securities and commercial paper issues. In recent years, Moody's has moved beyond its traditional bond ratings activity, assigning ratings to insurance companies' obligations, bank loans, derivative product companies, debt, managed funds, and derivatives. At the end of 1997, Moody's had outstanding ratings on approximately 85,000 corporate and 62,000 public finance obligations. Ratings are disseminated to the public through a variety of electronic and print media. Detailed descriptions of both the rated issue and issuer, along with a summary of the rationale for the assignment of the specific rating, also appear in various Moody's credit research products. Moody's also offers current and historical business and financial information for investment research and reference uses. Such information is published in more than 30 different products and services, including in manuals, handbooks and guides, as well as on CD-ROM and in other electronic formats. These products and services cover over 20,000 major U.S. and non-U.S. companies and more than 22,000 municipalities and governmental entities and their securities. Globalization and integration of financial markets, combined with ongoing disintermediation of the world's financial system, continue to increase in volume. In addition, lower-cost information technology is promoting the rapid development and transportability of financing techniques. As a consequence, risk managers' need and demand for Moody's ratings and research are increasing. The complexity of capital market instruments is also growing; consequently, risk management remains a challenge for financial intermediaries and asset managers. In addition, regulators are attempting to revise their approach to supervision. They are shifting away from rule-based systems which only address specific risk components and institution-specific protections and toward more sophisticated, prudential supervision. Most significantly, the evolving approach includes qualitative judgments by bank regulators about the sophistication of each financial institution's risk management processes and systems, in terms of both market and credit risk. Advances in information technology will continue to reshape the formation of capital and promote integration of the global financial system. Throughout financial services, participants are being forced to pursue optimal competitive comparative advantages. In the credit markets, third party ratings represent an increasingly viable alternative to traditional in-house research as the geographic scope and complexity of market instruments grow. Moody's international operations have continued to grow as a result of the expansion and development of international debt markets in recent years. Moody's non-U.S. operations are subject to the usual risks inherent in carrying on business in certain countries outside the U.S., including currency fluctuations and possible nationalization, expropriation, price controls, or other restrictive governmental actions. Management believes that the risks of nationalization or expropriation are negligible. Regulators worldwide have recognized that credible, independent credit ratings can further regulatory objectives. This increased reliance creates a regulatory paradox; the demand for ratings (and therefore revenue 44 47 opportunities) increases because regulators mandate demand, but this often occurs before market-based utility (real demand) exists. This situation stimulates the entrance of less credible ratings into the market, and can make all ratings systems appear the same. The result of such regulatory activity has been the creation of over 120 ratings agencies worldwide. The ratings fees charged to most issuers account for a majority of Moody's revenues. Therefore, a substantial portion of Moody's revenues is dependent upon the volume of debt securities issued in the global capital markets. Growth opportunities for Moody's rating business are inextricably linked to the overall growth prospects of risk sensitive markets. In addition to revenues from its ratings activities, Moody's derives revenues from its publication of investor-oriented credit research services to over 30,000 subscribers globally. Moody's publishes more than 100 research products, including in-depth research on major issuers, industry studies, special comments, and summary credit opinion handbooks. Product selection includes insurance, utilities, speculative grade instruments, banks, and global credit research. Moody's is registered as an investment advisor under the Investment Advisers Act of 1940. MOODY'S STRATEGY Moody's intends to focus its business strategy on the following opportunities: Continue International Expansion. Moody's has positioned itself for geographic expansion principally by establishing a presence in the major centers of cross-border capital market intermediation. Moody's expects that these global centers will continue to offer the greatest potential for value creation and revenue. This strong market presence will continue to benefit Moody's as financial technology, in the form of new instruments (e.g., Eurocommercial paper, speculative grade bonds, and Euro medium-term notes), is exported to new markets. The existing regional platform of analysts and marketing associates allows Moody's to interact efficiently with issuers and investors and to be paid for the value it creates. Focus On Natural Adjacencies. Moody's is committed to expanding initiatives which clearly shift credit ratings from securities markets to other credit risk exposures in adjacent financial markets. Moody's has a committed effort to extend its opinion franchise to the global bank counterparty universe through emerging market ratings, including bank financial strength ratings. A subset of the emerging market explosion is investor and intermediary interest in domestic currency debt obligations that are now being sold cross-border in unprecedented volumes. Pursue Opportunities In New Sectors. Insurance financial strength ratings in the property and casualty, reinsurance, and life insurance markets represent additional growth opportunities. In addition, Moody's believes that the enhancement of risk management processes will hasten the convergence of the loan and capital markets as intermediaries seek a consistent standard of relative risk comparison and that this will create opportunities to extend credit ratings beyond capital market instruments. Moody's also believes that the securitization of commercial assets, principally commercial mortgages, term receivables, and corporate loans will increase and that new patterns of securitization will emerge in the next decade. Moody's intends to pursue opportunities in these areas. INTELLECTUAL PROPERTY New D&B owns and controls a number of trade secrets, confidential information, trademarks, trade names, copyrights, patents and other intellectual property rights which, in the aggregate, are of material importance to New D&B's business. Management of New D&B believes that each of the "Dun & Bradstreet" and "Moody's" names and related names, marks and logos are of material importance to New D&B. New D&B is licensed to use certain technology and other intellectual property rights owned and controlled by others, and, similarly, other companies are licensed to use certain technology and other intellectual property rights owned and controlled by New D&B. New D&B considers its trademarks, service marks, databases, software and other intellectual property to be proprietary and New D&B relies on a combination of copyright, trademark, trade secret, patent, non-disclosure and contract safeguards for protection. 45 48 The names of New D&B's products and services referred to herein are trademarks, service marks or registered trademarks or service marks owned by or licensed to New D&B or one or more of its subsidiaries. YEAR 2000 New D&B will rely on computer hardware, software and related technology, together with data, in the operation of its businesses. Such technology and data are used in creating and delivering New D&B's products and services, as well as in New D&B's internal operations, such as billing and accounting. New D&B initiated an enterprise-wide program to prepare for the year 2000. New D&B has created a Year 2000 program office, reporting to the Chief Executive Officer and to the Chief Information Officer, to coordinate and oversee New D&B's Year 2000 program. In addition, responsible Year 2000 executives have been appointed, and Year 2000 teams have been established at each of New D&B's operating units. New D&B has evaluated the technology and data used in the creation and delivery of its products and services and in its internal operations, has identified Year 2000 issues related thereto and developed and has begun to implement a plan to remediate such Year 2000 issues. The plan includes remediating New D&B's Year 2000 issues that are related to its customers, suppliers and distributors, but there can be no assurances that such third parties will successfully remediate their own Year 2000 issues over which New D&B has no control. New D&B believes that it will substantially complete the implementation of its Year 2000 plan prior to the commencement of the year 2000, and that upon substantial completion of such implementation, and assuming that New D&B's customers, suppliers and distributors successfully remediate their own Year 2000 issues over which New D&B has no control, New D&B will have no material business risk from such Year 2000 issues. The total cost of the New D&B's Year 2000 program is estimated to be approximately $70 to $75 million. EMPLOYEES As of December 31, 1997, the number of full time equivalent employees of New D&B was approximately 13,400. PROPERTIES The executive offices of New D&B are located at One Diamond Hill Road, Murray Hill, New Jersey in a property owned by New D&B. New D&B's other properties are geographically distributed to meet sales and operating requirements worldwide. These properties are generally considered to be both suitable and adequate to meet current operating requirements and virtually all space is being utilized. New D&B owns five properties located within the U.S., consisting of two buildings in Berkeley Heights, New Jersey, one each in Murray Hill and Parsippany, New Jersey, and one in New York, New York. New D&B also owns properties located outside the U.S. in Melbourne, Australia; Curitiba, Brazil; Santiago, Chile; Mexico City, Mexico; Caracas, Venezuela; High Wycombe, England; Lyon, France; Marseille, France and Milan, Italy. Its operations are also conducted from 84 leased offices located throughout the U.S. and 93 leased non-U.S. office locations. LEGAL PROCEEDINGS New D&B and its subsidiaries are involved in legal proceedings, claims and litigation arising in the ordinary course of business. In the opinion of management of New D&B, the outcome of such current legal proceedings, claims and litigation could have a material effect on quarterly or annual operating results or cash flows when resolved in a future period. However, in the opinion of management of New D&B, these matters will not materially affect New D&B's consolidated financial position. In addition, on July 29, 1996, IRI filed a complaint in the United States District Court for the Southern District of New York, naming as defendants D&B, A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS International, Inc. (a subsidiary of Cognizant). The complaint alleges various violations of United States antitrust laws, including alleged violations of Section 1 and 2 of the Sherman Act. The complaint also alleges a claim of tortious interference with a contract and a claim of tortious interference with a prospective business relationship. These claims relate to the acquisition by defendants of SRG. IRI alleges SRG violated an alleged 46 49 agreement with IRI when it agreed to be acquired by the defendants and that the defendants induced SRG to breach that agreement. IRI's complaint alleges damages in excess of $350 million, which amount IRI has asked to be trebled under antitrust laws. IRI also seeks punitive damages in an unspecified amount. In connection with the IRI action, D&B, Cognizant and ACNielsen entered into the Indemnity and Joint Defense Agreement pursuant to which ACNielsen will assume exclusive liability for IRI Liabilities up to the ACN Maximum Amount to be calculated at such time such liabilities, if any, become payable and that D&B and Cognizant will share liability equally for any amounts in excess of the ACN Maximum Amount. Under the terms of the 1996 Distribution Agreement, as a condition to the Distribution, New D&B is required to undertake to be jointly and severally liable with D&B to Cognizant and ACNielsen. Pursuant to the Distribution Agreement, New D&B will assume and indemnify Reuben H. Donnelley against any payments to be made in respect of the IRI Action under the Indemnity and Joint Defense Agreement, the Distribution Agreement or otherwise, including any ongoing legal fees and expenses related thereto. Management is unable to predict at this time the final outcome of the IRI Action or whether the resolution of such matter could materially affect New D&B's results of operations, cash flows or financial position. See "Risk Factors -- Risks Relating to The New Dun & Bradstreet Corporation -- Litigation". 47 50 THE NEW DUN & BRADSTREET CORPORATION MANAGEMENT AND EXECUTIVE COMPENSATION Volney Taylor is currently Chairman and Chief Executive Officer of D&B and Chairman and Chief Executive Officer of New D&B. Mr. Taylor will resign from his positions at D&B effective upon the Distribution. At the time of the Distribution, the Board of Directors of New D&B will be composed of the persons who are serving as directors of D&B immediately prior to the Distribution, and such persons, other than those named under "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution--Overlapping Directors", will resign as directors of D&B effective upon the Distribution. See "--The New Dun & Bradstreet Corporation Board of Directors". In addition to Mr. Taylor, the other executive officers of New D&B at the time of the Distribution (other than Frank R. Noonan) will be the persons who are serving as executive officers of D&B immediately prior to the Distribution, and such persons will resign from their positions at D&B effective upon the Distribution. See "--The New Dun & Bradstreet Corporation Executive Officers". THE NEW DUN & BRADSTREET CORPORATION BOARD OF DIRECTORS Immediately after the Distribution, New D&B expects to have a Board of Directors composed of nine directors. The following table sets forth the names, in alphabetical order, and information as to the persons who are expected to serve as directors of New D&B following the Distribution, including information as to service with D&B, if applicable.
DIRECTOR POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER NAME D&B SINCE DURING LAST FIVE YEARS AGE* DIRECTORSHIPS ---- -------------- -------- ---------------------- ---- ------------------- Hall Adams, Jr.............. Director 1992 Former Chairman of the 64 McDonald's Board, Chief Executive Corporation; Sears, Officer, Leo Burnett Roebuck and Co. Company, Inc., Chicago, IL (advertising agency) 1/1/87 to 12/31/91. Clifford L. Alexander, Jr........................ Director 1993 President, Alexander & 64 American Home Associates, Inc., Products Washington, DC Corporation; (consulting firm Cognizant specializing in Corporation; workforce Dreyfus General inclusiveness), 1/1/81 Family of Funds; to present. Dreyfus Premier Family of Funds; Dreyfus Third Century Fund; MCI Communications Corporation; Mutual of America Life Insurance Company; TLC Beatrice International Holdings, Inc. Mary Johnston Evans......... Director 1990 Former Vice Chairman 68 Baxter of the Board, Amtrak, International Inc.; Washington, D.C. Delta Air Lines, (National Railroad Inc.; Household Passenger Corporation) International, 1975 to 1979. Inc.; Scudder New Europe Fund; Sun Company, Inc.
48 51
DIRECTOR POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER NAME D&B SINCE DURING LAST FIVE YEARS AGE* DIRECTORSHIPS ---- -------------- -------- ---------------------- ---- ------------------- Ronald L. Kuehn, Jr......... Director 1996 Chairman, President 62 Sonat Inc.; AmSouth and Chief Executive Bancorporation; Officer, Sonat Inc., Praxair, Inc.; Birmingham, AL Protective Life (natural gas Corporation; transmission and Transocean Offshore marketing services, Inc.; Union Carbide oil and gas Corporation. exploration and production activities) 1986 to present. Robert J. Lanigan........... Director 1978 Chairman Emeritus, 69 Owens-Illinois, Owens-Illinois, Inc., Inc.; Chrysler Toledo, OH (glass, Corporation; paper, plastics and Cognizant other packaging Corporation; The products) 1/24/92 to Coleman Company, present; Chairman of Inc.; Sonat Inc.; the board 4/18/84 to Transocean Offshore 10/15/91; Chief Inc. Executive Officer 1/1/84 to 9/30/90. Vernon R. Loucks Jr......... Director 1978 Chairman of the Board, 63 Baxter Chief Executive International Inc.; Officer, Baxter Affymetrix Inc.; International Inc., Anheuser-Busch Deerfield, IL (medical Companies, Inc.; care products and Coastcast services) 9/16/87 to Corporation; present; Chairman, Emerson Electric President, Chief Co.; The Quaker Executive Officer Oats Company. 7/20/87 to 9/15/87; President, Chief Executive Officer 5/3/80 to 7/19/87. Henry A. McKinnell.......... Director 1997 Executive Vice 55 Pfizer, Inc.; President, Pfizer, Aviall, Inc.; John Inc., New York, NY Wiley & Sons. (diversified research- based health care company) 3/1/92 to present; President, Pfizer Pharmaceuticals Group 1/1/97 to present; President, Medical Technology Group 1/1/92 to 12/31/96; Chief Financial Officer and Vice President, Finance 8/1/90 to 1/1/92
49 52
DIRECTOR POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER NAME D&B SINCE DURING LAST FIVE YEARS AGE* DIRECTORSHIPS ---- -------------- -------- ---------------------- ---- ------------------- Michael R. Quinlan.......... Director 1989 Chairman, Chief 53 McDonald's Executive Officer, Corporation; The McDonald's May Department Corporation, Oak Stores Company. Brook, IL (global food service retailer) 3/31/90 to present; President, Chief Executive Officer 3/1/87 to 3/30/90; President, Chief Operating Officer 6/15/82 to 2/28/87 Volney Taylor............... Chairman, 1984 Chairman, Chief 58 Chief Executive Officer, The Executive Dun & Bradstreet Officer, Corporation, Murray Director Hill, NJ 11/1/96 to present; Executive Vice President, 2/1/82 to 10/31/96.
- --------------- * As of March 6, 1998 DIRECTOR'S COMPENSATION The Board of Directors of D&B has approved a director compensation program for New D&B. It is anticipated that the Board of Directors of New D&B will adopt and implement such program as described below prior to, on or shortly after, the Distribution Date. If such program is adopted and implemented, each non-employee director will receive a 1998 retainer of $12,500; thereafter, the retainer will be paid at an annual rate of $25,000 in quarterly installments. Each non-employee director who is the Chairman of a Committee of the Board of Directors will be paid an additional retainer of $2,000 for 1998 and $4,000 annually thereafter in quarterly installments. A fee of $1,000 will be paid to each non-employee director for every Board or Committee meeting attended. Directors who are employed by New D&B shall receive no retainers or meeting fees. Each director not employed by New D&B may elect on or before December 31 of any year to have all or a specified part of the retainer and fees during the subsequent calendar year or years deferred until such director ceases to be a director. New directors may similarly so elect at the beginning of their terms. Such deferred amounts are held for the account of directors and receive the rate earned by one or more investment options in the New D&B Profit Participation Plan to be sponsored by New D&B as selected by the director. Deferred amounts and earnings thereon are paid in accordance with a director's election in a lump sum or five or ten annual installments commencing on the tenth day of the calendar year following the year in which such person ceases to be a director of New D&B, except that the balance of a director's account is paid in a lump sum on the tenth day of the calendar year following the director's death to the director's estate or to such beneficiary as was previously designated by the director. A director may change or terminate an election to defer retainers and fees, effective as of the end of the calendar year in which notice of such change or termination is given to New D&B. COMMITTEES OF THE NEW DUN & BRADSTREET CORPORATION BOARD OF DIRECTORS Prior to the Distribution, the New D&B Board of Directors will establish Audit, Executive Compensation and Stock Option, Employee Benefits, Nominating and Executive Committees and designate specific 50 53 functions and areas of oversight as to such committees. No final determination has yet been made as to the memberships of such standing committees. THE NEW DUN & BRADSTREET CORPORATION EXECUTIVE OFFICERS Listed below is certain information as to the executive officers who have been selected to serve after the Distribution.
NAME, POSITION WITH NEW D&B AND AGE BIOGRAPHICAL DATA ----------------------------------- ----------------- Volney Taylor, 58............................ See information under "The New Dun & Chairman and Chief Executive Officer Bradstreet Corporation Board of Directors". William F. Doescher, 60...................... Senior Vice President and Chief Senior Vice President and Chief Communications Officer of D&B, 11/96 to Communications Officer present; Senior Vice President -- Global Communications, D&B, 4/92 to present; Vice President-Public Relations and Advertising, D&B, 4/83 to 10/96. Nancy L. Henry, 52........................... Senior Vice President and Chief Legal Senior Vice President and Chief Legal Counsel, D&B, 3/97 to present; Special Counsel Counsel, Skadden, Arps, Slate, Meagher & Flom LLP, 4/85 to 3/97. Elahe Hessamfar, 44.......................... Senior Vice President and Chief Information Senior Vice President and Chief Information Officer, D&B, 8/97 to present; Chief Officer Information Officer, Turner Broadcasting System, 7/93 to 7/97; Vice President Information Systems, PAC Bell Directories, 5/87 to 6/93. Peter J. Ross, 52............................ Senior Vice President and Chief Human Senior Vice President and Chief Human Resources Officer, D&B, 11/96 to present; Resources Officer Senior Vice President -- Human Resources, D&B, 6/88 to present. Frank S. Sowinski, 41........................ Senior Vice President and Chief Financial Senior Vice President and Chief Financial Officer, D&B, 11/96 to present; Executive Officer Vice President -- Applications, Mass Marketing & Alliances, Dun & Bradstreet, U.S., 10/93 to 10/96; Senior Vice President-Finance & Planning, Dun & Bradstreet, U.S., 8/89 to 9/93. Chester J. Geveda, 51........................ Vice President and Controller, D&B, 11/96 to Vice President and Controller present; Senior Vice President -- Finance, D&B, 11/96 to present; Senior Vice President -- Finance and Planning, Dun & Bradstreet, U.S., 4/93 to 10/96; Senior Vice President -- Finance and Administration, Dun & Bradstreet Europe/Africa/Middle East, 9/90 to 3/93.
COMPENSATION OF THE NEW DUN & BRADSTREET CORPORATION EXECUTIVE OFFICERS The following table discloses the compensation paid by D&B for services rendered to D&B in 1997 by New D&B's Chief Executive Officer and by each of the persons who are anticipated to be one of the four other most highly compensated executive officers of New D&B following the Distribution. During the period presented, the individuals were compensated in accordance with D&B's plans and policies. In that connection, stock-based compensation described in the following tables is expressed in shares of D&B Common Stock, which will be converted into an adjusted number of shares of New D&B Common Stock following the Distribution. See also "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Employee Benefits Agreement". 51 54 SUMMARY COMPENSATION TABLE FOR SERVICES WITH D&B
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS PAYOUTS ---------------------------------- ------------------------ ---------- (a) (b) (c) (d) (e) (f) (g) (h) (i) SECURITIES RESTRICTED UNDERLYING LONG-TERM OTHER ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER NAME AND PRINCIPAL SALARY BONUS(1) COMPENSATION AWARD(S)(3) SARS(4) PAYOUTS(5) COMPENSATION POSITION WITH NEW D&B YEAR ($) ($) (2)($) ($) (#) ($) (6)($) --------------------- ---- ------- --------- ------------ ----------- ---------- ---------- ------------ Volney Taylor................. 1997 630,000 1,517,449 231 0 120,540 0 20,449 Chairman and Chief Executive Officer Frank S. Sowinski............. 1997 320,000 381,746 36 0 30,130 0 10,177 Senior Vice President and Chief Financial Officer Elahe Hessamfar(7)............ 1997 168,750 375,064 20,731 280,625 57,941 0 4,516 Senior Vice President and Chief Information Officer Nancy L. Henry(8)............. 1997 219,318 279,549 0 0 35,930 0 3,072 Senior Vice President and Chief Legal Counsel Chester J. Geveda, Jr. ....... 1997 257,500 246,711 35 0 16,070 0 8,059 Vice President and Controller
- --------------- (1) The 1997 bonus amounts shown were earned with respect to that year and paid in 1998. Included in the 1997 amounts is one-half of the 1997 performance share grant made under the Key Employees Performance Unit Plan for D&B and subsidiaries (the "PUP") and earned with respect to 1997. The remaining one-half of the 1997 performance share grant is payable after two years based on cumulative 1997 -- 1998 performance goals and will be reflected as long-term incentive payouts in the Summary Compensation Table to appear in New D&B's 1999 Proxy Statement. The performance shares are paid in unrestricted shares of D&B Common Stock. (2) Amounts shown represent reimbursement for taxes paid by the named executive officers with respect to D&B-directed spousal travel and personal use of automobiles and/or reimbursement for certain other expenses. (3) Amounts shown represent the dollar value of restricted stock on the date of grant. The number and value of the aggregate restricted stock holdings of the named executive officers at December 31, 1997 were: Messrs. Taylor, Sowinski and Geveda and Ms. Henry -- none; Ms. Hessamfar -- 10,000 shares ($309,375). Ms. Hessamfar's 10,000 shares of restricted stock are scheduled to vest in full in September 2000. Dividends are paid at the rate established from time to time for D&B Common Stock. (4) Amounts shown represent the number of non-qualified stock options granted in 1997. (5) No payments were made to any of the named executive officers in 1997. (6) Amounts shown represent aggregate annual D&B contributions for the account of each named executive officer under the Dun & Bradstreet Profit Participation Plan (the "PPP") and the Profit Participation Benefit Equalization Plan (the "PPBEP"), which plans are open to employees of D&B and certain subsidiaries. The PPP is a tax-qualified defined contribution plan and the PPBEP is a non-qualified plan that provides benefits to participants in the PPP equal to the amount of D&B contributions that would have been made to the participant's PPP account but for certain Federal tax laws. (7) Hired effective August 18, 1997. Salary shown represents actual amount paid for the portion of the year employed. In accordance with her employment offer, Ms. Hessamfar was guaranteed a full-year bonus for 1997. (8) Hired effective April 8, 1997. Salary shown represents actual amount paid for the portion of the year employed. In accordance with her employment offer, Ms. Henry was also awarded a cash sign-on bonus and was guaranteed a full-year bonus for 1997. 52 55 OPTION GRANTS ON D&B COMMON STOCK TO THE NEW DUN & BRADSTREET CORPORATION EXECUTIVES IN LAST FISCAL YEAR The following table provides information on fiscal year 1997 grants of options to the named New D&B executives to purchase shares of D&B Common Stock. Options to acquire D&B Common Stock will be replaced by options to acquire New D&B Common Stock. See "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution--Employee Benefits Agreement". OPTION GRANTS/SAR GRANTS IN LAST FISCAL YEAR TO PURCHASE D&B COMMON STOCK
(a) (b) (c) (d) (e) (f) NUMBER OF SECURITIES % OF TOTAL EXERCISE UNDERLYING OPTIONS/SARS OR OPTIONS/SARS GRANTED TO BASE GRANT DATE GRANTED(1) EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE(2) NAME (#) FISCAL YEAR ($/SHARE) DATE ($) ---- ------------ ------------ --------- -------------- ---------------- Volney Taylor...................... 120,540 3.82% 30.2188 12/22/07 672,613 Frank S. Sowinski.................. 30,130 0.96% 30.2188 12/22/07 168,125 Elahe Hessamfar.................... 27,700 0.88% 30.2188 12/22/07 154,566 30,241 0.96% 27.5938 08/18/07 158,463 Nancy L. Henry..................... 17,300 0.55% 30.2188 12/22/07 96,534 18,630 0.59% 25.6250 04/16/07 96,876 Chester J. Geveda, Jr.............. 16,070 0.51% 30.2188 12/22/07 89,671
- --------------- (1) Amounts shown represent the number of non-qualified stock options, without tandem stock appreciation rights ("SARs"), granted in 1997. Options may not be exercised for at least one year after grant and may then be exercised in installments of 25% of the grant amount each year until they are 100% vested. Payment for all options must be made in full upon exercise in cash or D&B Common Stock. The option holder may elect to have shares of D&B Common Stock issuable upon exercise withheld by D&B to pay withholding taxes due. The options shown include Limited SARs in tandem with the options. Limited SARs are exercisable only if and to the extent that the related option is exercisable and are exercisable only during the 30-day period following the acquisition of at least 20% of the outstanding D&B Common Stock pursuant to a tender or exchange offer not made by D&B. Each Limited SAR permits the holder to receive cash equal to the excess over the related option exercise price of the highest price paid pursuant to a tender or exchange offer for D&B Common Stock which is in effect at any time during the 60 days preceding the date upon which the Limited SAR is exercised. Limited SARs can be exercised regardless of whether D&B supports or opposes the offer. (2) Grant date present value is based on the Black-Scholes option valuation model applied to D&B prior to the Distribution, which makes the following material assumptions for the April 16, 1997 grant, the August 18, 1997 grant and the December 22, 1997 grant: an expected stock-price volatility factor of 20.0%, a risk-free rate of return of 6.76%, 6.02% and 5.71% respectively, a dividend yield of 3.3% and a weighted average exercise date of 4.5 years from date of grant. These assumptions may or may not be fulfilled. The amounts shown cannot be considered predictions of future value. In addition, the options will gain value only to the extent the stock price exceeds the option exercise price during the life of the option. AGGREGATE D&B OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR END D&B OPTION VALUES The following table provides information on option exercises in 1997 by the named executives of New D&B and the value of each such executive's unexercised options to acquire D&B Common Stock at December 31, 1997. See also, "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Employee Benefits Agreement". 53 56 AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
(a) (b) (c) (d) (e) NUMBER OF SECURITIES VALUE OF UNEXERCISED, UNDERLYING UNEXERCISED IN-THE-MONEY SHARES D&B OPTIONS/SARS AT D&B OPTIONS/SARS AT ACQUIRED VALUE FISCAL YEAR-END(#) FISCAL YEAR-END(2)($) ON EXERCISE REALIZED(1) --------------------------- --------------------------- NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ----------- ----------- ------------- ----------- ------------- Volney Taylor............... 22,817 170,799 403,104 316,836 4,302,261 1,649,054 Frank S. Sowinski........... 3,662 20,388 69,023 69,025 722,342 333,499 Elahe Hessamfar............. 0 0 0 57,941 0 121,025 Nancy L. Henry.............. 0 0 0 35,930 0 111,405 Chester J. Geveda, Jr. ..... 4,266 36,333 57,434 68,310 622,792 404,484
- --------------- (1) Amounts shown represent the value realized upon the exercise of stock options during 1997, which equals the difference between the exercise price of the options and the average of the high and low market price of the underlying D&B Common Stock on the exercise date. (2) The values shown equal the difference between the exercise price of unexercised in-the-money options and the closing market price of the underlying D&B Common Stock at December 31, 1997. Options are in-the-money if the fair market value of the D&B Common Stock exceeds the exercise price of the option. The options shown include Limited SARs having the terms described for D&B Limited SARs in Footnote 1 under the caption "-- Option Grants on D&B Common Stock to The New Dun & Bradstreet Corporation Executives in Last Fiscal Year" above. Such D&B Limited SARs will be converted into Limited SARs of New D&B in connection with the Distribution. See "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Employee Benefits Agreement". LONG-TERM D&B INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
(a) (b) (c) (d) (e) (f) ESTIMATED FUTURE PAYOUTS NO. OF PERFORMANCE UNDER NON-STOCK PRICE-BASED PLANS(2) SHARES, OR OTHER ------------------------------------- UNITS OR PERIOD UNTIL THRESHOLD TARGET MAXIMUM OTHER MATURATION (#) (#) (#) NAME RIGHTS(1)(#) OR PAYOUT (0%) (100%) (200%) ---- ------------ ------------ ------------ --------- ---------- Volney Taylor....................... 40,310 Two Years 0 40,310 80,620 Frank S. Sowinski................... 10,080 Two Years 0 10,080 20,160 Elahe Hessamfar..................... 9,260 Two Years 0 9,260 18,520 Nancy L. Henry...................... 5,780 Two Years 0 5,780 11,560 Chester J. Geveda, Jr............... 5,370 Two Years 0 5,370 10,740
- --------------- (1) Amounts shown represent the performance shares granted under the Dun & Bradstreet Performance Unit Plan. The performance shares are payable in February 2000 based on cumulative 1998 -- 1999 performance goals. Earned awards are paid in unrestricted shares of D&B Common Stock. (2) Awards may range from 0 to 200% of the targeted number of performance shares based on achievements within a range of performance goals. RETIREMENT BENEFITS The following table sets forth the estimated aggregate annual benefits payable under Dun & Bradstreet's Retirement Account Plan, Pension Benefit Equalization Plan ("PBEP") and Supplemental Executive Benefit Plan ("SEBP") as in effect during 1997 to persons in specified average final compensation and credited service classifications upon retirement at age 65. Amounts shown in the table include U.S. Social Security 54 57 benefits which would be deducted in calculating benefits payable under these plans. These aggregate annual retirement benefits do not increase as a result of additional credited service after 20 years.
ESTIMATED AGGREGATE ANNUAL RETIREMENT BENEFIT AVERAGE ASSUMING CREDITED SERVICE OF: FINAL ------------------------------------------------- COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS - ------------ -------- ---------- ---------- ---------- ---------- $550,000 275,000 330,000 330,000 330,000 330,000 700,000 350,000 420,000 420,000 420,000 420,000 850,000 425,000 510,000 510,000 510,000 510,000 1,000,000 500,000 600,000 600,000 600,000 600,000 1,300,000 650,000 780,000 780,000 780,000 780,000 1,600,000 800,000 960,000 960,000 960,000 960,000 1,900,000 950,000 1,140,000 1,140,000 1,140,000 1,140,000
The number of years of credited service under the plans as of December 31, 1997 of Messrs. Taylor, Sowinski and Geveda and Mmes. Hessamfar and Henry are 26, 13, 21, 0 and 0, respectively. Compensation, for the purpose of determining retirement benefits, consists of salary, wages, regular cash bonuses, commissions and overtime pay. Severance pay, contingent payments and other forms of special remuneration are excluded. Bonuses included in the Summary Compensation Table are normally not paid until the year following the year in which they are accrued and expensed; therefore, compensation for purposes of determining retirement benefits varies from the Summary Compensation Table amounts in that bonuses expensed in the previous year, but paid in the current year, are part of retirement compensation in the current year, and current year's bonuses accrued and included in the Summary Compensation Table are not. For 1997, compensation for purposes of determining retirement benefits also varies from the Summary Compensation Table in that the amounts shown in the "Bonus" column include performance share payouts under the PUP, which are not creditable compensation under the retirement plans. For the reasons discussed above, compensation for determining retirement benefits for the named executive officers differed by more than 10% from the amounts shown in the Summary Compensation Table. 1997 compensation for purposes of determining retirement benefits for Messrs. Taylor, Sowinski and Geveda and Mmes. Hessamfar and Henry was $651,875, $329,000, $264,011, $168,750 and $219,318, respectively. Average final compensation is defined as the highest average annual compensation during five consecutive twelve-month periods in the last ten consecutive twelve-month periods of the member's credited service. Members vest in their accrued retirement benefit upon completion of five years of service. The benefits shown in the table above are calculated on a straight-life annuity basis. The Retirement Account Plan, together with the PBEP, provides retirement income based on a percentage of annual compensation. The percentage of compensation allocated annually ranges from 3% to 12.5%, based on age and credited service. Amounts allocated also receive interest credits based on 30-year Treasuries with a minimum interest credit rate of 3%. Executives close to or eligible to retire as of January 1, 1997 will receive the higher of benefits provided by the final pay formula in effect prior to 1997 or the Retirement Account formula. The SEBP provides retirement benefits in addition to the benefits provided under the Retirement Account Plan and the PBEP. The SEBP has the effect of increasing the retirement benefits under the Retirement Account Plan and the PBEP to the amounts depicted in the preceding table. The SEBP provides maximum benefits after 20 years. Executives close to or eligible for retirement, as approved by the Chairman and Chief Executive Officer, will receive maximum benefits after 15 years. 55 58 THE NEW DUN & BRADSTREET CORPORATION SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT All the outstanding shares of New D&B Common Stock are currently held by D&B. The following table sets forth the number of shares of New D&B Common Stock that are expected to be beneficially owned after the Distribution by each of the New D&B directors, by each of the executive officers named in The New Dun & Bradstreet Corporation Summary Compensation Table above, by all New D&B directors and executive officers as a group and by each person known by New D&B to beneficially own more than 5% of the outstanding shares of D&B Common Stock as of December 31, 1997 ("5% Owners"). Stock ownership information is based on (i) the number of shares of D&B Common Stock held by directors and executive officers as of December 31, 1997, (ii) the number of shares held by 5% Owners, based upon a Schedule 13G filed with the SEC by such 5% Owners and (iii) one share of New D&B Common Stock being distributed for every share of D&B Common Stock. See "The Distribution" and "The New Dun & Bradstreet Corporation Management and Executive Compensation -- Compensation of The New Dun & Bradstreet Corporation Executive Officers". Information regarding shares subject to options reflects shares of D&B Common Stock subject to options as of December 31, 1997 and exercisable within 60 days thereafter, all of which will be converted into options that are exercisable into shares of New D&B Common Stock. See "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Employee Benefits Agreement". Unless otherwise stated, the indicated persons have sole voting and investment power over the shares listed. Percentages are based upon the number of shares of D&B Common Stock outstanding on December 31, 1997, plus, where applicable, the number of shares that the indicated person or group had a right to acquire within 60 days of such date. The mailing address for each of the New D&B directors and executive officers listed below is One Diamond Hill Road, Murray Hill, New Jersey 07974.
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF BENEFICIAL OWNER AND NATURE OF OWNERSHIP OF CLASS(1) ------------------- ----------------------- ----------- Hall Adams, Jr. ................ 1,400 Owned(2) 3,000 Rights to Acquire Within 60 Days(3) ---------- 4,400 -- Clifford L. Alexander, Jr. ..... 1,300 Owned(2)(4) 4,203 Rights to Acquire Within 60 Days(3) ---------- 5,503 -- Mary Johnston Evans............. 46,670 Owned(2)(5) 3,000 Rights to Acquire Within 60 Days(3) ---------- 49,670 -- Chester J. Geveda, Jr. ......... 16,241 Owned(4) 60,210 Rights to Acquire Within 60 Days(3) ---------- 76,451 -- Nancy L. Henry.................. 0 Owned 2,983 Rights to Acquire Within 60 Days(3) ---------- 2,983 -- Elahe Hessamfar................. 10,000 Owned(6) 4,841 Rights to Acquire Within 60 Days(3) ---------- 14,841 -- Ronald L. Kuehn, Jr. ........... 1,318 Owned(7) 3,000 Rights to Acquire Within 60 Days(3) ---------- 4,318 -- Robert J. Lanigan............... 7,100 Owned(2)(8) 4,203 Rights to Acquire Within 60 Days(3) ---------- 11,303 --
56 59
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF BENEFICIAL OWNER AND NATURE OF OWNERSHIP OF CLASS(1) ------------------- ----------------------- ----------- Vernon R. Loucks Jr. ........... 1,600 Owned(2)(9) 4,203 Rights to Acquire Within 60 Days(3) ---------- 5,803 -- Henry A. McKinnell.............. 884 Owned(7) 257 Rights to Acquire Within 60 Days(3) ---------- 1,141 -- Michael R. Quinlan.............. 1,400 Owned(2) 3,000 Rights to Acquire Within 60 Days(3) ---------- 4,400 -- Frank S. Sowinski............... 2,920 Owned 74,210 Rights to Acquire Within 60 Days(3) ---------- 77,130 -- Volney Taylor................... 104,845 Owned 428,557 Rights to Acquire Within 60 Days(3) ---------- 533,402 -- All Directors and Executive Officers as a Group........... 229,226 Owned(5) 703,598 Rights to Acquire Within 60 Days(10) ---------- 932,824 -- Harris Associates L.P. and its general partner, Harris Associates, Inc. ............. 14,903,640 (11) 8.72 % Two North La Salle Street, Ste. 500 Chicago, Illinois 60602-3790 AMVESCAP PLC and certain of its subsidiaries.................. 12,048,320 (12) 7.05 % 11 Devonshire Square London EC2M 4YR England
- --------------- (1) Represents ownership of less than 1% of the outstanding New D&B Common Stock unless otherwise indicated. (2) Includes 900 shares of restricted stock granted under The Dun & Bradstreet Corporation Restricted Stock Plan for Non-Employee Directors, which shares are scheduled to vest in the years 1999, 2000 and 2001. (3) Includes the following number of performance shares delivered under the 1996 The Dun & Bradstreet Corporation Non-Employee Directors' Stock Incentive Plan (the "1996 Directors' Plan") (in the case of directors) and the Key Employees Performance Unit Plan for D&B and its subsidiaries (the "PUP") (in the case of the executive officers) in February 1998 based upon performance goals for the 1997 fiscal year: 1,203 shares for Messrs. Alexander, Lanigan and Loucks; 257 shares for Dr. McKinnell; 2,776 shares for Mr. Geveda; 2,983 shares for Ms. Henry; 4,841 shares for Ms. Hessamfar; 5,187 shares for Mr. Sowinski; and 25,452 shares for Mr. Taylor. Messrs. Adams, Kuehn and Quinlan and Mrs. Evans have elected to defer receipt of their 1,203 performance shares until after retirement. The balance of the indicated shares represents stock options granted under a D&B plan. (4) Includes the following number of shares as to which the indicated person has shared voting and shared investment power: 400 shares for Mr. Alexander and 9,075 shares for Mr. Geveda. (5) Includes 44,770 shares owned by Mrs. Evans' spouse, as to which Mrs. Evans disclaims beneficial ownership. (6) Represents shares of restricted stock granted under the 1989 Key Employees Restricted Stock Plan, which shares are scheduled to vest in the year 2000. 57 60 (7) Represents shares of restricted stock granted to Mr. Kuehn and Dr. McKinnell under the 1996 Directors' Plan, which shares are scheduled to vest in the years 2001 and 2002, respectively. (8) Includes shares held in two revocable trusts (one trust holding 5,000 shares and the other 1,200 shares) for the benefit of Mr. Lanigan in which he is the settlor and sole beneficial owner and over which he has sole investment control. (9) Includes 300 shares held in a Keogh Plan for the benefit of Mr. Loucks. (10) Includes 50,996 performance shares delivered under the 1996 Directors' Plan (in the case of directors) and the PUP (in the case of executive officers) in February 1998 based upon performance goals for the 1997 fiscal year. The balance of the indicated shares represents stock options granted under a D&B plan. (11) Harris Associates L.P. ("Harris") and its sole general partner, Harris Associates, Inc., ("Harris Inc.") jointly filed a Schedule 13G with the SEC on February 11, 1998. This Schedule 13G shows that Harris, a registered investment adviser, had as of December 31, 1997, shared voting power over 14,903,640 shares of D&B Common Stock. Of such shares, Harris had sole dispositive power over 5,171,140 shares and shared dispositive power over 9,732,500 shares. In addition, Harris and Harris Inc. jointly filed an amendment to their Schedule 13G with the SEC on April 4, 1998. This amended Schedule 13G shows that Harris had as of March 31, 1998 shared voting power over 17,374,440 shares of D&B Common Stock. Of such shares, Harris had sole dispositive power over 5,435,440 shares and shared dispositive power over 11,939,000 shares. (12) AMVESCAP PLC and its subsidiaries, AVZ, Inc. (a holding company), AIM Management Group Inc. (a holding company), INVESCO, Inc. (a holding company), INVESCO North American Holdings, Inc. (a holding company), INVESCO Capital Management, Inc. (a registered investment adviser), INVESCO Funds Group, Inc. (a registered investment adviser), and INVESCO Realty Advisers, Inc. (a registered investment adviser), jointly filed a Schedule 13G with the SEC on February 11, 1998. This Schedule 13G shows that these companies had, as of December 31, 1997, shared voting power and shared dispositive power over 12,048,320 shares. 58 61 DESCRIPTION OF THE NEW DUN & BRADSTREET CORPORATION CAPITAL STOCK AUTHORIZED CAPITAL STOCK The total number of shares of all classes of stock that New D&B has authority to issue under its Restated Certificate of Incorporation is 420,000,000 shares of which 400,000,000 shares represent shares of New D&B Common Stock, 10,000,000 shares represent shares of Preferred Stock (the "New D&B Preferred Stock") and 10,000,000 shares represent shares of Series Common Stock (the "New D&B Series Common Stock"). Based on shares of D&B Common Stock outstanding as of , 1998, and a distribution ratio of one share of New D&B Common Stock for every one share of D&B Common Stock, shares of New D&B Common Stock would be distributed to holders of D&B Common Stock on the Distribution Date. NEW D&B COMMON STOCK Subject to any preferential rights of any New D&B Preferred Stock or New D&B Series Common Stock created by the Board of Directors of New D&B, each outstanding share of New D&B Common Stock will be entitled to such dividends, if any, as may be declared from time to time by the Board of Directors of New D&B. See "Dividend Policies". Each outstanding share is entitled to one vote on all matters submitted to a vote of stockholders. In the event of liquidation, dissolution or winding up of New D&B, holders of New D&B Common Stock are entitled to receive on a pro rata basis any assets remaining after provision for payment of creditors and after payment of any liquidation preferences to holders of New D&B Preferred Stock and New D&B Series Common Stock. NEW D&B PREFERRED STOCK AND NEW D&B SERIES COMMON STOCK Each of the authorized Preferred Stock and the authorized Series Common Stock of New D&B is available for issuance from time to time in one or more series at the discretion of the New D&B Board of Directors without stockholder approval. The New D&B Board of Directors has the authority to prescribe for each series of New D&B Preferred Stock or New D&B Series Common Stock it establishes the number of shares in that series, the voting rights (if any) to which such shares in that series are entitled, the consideration for such shares in that series and the designation, powers, preference and relative, participating, optional or other special rights and such qualifications, limitations or restrictions of the shares in that series. Depending upon the rights of such Preferred Stock or Series Common Stock, as applicable, the issuance of New D&B Preferred Stock or New D&B Series Common Stock, as applicable, could have an adverse effect on holders of New D&B Common Stock by delaying or preventing a change in control of New D&B, making removal of the present management of New D&B more difficult or resulting in restrictions upon the payment of dividends and other distributions to the holders of New D&B Common Stock. AUTHORIZED BUT UNISSUED CAPITAL STOCK Delaware law does not require stockholder approval for any issuance of authorized shares. However, the listing requirements of the NYSE, which would apply so long as the New D&B Common Stock remained listed on the NYSE, require stockholder approval of certain issuances equal to or exceeding 20% of the then outstanding voting power or then outstanding number of shares of New D&B Common Stock. These additional shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital or to facilitate corporate acquisitions. New D&B currently does not have any plans to issue additional shares of New D&B Common Stock, New D&B Preferred Stock or New D&B Series Common Stock other than in connection with employee compensation plans. One of the effects of the existence of unissued and unreserved New D&B Common Stock, New D&B Preferred Stock and New D&B Series Common Stock may be to enable the Board of Directors of New D&B to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of New D&B by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of New D&B's management and possibly deprive the stockholders of opportunities to sell their shares of New D&B Common Stock at prices higher than prevailing 59 62 market prices. Such additional shares also could be used to dilute the stock ownership of persons seeking to obtain control of New D&B pursuant to the operation of the New D&B Rights Plan, which is discussed below. THE NEW DUN & BRADSTREET CORPORATION RIGHTS PLAN On , 1998 the Board of Directors of New D&B declared a dividend of one preferred share purchase right (a "New D&B Right") for each outstanding share of New D&B Common Stock. The dividend will be payable on , 1998 (the "New D&B Record Date") to D&B, which will be the sole stockholder of record on the New D&B Record Date. Each New D&B Right entitles the registered holder to purchase from New D&B one one-thousandth of a share of Series A Junior Participating New D&B Preferred Stock, par value $0.01 per share (the "New D&B Participating Preferred Stock"), of New D&B at a price of $ per one one-thousandth of a share of New D&B Participating Preferred Stock (as the same may be adjusted, hereinafter referred to as the "New D&B Participating Preferred Stock Purchase Price"), subject to adjustment. The description and terms of the New D&B Rights are set forth in the New D&B Rights Agreement dated as of , 1998, as the same may be amended from time to time (the "New D&B Rights Agreement"), between New D&B and First Chicago Trust Company of New York, as the New D&B Rights Agent (the "New D&B Rights Agent"). Until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (with certain exceptions, hereinafter referred to in this description of New D&B Rights, an "Acquiring Person") have acquired beneficial ownership of 15% or more of the outstanding shares of New D&B Common Stock or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding shares of New D&B Common Stock (the earlier of such dates hereinafter referred to in this description of New D&B Rights as the "Rights Distribution Date"), the New D&B Rights will be evidenced by the certificates representing New D&B Common Stock. The New D&B Rights Agreement provides that, until the Rights Distribution Date (or earlier redemption or expiration of the New D&B Rights), the New D&B Rights will be transferred with and only with the New D&B Common Stock. Until the Rights Distribution Date (or earlier redemption or expiration of the New D&B Rights), New D&B Common Stock certificates will contain a notation incorporating the New D&B Rights Agreement by reference. Until the Rights Distribution Date (or earlier redemption or expiration of the New D&B Rights), the surrender for transfer of any certificates for shares of New D&B Common Stock will also constitute the transfer of the New D&B Rights associated with the shares of New D&B Common Stock represented by such certificate. As soon as practicable following the Rights Distribution Date, separate certificates evidencing the New D&B Rights ("New D&B Rights Certificates") will be mailed to holders of record of the New D&B Common Stock as of the close of business on the Rights Distribution Date and such separate New D&B Rights Certificates alone will evidence the New D&B Rights. The New D&B Rights are not exercisable until the Rights Distribution Date. The New D&B Rights will expire on , 2008 (hereinafter referred to in this description of New D&B Rights as the "Final Expiration Date"), unless the Final Expiration Date is advanced or extended or unless the New D&B Rights are earlier redeemed or exchanged by New D&B, in each case as described below. The New D&B Participating Preferred Stock Purchase Price payable, and the number of shares of New D&B Participating Preferred Stock or other securities or property issuable, upon exercise of the New D&B Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the New D&B Participating Preferred Stock, (ii) upon the grant to holders of the New D&B Participating Preferred Stock of certain rights or warrants to subscribe for or purchase New D&B Participating Preferred Stock at a price, or securities convertible into New D&B Participating Preferred Stock with a conversion price, less than the then-current market price of the New D&B Participating Preferred Stock or (iii) upon the distribution to holders of the New D&B Participating Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends or dividends 60 63 payable in New D&B Participating Preferred Stock) or of subscription rights or warrants (other than those referred to above). The New D&B Rights are also subject to adjustment in the event of a stock dividend on the New D&B Common Stock payable in shares of New D&B Common Stock or subdivisions, consolidations or combinations of the New D&B Common Stock occurring, in any such case, prior to the Rights Distribution Date. Shares of New D&B Participating Preferred Stock purchasable upon exercise of the New D&B Rights will not be redeemable. Each share of New D&B Participating Preferred Stock will be entitled, when, as and if declared, to a minimum preferential quarterly dividend payment of $10 per share but will be entitled to an aggregate dividend of 1,000 times the dividend declared per share of New D&B Common Stock. In the event of liquidation, dissolution or winding up of New D&B, the holders of the New D&B Participating Preferred Stock will be entitled to a minimum preferential liquidation payment of $100 per share (plus any accrued but unpaid dividends) but will be entitled to an aggregate payment of 1,000 times the payment made per share of New D&B Common Stock. Each share of New D&B Participating Preferred Stock will have 1,000 votes, voting together with the New D&B Common Stock. Finally, in the event of any merger, consolidation or other transaction in which shares of New D&B Common Stock are converted or exchanged, each share of New D&B Participating Preferred Stock will be entitled to receive 1,000 times the amount received per share of New D&B Common Stock. These rights are protected by customary antidilution provisions. Because of the nature of the New D&B Participating Preferred Stock's dividend, liquidation and voting rights, the value of the one one-thousandth interest in a share of New D&B Participating Preferred Stock purchasable upon exercise of each New D&B Right should approximate the value of one share of New D&B Common Stock. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a New D&B Right, other than New D&B Rights beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a New D&B Right and payment of the New D&B Participating Preferred Stock Purchase Price, that number of shares of New D&B Common Stock having a market value of two times the New D&B Participating Preferred Stock Purchase Price. In the event that, after a person or group has become an Acquiring Person, New D&B is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provision will be made so that each holder of a New D&B Right (other than New D&B Rights beneficially owned by an Acquiring Person which will have become void) will thereafter have the right to receive, upon the exercise thereof, that number of shares of common stock of the person with whom New D&B has engaged in the foregoing transaction (or its parent), which number of shares at the time of such transaction will have a market value of two times the New D&B Participating Preferred Stock Purchase Price. At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding shares of New D&B Common Stock or the occurrence of an event described in the prior paragraph, the Board of Directors of New D&B may exchange the New D&B Rights (other than New D&B Rights owned by such person or group which will have become void), in whole or in part, at an exchange ratio of one share of New D&B Common Stock, or a fractional share of New D&B Participating Preferred Stock of equivalent value (or of a share of a class or series of New D&B's Preferred Stock having similar rights, preferences and privileges), per New D&B Right (subject to adjustment). With certain exceptions, no adjustment in the New D&B Participating Preferred Stock Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such New D&B Participating Preferred Stock Purchase Price. No fractional shares of New D&B Participating Preferred Stock will be issued (other than fractions which are integral multiples of one one-thousandth of a share of New D&B Participating Preferred Stock, which may, at the election of New D&B, be evidenced by depositary receipts) and in lieu thereof, an adjustment in cash will be made based on the market price of the New D&B Participating Preferred Stock on the last trading period to the date of exercise. 61 64 At any time prior to the time an Acquiring Person becomes such, the Board of Directors of New D&B may redeem the New D&B Rights in whole, but not in part, at a price of $0.01 per New D&B Right (hereinafter referred to in this description of New D&B Rights as the "Redemption Price"). The redemption of the New D&B Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the New D&B Rights, the right to exercise the New D&B Rights will terminate and the only right of the holders of New D&B Rights will be to receive the Redemption Price. For so long as the New D&B Rights are then redeemable, New D&B may, except with respect to the Redemption Price, amend the New D&B Rights in any manner. After the New D&B Rights are no longer redeemable, New D&B may, except with respect to the Redemption Price, amend the New D&B Rights in any manner that does not adversely affect the interests of holders of the New D&B Rights. Until a New D&B Right is exercised, the holder thereof, as such, will have no rights as a stockholder of New D&B, including, without limitation, the right to vote or to receive dividends. A copy of the New D&B Rights Agreement will be filed as an exhibit to the Registration Statement on Form 10 of New D&B in respect of the registration of the New D&B Common Stock under the Exchange Act. A copy of the New D&B Rights Agreement is available free of charge from New D&B. The summary description of the New D&B Rights set forth above does not purport to be complete and is qualified in its entirety by reference to the New D&B Rights Agreement, as the same may be amended from time to time, which is hereby incorporated herein by reference. CERTAIN EFFECTS OF THE NEW DUN & BRADSTREET CORPORATION RIGHTS AGREEMENT The New D&B Rights Agreement is designed to protect stockholders of New D&B in the event of unsolicited offers to acquire New D&B and other coercive takeover tactics which, in the opinion of the Board of Directors of New D&B, could impair its ability to represent stockholder interests. The provisions of the New D&B Rights Agreement may render an unsolicited takeover of New D&B more difficult or less likely to occur or might prevent such a takeover, even though such takeover may offer New D&B's stockholders the opportunity to sell their stock at a price above the prevailing market rate and may be favored by a majority of the stockholders of New D&B. NO PREEMPTIVE RIGHTS No holder of any class of stock of New D&B authorized at the time of the Distribution will have any preemptive right to subscribe to any securities of New D&B of any kind or class. DELAWARE GENERAL CORPORATION LAW The terms of Section 203 of the General Corporation Law of the State of Delaware (the "DGCL") apply to New D&B since it is a Delaware corporation. Pursuant to Section 203, with certain exceptions, a Delaware corporation may not engage in any of a broad range of business combinations, such as mergers, consolidations and sales of assets, with an "interested stockholder" for a period of three years from the time that such person became an interested stockholder unless (a) the transaction that results in the person's becoming an interested stockholder or the business combination is approved by the board of directors of the corporation before the person becomes an interested stockholder, (b) upon consummation of the transaction which results in the stockholder becoming an interested stockholder, the interested stockholder owns 85% or more of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers and shares owned by certain employee stock plans or (c) on or after the time the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by holders of at least two-thirds of the corporation's outstanding voting stock, excluding shares owned by the interested stockholder, at a meeting of stockholders. Under Section 203, an "interested stockholder" is defined as any person, other than the corporation and any direct or indirect majority-owned subsidiary, that is (a) the owner of 15% or more of the outstanding voting stock of the corporation or (b) an affiliate or associate of the corporation and was the owner of 15% or more of the 62 65 outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. Section 203 does not apply to a corporation that so provides in an amendment to its certificate of incorporation or by-laws passed by a majority of its outstanding shares, but such stockholder action does not become effective for 12 months following its adoption and would not apply to persons who were already interested stockholders at the time of the amendment. New D&B's Restated Certificate of Incorporation does not exclude New D&B from the restrictions imposed under Section 203. Under certain circumstances, Section 203 makes it more difficult for a person who would be an "interested stockholder" to effect various business combinations with a corporation for a three-year period. The provisions of Section 203 may encourage companies interested in acquiring New D&B to negotiate in advance with New D&B's Board of Directors, because the stockholder approval requirement would be avoided if the Board of Directors approves either the business combination or the transaction which results in the stockholder becoming an interested stockholder. Such provisions also may have the effect of preventing changes in the Board of Directors of New D&B. It is further possible that such provisions could make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests. PROVISIONS OF THE NEW DUN & BRADSTREET CORPORATION RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BY-LAWS AFFECTING CHANGE IN CONTROL Certain provisions of the New D&B Restated Certificate of Incorporation and Amended and Restated By-laws may delay or make more difficult unsolicited acquisitions or changes of control of New D&B. It is believed that such provisions will enable New D&B to develop its business in a manner that will foster its long-term growth without disruption caused by the threat of a takeover not deemed by its Board of Directors to be in the best interests of New D&B and its stockholders. Such provisions could have the effect of discouraging third parties from making proposals involving an unsolicited acquisition or change of control of New D&B, although such proposals, if made, might be considered desirable by a majority of New D&B's stockholders. Such provisions may also have the effect of making it more difficult for third parties to cause the replacement of the current Board of Directors of New D&B. These provisions include (i) the availability of capital stock for issuance from time to time at the discretion of the Board of Directors (see "-- Authorized But Unissued Capital Stock"), (ii) prohibitions against stockholders calling a special meeting of stockholders or acting by written consent in lieu of a meeting, (iii) requirements for advance notice for raising business or making nominations at stockholders' meetings, (iv) the ability of the Board of Directors to increase the size of the board and to appoint directors to newly created directorships, (v) a classified Board of Directors and (vi) higher than majority requirements to make certain amendments to the By-laws and Certificate of Incorporation. No Stockholder Action by Written Consent; Special Meetings The New D&B Restated Certificate of Incorporation and Amended and Restated By-laws provide that stockholder action can be taken only at an annual or special meeting and cannot be taken by written consent in lieu of a meeting. The New D&B Restated Certificate of Incorporation and Amended and Restated By-laws also provide that special meetings of the stockholders can be called only by the Chief Executive Officer of New D&B or by a vote of the majority of the Board of Directors. Furthermore, the By-laws of New D&B provide that only such business as is specified in the notice of any such special meeting of stockholders may come before such meeting. Advance Notice for Raising Business or Making Nominations at Meetings The By-laws of New D&B establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders and for nominations by stockholders of candidates for election as directors at an annual or special meeting at which directors are to be elected. Only such business may be conducted at an annual meeting of stockholders as has been brought before the meeting by, or at the direction of, the Chairman of the Board of Directors, or by a stockholder of New D&B who is entitled to vote at the meeting who has given to the Secretary of New D&B timely written notice, in proper form, of the 63 66 stockholder's intention to bring that business before the meeting. The chairman of such meeting has the authority to make such determinations. Only persons who are nominated by, or at the direction of, the Chairman of the Board of Directors, or who are nominated by a stockholder who has given timely written notice, in proper form, to the Secretary prior to a meeting at which directors are to be elected will be eligible for election as directors of New D&B. To be timely, a stockholder's notice of business to be brought before an annual meeting and nominations of candidates for election as directors at any annual meeting shall be delivered to the Secretary of New D&B at the principal executive offices of New D&B not less than 70 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 70 days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of the seventieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. To be timely, a stockholder's notice of nominations of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice shall be delivered to the Secretary of New D&B at the principal executive offices of New D&B not earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of the seventieth day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The notice of any nomination for election as a director must set forth the name and address of, and the class and number of shares of New D&B held by, the stockholder who intends to make the nomination and the beneficial owner, if any, on whose behalf the nomination is being made; the name and address of the person or persons to be nominated; a representation that the stockholder is a holder of record of stock of New D&B entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the SEC had each nominee been nominated, or intended to be nominated, by the Board of Directors; and the consent of each nominee to serve as a director if so elected. Number of Directors; Filling of Vacancies; Removal The New D&B Restated Certificate of Incorporation and Amended and Restated By-laws provide that newly created directorships resulting from an increase in the authorized number of directors (or any vacancy) may only be filled by a vote of a majority of directors then in office. Accordingly, the Board of Directors of New D&B may be able to prevent any stockholder from obtaining majority representation on the Board of Directors by increasing the size of the board and filling the newly created directorships with its own nominees. If any applicable provision of the DGCL expressly confers power on stockholders to fill such a directorship at a special meeting of stockholders, such a directorship may be filled at such meeting only by the affirmative vote of at least 80% in voting power of all shares of New D&B entitled to vote generally in the election of directors, voting as a single class. Directors may be removed only for cause, and only by the affirmative vote of at least 80% in voting power of all shares of New D&B entitled to vote generally in the election of directors, voting as a single class. Classified Board of Directors The New D&B Restated Certificate of Incorporation provides for New D&B's Board of Directors to be divided into three classes of directors serving staggered three-year terms. As a result, approximately one third of New D&B's Board of Directors will be elected each year. See "The New Dun & Bradstreet Corporation Management and Executive Compensation -- The New Dun & Bradstreet Corporation Board of Directors". 64 67 New D&B believes that a classified board will help to assure the continuity and stability of its Board of Directors, and its business strategies and policies as determined by its Board, because a majority of the directors at any given time will have prior experiences as directors of New D&B. This provision should also help to ensure that New D&B's Board of Directors, if confronted with an unsolicited proposal from a third party that has acquired a block of New D&B's voting stock, will have sufficient time to review the proposal and appropriate alternatives and to seek the best available result for all stockholders. This provision could prevent a party who acquires control of a majority of the outstanding voting stock from obtaining control of New D&B's Board of Directors until the second annual stockholders meeting following the date the acquiror obtains the controlling stock interest, could have the effect of discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of New D&B and could thus increase the likelihood that incumbent directors will retain their positions. Amendments to the Amended and Restated By-laws The New D&B Restated Certificate of Incorporation provides that the affirmative vote of the holders of at least 80% in voting power of all the shares of New D&B entitled to vote generally in the election of directors, voting together as a single class, shall be required in order for the stockholders to alter, amend or repeal any provision of the Amended and Restated By-laws which is to the same effect as provisions contained in the Restated Certificate of Incorporation relating to (i) the amendment of the Amended and Restated By-laws, (ii) the classified Board of Directors and the filling of director vacancies and (iii) calling and taking actions at meetings of stockholders and prohibiting stockholders from taking action by written consent. Amendments to the Restated Certificate of Incorporation The New D&B Restated Certificate of Incorporation requires the affirmative vote of the holders of at least 80% in voting power of all the shares of New D&B entitled to vote generally in the election of directors, voting together as a single class, to alter, amend or repeal provisions of the Restated Certificate of Incorporation relating to (i) the amendment of the Restated Certificate of Incorporation and/or the Amended and Restated By-laws, (ii) the classified Board of Directors and the filling of director vacancies and (iii) calling and taking actions at meetings of stockholders and prohibiting stockholders from taking action by written consent. INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS The New D&B Restated Certificate of Incorporation provides that New D&B shall indemnify directors and officers to the fullest extent permitted by the laws of the State of Delaware. The New D&B Restated Certificate of Incorporation also provides that a director of New D&B shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or may hereafter be amended. The indemnification rights conferred by the Restated Certificate of Incorporation of New D&B are not exclusive of any other right to which a person seeking indemnification may otherwise be entitled. New D&B will also provide liability insurance for the directors and officers for certain losses arising from claims or charges made against them, while acting in their capacities as directors or officers. 65 68 THE REUBEN H. DONNELLEY CORPORATION CAPITALIZATION The following table sets forth the pro forma historical capitalization of The Reuben H. Donnelley Corporation as of March 31, 1998 and as adjusted to give effect to the Distribution and the transactions contemplated thereby. The following data is qualified in its entirety by the financial statements of Reuben H. Donnelley presented on a stand-alone basis and the other information contained elsewhere in this Information Statement. See "Forward-Looking Statements".
PRO FORMA HISTORICAL AS OF PRO FORMA MARCH 31, AS ADJUSTED FOR 1998(1) THE DISTRIBUTION(2) ---------- ------------------- (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Cash and Cash Equivalents................................... Long Term Debt.............................................. ---------- ---------- Preferred Stock, par value $1.00 per share, authorized -- 10,000,000 shares........................... ---------- ---------- Common Stock, par value $1.00 per share, authorized -- 400,000,000 shares, issued -- 188,420,996 shares, less treasury shares of 17,853,652................ Capital Surplus............................................. Retained Earnings (Deficit)................................. Total Equity (Deficit)................................. ---------- ---------- Total Capitalization.............................. ========== ==========
- --------------- (1) The Pro Forma Historical column reflects the recapitalization of The Reuben H. Donnelley Corporation at the date of the Distribution. See "The Reuben H. Donnelley Corporation Pro Forma Condensed Financial Statements". (2) In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be an obligation of Reuben H. Donnelley after the Distribution. 66 69 THE REUBEN H. DONNELLEY CORPORATION SELECTED FINANCIAL DATA The selected financial data of Reuben H. Donnelley as of December 31, 1996 and 1997, and for each of the years in the three year period ended December 31, 1997, are derived from the audited financial statements of Reuben H. Donnelley on a stand-alone basis. The selected financial data as of December 31, 1993, 1994 and 1995, and for the years ended December 31, 1993 and 1994, are derived from the unaudited financial statements of Reuben H. Donnelley on a stand-alone basis which are not included in this Information Statement. The financial data as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 have been derived from the unaudited interim financial statements of Reuben H. Donnelley contained elsewhere in this Information Statement. The financial information included herein may not necessarily reflect the results of operations and financial position of Reuben H. Donnelley in the future or what they would have been had it been a separate entity. The information set forth below should be read in conjunction with the information under "The Reuben H. Donnelley Corporation Pro Forma Condensed Financial Statements" and "The Reuben H. Donnelley Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations" and Reuben H. Donnelley's Financial Statements and Notes thereto included elsewhere in this Information Statement.
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------- HISTORICAL PRO FORMA(1) -------------------------------------------------------------- ------------ 1993 1994 1995 1996 1997 1997 ---------- ---------- ---------- ---------- ---------- ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA(2): Revenues........................... $ 333,047 $ 310,313 $ 312,940 $ 270,029 $ 239,865 $ 239,865 Expenses: Operating Expenses(3)............ 157,546 139,022 157,559 135,500 132,278 132,278 General and Administrative(3).... 124,992 91,368 75,754 83,803 81,089 81,089 Depreciation and Amortization.... 15,694 15,444 16,322 16,229 21,930 21,930 Restructuring Charges............ -- -- 17,690 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal................... 298,232 245,834 267,325 235,532 235,297 235,297 Income from Partnerships and Related Fees..................... 129,873 148,770 137,180 132,945 130,171 130,171 ---------- ---------- ---------- ---------- ---------- ---------- Operating Income........... 164,688 213,249 182,795 167,442 134,739 134,739 Gain(Loss) on Dispositions......... -- -- -- (28,500) 9,412 9,412 Interest Expense................... -- -- -- -- -- 41,637 ---------- ---------- ---------- ---------- ---------- ---------- Income Before Provision for Income Taxes............. 164,688 213,249 182,795 138,942 144,151 102,514 Provision for Income Taxes......... 65,875 85,300 74,398 60,857 59,246 42,591 ---------- ---------- ---------- ---------- ---------- ---------- Net Income................. $ 98,813 $ 127,949 $ 108,397 $ 78,085 $ 84,905 $ 59,923 ========== ========== ========== ========== ========== ========== PRO FORMA EARNINGS PER SHARE(4): Basic............................ $ 0.56 $ 0.75 $ 0.64 $ 0.46 $ 0.50 $ 0.35 Diluted.......................... $ 0.56 $ 0.75 $ 0.64 $ 0.46 $ 0.50 $ 0.35 SHARES USED IN COMPUTING PRO FORMA EARNINGS PER SHARE(4): Basic.......................... 177,200 169,946 169,522 170,017 170,765 170,765 Diluted........................ 177,200 169,946 169,883 170,289 171,065 171,065 OTHER FINANCIAL DATA: Gross Advertising Sales(5)....... $1,151,700 $1,108,705 $1,145,944 $1,115,560 $1,067,242 $1,067,242 FOR THE THREE MONTHS ENDED MARCH 31, -------------------------------------- HISTORICAL PRO FORMA(1) ----------------------- ------------ 1997 1998 1998 ---------- ---------- ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA(2): Revenues........................... $ $ $ Expenses: Operating Expenses(3)............ General and Administrative(3).... Depreciation and Amortization.... Restructuring Charges............ ---------- ---------- ---------- Subtotal................... Income from Partnerships and Related Fees..................... ---------- ---------- ---------- Operating Income........... Gain(Loss) on Dispositions......... Interest Expense................... ---------- ---------- ---------- Income Before Provision for Income Taxes............. Provision for Income Taxes......... ---------- ---------- ---------- Net Income................. ========== ========== ========== PRO FORMA EARNINGS PER SHARE(4): Basic............................ Diluted.......................... SHARES USED IN COMPUTING PRO FORMA EARNINGS PER SHARE(4): Basic.......................... Diluted........................ OTHER FINANCIAL DATA: Gross Advertising Sales(5).......
AS OF DECEMBER 31, ----------------------------------------------------------------------------- HISTORICAL PRO FORMA(1) -------------------------------------------------------------- ------------ 1993 1994 1995 1996 1997 1997 ---------- ---------- ---------- ---------- ---------- ------------ (AMOUNTS IN THOUSANDS) BALANCE SHEET DATA: Total Assets..................... $ 512,165 $ 526,168 $ 520,214 $ 502,193 $ 382,286 $ 392,786 Long Term Debt................... $ 500,000 Shareholder's Equity............. $ 350,942 $ 370,314 $ 386,565 $ 379,184 $ 258,675 $ (230,825) AS OF MARCH 31, ------------------------- HISTORICAL PRO FORMA(1) ---------- ------------ 1998 1998 ---------- ------------ (AMOUNTS IN THOUSANDS) BALANCE SHEET DATA: Total Assets..................... Long Term Debt................... Shareholder's Equity.............
67 70 - --------------- (1) See "The Reuben H. Donnelley Corporation Pro Forma Condensed Financial Statements". (2) The selected financial data above include amounts related to businesses that have been sold and will not be included in Reuben H. Donnelley's results in future periods. The P-West business was sold in May 1996 and the P-East business was sold in December 1997. The above selected financial data contain the following amounts applicable to those businesses. (AMOUNTS IN THOUSANDS)
1993 1994 1995 1996 1997 -------- -------- -------- -------- ------- Revenues..................... $166,176 $148,785 $140,104 $ 97,263 $77,979 Operating Income............. $ 13,199 $ 27,926 $ 22,250 $ 18,587 $10,969 Total Assets................. $163,440 $138,345 $131,751 $ 80,962 $ -- Gross Advertising Sales...... $156,631 $139,060 $133,389 $ 89,939 $73,753
(3) Corporate expense allocations from D&B are included in operating expenses and general and administrative expenses. Reuben H. Donnelley management believes these allocations are reasonable. However, the costs of these services and benefits charged to Reuben H. Donnelley are not necessarily indicative of the costs that would have been incurred if Reuben H. Donnelley had performed or provided these services as a separate entity. These allocations were $24,111, $18,626 and $21,531 in 1995, 1996, and 1997, respectively. (4) The computation of pro forma basic earnings per share for the periods presented is based upon the historical weighted average number of shares of D&B Common Stock outstanding, reflecting the one-for-one distribution. The computation of pro forma diluted earnings per share is based upon the historical weighted average number of shares of D&B Common Stock outstanding and potentially dilutive shares of Reuben H. Donnelly Common Stock. (5) Unaudited gross advertising sales is the billing value of advertisements sold by Reuben H. Donnelley and its partnerships. 68 71 THE REUBEN H. DONNELLEY CORPORATION PRO FORMA CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma condensed financial statements have been prepared giving effect to the Distribution as if it occurred on December 31, 1997 for the pro forma condensed balance sheet and January 1, 1997 for the pro forma condensed statements of operations. The pro forma condensed balance sheet and statements of operations set forth below do not purport to represent what Reuben H. Donnelley's financial position and results of operations actually would have been had the Distribution occurred on the date indicated or to project Reuben H. Donnelley's operating results for any future period. The pro forma adjustments are based upon available information and certain assumptions that Reuben H. Donnelley's management believes are reasonable. The pro forma condensed financial statements set forth below should be read in conjunction with, and are qualified in their entirety by, the information under "The Reuben H. Donnelley Corporation Selected Financial Data" and "The Reuben H. Donnelley Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the Reuben H. Donnelley Financial Statements and Notes thereto included elsewhere in this Information Statement. 69 72 THE REUBEN H. DONNELLEY CORPORATION PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 --------------------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA ----------- ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues...................................... $ 239,865 $ 239,865(A) Expenses: Operating Expenses.......................... 132,278 132,278 General and Administrative.................. 81,089 81,089(B) Depreciation and Amortization............... 21,930 21,930 ----------- ----------- Income from Partnerships and Other Related Fees........................................ 130,171 130,171 ----------- ----------- Operating Income.............................. 134,739 134,739(A) Gain on Disposition........................... 9,412 9,412 Interest Expense.............................. -- $(40,338)(C)(D) (41,637) (1,299)(E) ----------- -------- ----------- Income before Provision for Income Taxes............................. 144,151 (41,637) 102,514 Provision for Income Taxes.................... 59,246 (16,655)(F) 42,591 ----------- -------- ----------- Net Income.................................... $ 84,905 $(24,982) $ 59,923 =========== ======== =========== Pro Forma Earnings Per Share: Basic....................................... $ 0.50 $ 0.35 =========== =========== Diluted..................................... $ 0.50 $ 0.35 =========== =========== Shares Used in Computing Pro Forma Earnings Per Share: Basic....................................... 170,765 170,765 =========== =========== Diluted..................................... 171,065 171,065 =========== ===========
See notes to pro forma condensed financial statements 70 73 THE REUBEN H. DONNELLEY CORPORATION PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 --------------------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA ----------- ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues...................................... $ $ (A) Expenses: Operating Expenses.......................... General and Administrative.................. (B) Depreciation and Amortization............... ----------- ----------- Income from Partnerships and Other Related Fees........................................ ----------- ----------- Operating Income.............................. (A) Gain on Disposition........................... Interest Expense.............................. -- (C)(D) $ (E) ----------- -------- ----------- Income before Provision for Income Taxes............................. Provision for Income Taxes.................... (F) ----------- -------- ----------- Net Income.................................... $ $ $ =========== ======== =========== Pro Forma Earnings Per Share: Basic....................................... $ $ =========== =========== Diluted..................................... $ $ =========== =========== Shares Used in Computing Pro Forma Earnings Per Share: Basic....................................... =========== =========== Diluted..................................... =========== ===========
See notes to pro forma condensed financial statements 71 74 THE REUBEN H. DONNELLEY CORPORATION PRO FORMA CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1997 --------------------------------------------------------- PRO FORMA HISTORICAL HISTORICAL(H) ADJUSTMENTS PRO FORMA ---------- ------------- ----------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS: Cash and Cash Equivalents................ $ 32 $ 32 $ 32 Other Current Assets..................... 142,708 142,708 142,708 -------- -------- --------- Total Current Assets........... 142,740 142,740 142,740 Non-Current Assets....................... 239,546 239,546 $ 10,500(G) 250,046 -------- -------- --------- --------- Total Assets................... $382,286 382,286 $ 10,500 $ 392,786 ======== ======== ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY: Current Liabilities...................... $ 59,465 $ 59,465 $ 59,465 Long Term Debt........................... -- -- $ 500,000(C) 500,000 Other Liabilities........................ 64,146 64,146 64,146 -------- -------- --------- --------- Total Liabilities.............. 123,611 123,611 500,000 623,611 Shareholder's Equity: Preferred Stock, par value $1.00 per share, Authorized -- 10,000,000 shares Common Stock, par value $1.00 per share, Authorized -- 400,000,000 shares; Issued -- 188,420,966 shares, less treasury shares of 17,853,652.......... -- 170,567 -- 170,567 Common Stock, no par value Authorized -- 100 shares; Issued -- 100 shares....... 12,002 -- -- -- Capital Surplus.......................... 101,032 -- -- -- Retained Earnings (Deficit).............. 145,641 88,108 (489,500) (401,392) -------- -------- --------- --------- Total Shareholder's Equity..... 258,675 258,675 (489,500) (230,825) -------- -------- --------- --------- Total Liabilities and Shareholder's Equity......... $382,286 $382,286 $ 10,500 $ 392,786 ======== ======== ========= =========
See notes to pro forma condensed financial statements 72 75 THE REUBEN H. DONNELLY CORPORATION NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS A. The pro forma condensed statement of operations for the year ended December 31, 1997 includes amounts related to the P-East business that was sold in December 1997 and will not be included in the results going forward. The following amounts were related to this business.
(IN THOUSANDS) -------------- Revenues.................................................... $77,979 Operating Income............................................ 10,969
B. Reuben H. Donnelley estimates a net increase in operating expense of approximately $8.5 million associated with operating as a publicly owned company which is not reflected in the pro forma condensed financial statements. C. In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be an obligation of Reuben H. Donnelley after the Distribution. The debt is currently estimated to be comprised of:
HIGH YIELD BANK FINANCING BONDS -------------- -------------- Amount................................................. $350 million $150 million Estimated Interest..................................... 7.850% 8.575% Estimated Financing Costs.............................. $5.8 million $4.7 million Estimated Financing Term............................... 5.5-8.5 years 10 years
D. Gives effect to the interest expense on $500 million of debt based on a weighted average interest rate of 8.07% per annum. E. Gives effect to the amortization of $10.5 million of estimated deferred financing costs related to the $500 million of debt. The deferred financing costs will be amortized over the life of the debt. F. To reflect the tax effect of the pro forma adjustments at the statutory tax rate. G. To reflect the $10.5 million of deferred financing costs related to the $500 million of debt. H. The Pro Forma Historical column reflects the recapitalization of The Reuben H. Donnelley Corporation at the date of the Distribution. 73 76 THE REUBEN H. DONNELLEY CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis of financial condition and results of operations is prepared as if Reuben H. Donnelley was a stand-alone entity for all periods discussed. This discussion should be read in conjunction with The Reuben H. Donnelley Corporation Financial Statements and Notes thereto included elsewhere in this Information Statement. OVERVIEW On December 17, 1997, the Board of Directors of D&B announced a plan to separate into two publicly traded companies -- Reuben H. Donnelley and New D&B. The Distribution is the method by which D&B will distribute to its stockholders shares of New D&B Common Stock, which will represent a continuing interest in D&B's businesses to be conducted by New D&B. After the Distribution, D&B's only business will be the Reuben H. Donnelley Business and shares of D&B Common Stock held by D&B stockholders will represent a continuing ownership interest in that business. In connection with the Distribution, D&B will change its name to "The Reuben H. Donnelley Corporation" (and therefore from and after the Distribution, D&B Common Stock will be Reuben H. Donnelley Common Stock) and New D&B will change its name to "The Dun & Bradstreet Corporation". Reuben H. Donnelley provides sales, marketing and publishing services for yellow pages and other directory products and is the largest independent marketer of yellow pages advertising in the United States. Reuben H. Donnelley will retain all the assets and liabilities related to the yellow pages and other directory product sales, marketing and publishing services, after the Distribution. D&B has received a ruling from the Internal Revenue Service to the effect that the Distribution will be tax-free for Federal income tax purposes. In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be an obligation of Reuben H. Donnelley after the Distribution. The financial statements generally reflect the financial position, results of operations, and cash flows of Reuben H. Donnelley as if it were a stand-alone entity for all periods presented. The financial statements include allocations of certain D&B corporate headquarters assets (including prepaid pension assets) and liabilities (including postretirement benefits), and expenses (including cash management, legal, accounting, tax, employee benefits, insurance services, data services and other D&B corporate overhead) relating to the Reuben H. Donnelley Business. Management of Reuben H. Donnelley believes these allocations are reasonable. However, the costs of these services and benefits charged to Reuben H. Donnelley are not necessarily indicative of the costs that would have been incurred if Reuben H. Donnelley had performed or provided these functions as a separate entity. The financial information included herein may not necessarily reflect the results of operations, financial position, changes in stockholder's equity and cash flows of Reuben H. Donnelley in the future or what they would have been had it been a separate entity during the periods presented. The financial statements reflect effective tax rates of Reuben H. Donnelley on a separate company basis. These rates do not reflect the benefit of D&B's global tax planning actions which have historically resulted in lower consolidated tax rates. D&B uses a centralized cash management system to finance its operations. Cash deposits from the Reuben H. Donnelley Business are transferred to D&B on a daily basis and D&B funds Reuben H. Donnelley's disbursement bank accounts as required. No interest has been charged on these transactions with D&B. For purposes of governing certain of the ongoing relationships between New D&B and Reuben H. Donnelley after the Distribution and to provide for an orderly transition, New D&B and D&B will enter into various agreements including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits 74 77 Agreement, Intellectual Property Agreement, Shared Transaction Services Agreement, Data Services Agreement and Transition Services Agreement. RESULTS OF OPERATIONS Three Months ended March 31, 1998 Compared with Three Months ended March 31, 1997 [To come] Year ended December 31, 1997 Compared with Year ended December 31, 1996 Reuben H. Donnelley's net income before taxes for the year ended December 31, 1997 was $144.2 million compared to $138.9 million for 1996. During 1997, Reuben H. Donnelley sold its East Coast proprietary operations ("P-East"). Excluding the gain on the sale of P-East of $9.4 million and the operating results of P-East of $11.0 million in 1997, net income before taxes was $123.8 million. During 1996, Reuben H. Donnelley sold its West Coast proprietary operations ("P-West"). Excluding the loss on the sale of P-West of $28.5 million and the operating results of both P-East ($19.2 million) and P-West ($0.6 million loss) in 1996, net income before taxes was $148.8 million. The net income decline was due to several factors. The first factor affecting results was the rescheduling of certain directories in the markets served by Bell Atlantic which created a shift in revenues from 1997 to 1998, resulting in lower revenue growth in 1997. The second factor is a decrease in partnership income from DonTech primarily due to a decrease in Reuben H. Donnelley's share of the profits. Reuben H. Donnelley's financial performance in 1997 compared to the prior year was also negatively affected by two additional factors (i) the first full year of amortization costs related to the $40 million investment made in 1995 and 1996 associated with the new software and start-up costs of the new publishing facility in Raleigh, North Carolina and (ii) Reuben H. Donnelley expensed approximately $4 million in start-up costs for the new Cincinnati directory which is scheduled to be published in the third quarter of 1998. Gross advertising sales represent total advertising sales generated by Reuben H. Donnelley, including its partnerships. Sales in 1997 decreased 4.3% compared to the prior year. This decline is due to several factors including the expiration of Reuben H. Donnelley's contract with Cincinnati Bell during June, 1997, lower sales in Bell Atlantic directories which were held down by the rescheduling of certain directories in those markets and created a shift in sales from 1997 to 1998, and the sale of P-East. Revenues are derived from commissions related to advertising sales and do not include revenues generated by Reuben H. Donnelley through sales of advertising by the DonTech partnership. Revenues decreased from $270.0 million in 1996 to $239.9 million in 1997. Excluding both P-East revenues of $78.0 million in 1997 and $95.1 million in 1996 and P-West revenues of $2.2 million in 1996, revenues decreased 6.3% in 1997 from $172.7 million in 1996 to $161.9 million in 1997. This decrease primarily was attributable to the expiration of the contract with Cincinnati Bell. Adjusted for Cincinnati, revenue declined 4%. Revenue was adversely affected by scheduling shifts for certain directories in the Bell Atlantic region that affected the timing of when Reuben H. Donnelley services these customers and records revenues. The Bell Atlantic decrease was 9.9% from $95.9 million in 1996 to $86.4 million in 1997. This decrease in the Bell Atlantic region is partially offset by an 11.1% increase in revenue in the Sprint markets. Gross advertising sales performance in Reuben H. Donnelley's Sprint markets has been well above the industry average levels in the recent period, primarily in the Las Vegas market. Partnership income decreased in 1997 by 2.1% or $2.8 million. Reuben H. Donnelley receives partnership income primarily from two sources, the DonTech partnership and the CenDon partnership. Reuben H. Donnelley receives 50% of the profits generated by the DonTech partnership and also receives direct fees from Ameritech which are tied to advertising sales generated by the DonTech partnership ("Revenue Participation"). Both of these items are included in income from partnerships and other related fees. Reuben H. Donnelley's partnership income from DonTech declined 4.3% in 1997 or $5.1 million, primarily due to a decrease in Reuben H. Donnelley's share of profits in accordance with the negotiated agreement. Reuben H. Donnelley's partnership income from CenDon increased 26.0% in 1997 or $2.5 million due to sales performance in the these markets that was well above industry average. 75 78 Reuben H. Donnelley's 1997 operating and general and administrative expenses were $213.4 million compared to $219.3 million in 1996. Excluding P-East ($66.2 million in 1997 and $75.1 million in 1996) and P-West ($1.9 million in 1996) operating and general and administrative expenses increased slightly (3.4%) to $147.2 million in 1997 from $142.3 million in 1996. Depreciation and amortization increased from $16.2 million in 1996 to $21.9 million in 1997 principally due to the first full year of amortization costs related to the new publishing facility. Year ended December 31, 1996 Compared with Year ended December 31, 1995 Reuben H. Donnelley's net income before taxes for the year ended December 31, 1996 was $138.9 million compared to $182.8 million for 1995. In 1996 P-West was sold and a loss of $28.5 million was recorded. Excluding this loss and the operating results of both P-East ($19.2 million in 1996 and $21.3 million in 1995) and P-West ($0.6 million loss in 1996 and $1.0 million in 1995) net income before taxes was $148.8 million in 1996 compared to $160.5 million in 1995. Also in 1995 a non-recurring charge of $17.7 million was recorded related to the closing of the Terre Haute publishing facility. After excluding the proprietary business and the non-recurring charge, 1996 results compared to 1995 were $148.8 million compared to $178.2 million. This variance was caused by two principal factors. First, 1995 results included the one-time benefit of the reversal of bad debt reserve of $19.9 million resulting from improved business practices. In addition, Reuben H. Donnelley was paid a lower commission rate on 1996 Bell Atlantic sales as a result of previously negotiated contractual provisions. Gross advertising sales represents total advertising sales generated by Reuben H. Donnelley, including DonTech sales. Sales in 1996 decreased 2.7% from the prior year. Excluding P-East and P-West, sales increased 1.3% from $1,013 million in 1995 to $1,026 million in 1996. This increase was primarily due to an 9.2% increase in Sprint business sales. Revenues are derived from commissions related to the advertising sales and do not include revenues generated by Reuben H. Donnelley through sales of advertising by the DonTech partnership. Revenues for 1996 and 1995 were $270.0 million and $312.9 million, respectively. Revenues excluding P-East ($95.1 million in both 1995 and 1996) and P-West ($2.2 million in 1996 and $45.0 million in 1995) were essentially flat in 1996 compared to 1995 with $172.7 million of revenue in 1996 as compared to $172.8 million in 1995. However, the Bell Atlantic market revenue decreased by $4.2 million and was offset by the Sprint and Cincinnati markets. Partnership income decreased in 1996 by 3.1% or $4.3 million. Reuben H. Donnelley's partnership income from DonTech declined 3.3% in 1996 or $4.2 million, primarily due to a decrease in Reuben H. Donnelley's share of profits in accordance with a negotiated agreement. Reuben H. Donnelley's 1996 operating costs and general and administrative expenses were $219.3 million compared to $233.3 million in 1995. Excluding P-East ($75.1 million in 1996 and $73.1 million in 1995) and P-West ($1.9 million in 1996 and $43.2 million in 1995) costs were $142.3 million and $117.0 million in 1996 and 1995, respectively. The primary reason for the increase in expenses in 1996 is that in 1995 there was a reversal of prior year excess provision accruals of $19.9 million. Restructuring Charge In 1995, Reuben H. Donnelley recorded a restructuring charge of $17.7 million for the closing of the Terre Haute publishing facility. The charge included fixed asset write-offs, as well as severance (cash outlays were made primarily in 1996 and 1997), legal costs and advertising claims (cash outlays in 1996). Reuben H. Donnelley moved its publishing operations from Terre Haute, Indiana to Raleigh, North Carolina to strengthen its cost-effective advertising sales and publishing services solution. It is expected that this investment will result in improved productivity, quality and cycle times. 76 79 Income Taxes The financial statements reflect effective tax rates of Reuben H. Donnelley on a separate company basis. Reuben H. Donnelley's effective tax rates were 40.7%, 43.8%, and 41.1% in 1995, 1996, and 1997, respectively. The increase in the rate in 1996 is related to non-deductible capital losses related to the sale of P-West which increased the rate 2.8%. Changes in Financial Position at December 31, 1997 Compared with December 31, 1996 Accounts Receivable -- Net decreased $22.3 million in 1997 primarily due to the sale of P-East assets including receivables of $61.9 million at December 31, 1996. This was offset by the recording of a receivable for the revenue participation portion of the DonTech agreement ($51.6 million). In addition receivables also decreased due to the rescheduling of certain directories in the markets served by Bell Atlantic which created lower revenues in 1997 and therefore lower year end receivables. Total Liabilities -- remained essentially flat at $123.6 million in 1997 as compared to $123.0 million in 1996. A decrease of $19.5 million in the deferred income tax liability and a decrease in liabilities as a result of the sale of the P-East operation were offset by an increase in reserves in connection with the sale of P-East. Liquidity And Capital Resources Cash and cash equivalents for the years ended 1995, 1996, and 1997 were $1.4 million, $60,000 and $32,000, respectively. These balances reflect D&B's centralized cash management system where cash deposits are transferred to D&B on a daily basis and D&B funds Reuben H. Donnelley's disbursement bank accounts as required. The 1995 balance reflects certain marketable securities that Reuben H. Donnelley held. Net cash provided by operations was $136.6 million, $100.5 million, and $99.7 million in 1995, 1996, and 1997, respectively. The decrease from 1995 to 1996 was due to an increase of accounts payable in 1995. Net cash provided from investing activities in 1997 was $105.7 million primarily due to the sale of the P-East business for $122.0 million in cash. Net cash used in investing activities in 1995 and 1996 was $43.0 million and $16.5 million, respectively. Both years there was an increased amount of capital spending on property and equipment and computer software. The majority of capital spending for Reuben H. Donnelley is computer hardware, software and upgrades for its production and operating systems. Capital spending excluding computer software in 1995, 1996 and 1997 was $19.3 million, $16.0 million, and $9.1 million, respectively. Computer software spending for those years was $23.7 million, $21.9 million, and $7.2 million, respectively. The increased spending in 1995 and 1996 is due to the investment Reuben H. Donnelley has made in its new publishing facility in Raleigh, North Carolina. Net cash used in financing activities represents cash transferred to D&B throughout the year. As stated above, all cash deposits are transferred to D&B on a daily basis and D&B funds Reuben H. Donnelley's disbursement bank accounts as required. The net amounts transferred to D&B were $92.1 million, $85.4 million and $205.4 million in 1995, 1996, and 1997 respectively. The 1997 transfer includes the proceeds received from the sale of P-East. In connection with the Distribution, D&B will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be an obligation of Reuben H. Donnelley after the Distribution. ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15, 77 80 1997 and requires reclassification of prior-period financial statements. Reuben H. Donnelley is currently considering the various presentation options of SFAS No. 130. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), which revises disclosure requirements about operating segments and establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 requires that public business enterprises report financial and descriptive information about their reportable operating segments. The statement is effective for fiscal years beginning after December 15, 1997, and requires restatement of prior years in the initial year of application. Reuben H. Donnelley is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 131 will have no impact on Reuben H. Donnelley's results of operations, financial position or cash flows. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. Restatement of disclosures for earlier periods provided for comparative purposes is required unless the information is not readily available, in which case the notes to the financial statements should include all available information and a description of the information not available. Reuben H. Donnelley is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 132 will have no impact on Reuben H. Donnelley's results of operations, financial position or cash flows. YEAR 2000 Many existing computer systems and software applications may not properly record or interpret years after the year 1999. Reuben H. Donnelley relies on computer hardware, software and related technology, together with data, generated therefrom, in the operation of its business. Such technology and data are used in creating and delivering the Reuben H. Donnelley's products and services. There can be no assurance that Reuben H. Donnelley will be able to timely or cost-effectively complete Year 2000 remediation programs, that such programs will be successful or that the failure by Reuben H. Donnelley or by third parties outside of their control with whom they transact business to adequately address Year 2000 issues will not have a material adverse effect on Reuben H. Donnelley. Management estimates that Reuben H. Donnelley will spend approximately $3.0 million and $2.0 million incrementally on Year 2000 compliance in 1998 and 1999, respectively. These estimates are primarily for modifications of existing systems. Maintenance and modification costs are expensed as incurred, while the costs of new hardware and software purchased by Reuben H. Donnelley are capitalized. DIVIDENDS Reuben H. Donnelley as a subsidiary of D&B did not pay dividends directly to D&B shareholders. Subject to the approval of the Board of Directors of Reuben H. Donnelley, it is anticipated that Reuben H. Donnelley will initially pay a dividend, which when combined with that paid by New D&B, will total the current annualized dividend of D&B of $0.88 per share. 78 81 THE REUBEN H. DONNELLEY CORPORATION BUSINESS GENERAL Reuben H. Donnelley is the largest independent marketer of yellow pages advertising in the United States. It operates in 14 states and has a contractual relationship with the leading incumbent local telephone service providers in several key states and metropolitan areas. These relationships include partnerships and sales agency arrangements under which Reuben H. Donnelley provides a combination of advertising sales, marketing, compilation and publishing services to the incumbent local telephone company. Reuben H. Donnelley's major telephone company relationships and primary areas served include: Ameritech -- Illinois (through the DonTech partnership); Bell Atlantic -- New York State; Sprint -- Orlando (sales agency) and Las Vegas (through the CenDon partnership). The Ameritech relationship, including DonTech, a perpetual 50/50 partnership, generates the largest portion of Reuben H. Donnelley's operating income and cash flow. The sales agency and partnership relationships with Bell Atlantic and Sprint extend through 2005 and 2004, respectively. Reuben H. Donnelley also has separate agreements to provide publishing services to Ameritech and CenDon as well as to Yellow Book, USA, L.P. an independent yellow pages publisher ("Yellow Book"). In September 1997, after its agency relationship with Cincinnati Bell Directory expired, Reuben H. Donnelley launched a proprietary directory operation in Cincinnati and expects to publish its own proprietary directory covering Cincinnati, northern Kentucky and southwest Indiana by the fall of 1998. Reuben H. Donnelley serves the yellow pages marketing needs of over 500,000 small and medium size businesses and service organizations that purchase yellow pages advertising in the more than 275 directories serviced by Reuben H. Donnelley. In 1997, Reuben H. Donnelley sold over $1 billion of advertising, which accounted for approximately 9% of the $11 billion of yellow pages advertising sold in the United States. Approximately 84% of yellow page advertising was sold by or on behalf of local telephone companies, primarily Regional Bell Operating Companies, which provide local yellow page directories. All other independent marketers of yellow pages advertising combined accounted for 7% of total yellow pages advertising sales in the United States. There are two significant trends in the yellow pages industry. First, the deregulation of the telecommunications industry as a result of the Telecommunications Act of 1996 is resulting in increased competition for local telephone service and expanded geographic markets for local telephone service providers, thereby opening up potential opportunities for directory publishers. Second, the advances in technology and the growth of the Internet will have a significant impact on Reuben H. Donnelley going forward. Reuben H. Donnelley believes that it is well positioned to capitalize on these trends. Reuben H. Donnelley's business strategy includes: - Leveraging existing relationships and growing the core business; - Capturing outsourcing opportunities; and - Capitalizing on new technology. ADVERTISING SALES AND MARKETING Reuben H. Donnelley provides some of the most comprehensive capabilities in the directory information industry, including tools and information to effectively conduct sales and marketing planning, sales management, sales compensation, and customer service activities. Reuben H. Donnelley sells advertising in consumer, business-to-business, Internet and neighborhood yellow pages. Approximately 85% of Reuben H. Donnelley's revenue and cash flow is derived from commissions received from the sale of advertisements placed in yellow pages directories. Its customer base includes over a half million small and medium size businesses and service organizations in 14 states including Florida, Illinois, Nevada and New York. In all of its markets except 79 82 Cincinnati, Reuben H. Donnelley operates either under a long term contractual relationship or in direct partnership with the local telephone service providers. Each alliance is tailored to meet the specific strategic and operating objectives of the local telephone service provider. Reuben H. Donnelley has developed specialized sales and marketing techniques, training programs, deployment tactics and information systems to maximize market penetration and revenue growth. Reuben H. Donnelley leverages its customer database in order to segment its markets, prioritize its selling efforts and maximize the efficiency of its sales force. In order to achieve cost-effective results, Reuben H. Donnelley's sales force (i) analyzes the characteristics of the account's business and advertising revenue potential to determine whether the account should be contacted by mail, telephone or on-site visits, (ii) targets certain high-potential accounts by assigning industry specialists who offer customized products and services for these profitable niches, (iii) pre-screens accounts with Reuben H. Donnelley's sophisticated information systems to better identify profitable sales opportunities and (iv) geographically targets accounts to maximize efficiency while ensuring continuity in Reuben H. Donnelley's customer relationships. Compensation for Reuben H. Donnelley's non-union sales force of approximately 540 employees is highly performance driven; approximately 55% of compensation is earned on the basis of incentives tied to key success factors of the business. PUBLISHING Reuben H. Donnelley's publishing operations offer a variety of leading-edge pre-press processes and information management services to produce or support print and electronic directory products. Core publishing services include graphics and ad composition, customer order processing, listing database management and pagination. Reuben H. Donnelley's publishing operations are based in Raleigh, North Carolina and Dunmore, Pennsylvania. In 1997, Reuben H. Donnelley completed a $40 million project to upgrade its Raleigh publishing facility and provided it with new business systems for sales, publishing, marketing and customer service, and enhanced new product capabilities. Reuben H. Donnelley's employees now utilize client server architecture and relational databases that are custom-designed to support the yellow pages advertising and publishing processes. As a result, it has been able to reduce publishing costs by approximately 30% and cycle times by 50%. Reuben H. Donnelley receives revenues for publishing services, such as advertisement creation and database management, on a negotiated fee basis. Publishing revenue represents approximately 15% of Reuben H. Donnelley's total revenue and is derived primarily from separately negotiated contracts with several of its long-term customers, including subsidiaries of Ameritech, Sprint and Yellow Book. CUSTOMERS; KEY CONTRACTS Reuben H. Donnelley's revenues and profitability are derived primarily from long-standing relationships with some of the country's largest local telephone service providers, including Ameritech, Bell Atlantic and Sprint, as well as smaller telephone companies. Reuben H. Donnelley's client agreements include both partnership and agency relationships. The equity income from the DonTech partnership and the fees from the other arrangement with Ameritech, as well as the equity income from the CenDon partnership, are not included in Reuben H. Donnelley's revenues but are included in its operating income. Ameritech. Reuben H. Donnelley's relationship with telephone companies currently owned by Ameritech began in 1908 with the Chicago Telephone Company. Since then, Reuben H. Donnelley has had a variety of contractual relationships with Ameritech, including the creation of the DonTech partnership in 1990. DonTech is a perpetual partnership which acts as the exclusive advertising sales agent for Ameritech's printed and Internet directories in Illinois and northwest Indiana. DonTech receives a commission from Ameritech on advertising sold. Reuben H. Donnelley receives 50% of the profits and cash generated by DonTech and also receives direct fees from Ameritech which are tied to advertising sales generated by DonTech. Under a separate agreement, Reuben H. Donnelley provides publishing services for Ameritech's Illinois and northwestern Indiana directories through 2003. The Ameritech relationship represented approximately 86% of Reuben H. Donnelley's operating income in 1997. Bell Atlantic. Reuben H. Donnelley's relationship with Bell Atlantic dates back to its relationship with New York Telephone Company which began in 1909. Under the current agreement, which was entered into in 80 83 1990, Reuben H. Donnelley provides advertising sales services for directories in substantially all of New York State through 2005. As sales agent, Reuben H. Donnelley is entitled to a commission on advertising sales. The Bell Atlantic relationship represented approximately 36% of Reuben H. Donnelley's total revenues in 1997. Sprint. Reuben H. Donnelley's relationship with Sprint dates back to 1980 when Reuben H. Donnelley contracted to publish directories for Centel Directory Company and United Telephone Company of Florida, both of which have since merged into Sprint. Reuben H. Donnelley's relationship with Sprint includes the CenDon partnership with Centel Directory Company, and related directory contracts with several of Sprint's operating subsidiaries, to publish, manufacture and distribute telephone directories in Florida, Nevada, North Carolina and Virginia. Under the CenDon partnership agreement, Reuben H. Donnelley and Sprint each has a 50% interest in the CenDon partnership and Reuben H. Donnelley receives a 50% share of the CenDon partnership's income. In addition, Reuben H. Donnelley has a contract to provide advertising sales, marketing and customer services to the CenDon partnership for a specified sales commission and a negotiated fee for publishing services. Reuben H. Donnelley also has contracts to provide advertising sales and publishing services for Sprint's directories in the greater Orlando marketplace, for which it receives sales commissions on local advertising sales, and national advertising sales and a negotiated fee for publishing services. Both the CenDon partnership and the Sprint sales agency agreements continue through 2004. The CenDon partnership represented approximately 9% of Reuben H. Donnelley's operating income in 1997. The CenDon and Sprint sales agency agreements represented approximately 12% and 5%, respectively, of Reuben H. Donnelley's revenue in 1997. While these partnerships and sales agency agreements currently extend for significant periods, no assurance can be given that Reuben H. Donnelley will be able to maintain these agreements and relationships after expiration of the current terms or that a termination, expiration or significant modification of these arrangements would not have a material adverse effect on Reuben H. Donnelley's business, financial condition or results of operations. Certain of these agreements are subject to termination upon a change of control of Reuben H. Donnelley. STRATEGY Reuben H. Donnelley intends to focus its business strategy on the following opportunities: Leverage Existing Account Relationships and Grow the Core Business. Reuben H. Donnelley's strategy is to provide small and medium-sized businesses with a more integrated solution to their advertising needs. For many of these businesses, printed yellow pages advertising historically has been their principal form of advertising. However, based on Reuben H. Donnelley's experience in selling cable television and Internet advertising, Reuben H. Donnelley management believes that it has the opportunity to expand its core business and cross sell these higher growth advertising media to its current customer base. In addition, some of the local telephone service providers have expressed an interest in using this highly effective sales channel to market their other telecommunications products and services in the current, more competitive local telephone market. Capture Growing Outsourcing Opportunities. Currently, approximately 84% of yellow pages advertising sales are attributable to local telephone service providers other than those with whom Reuben H. Donnelley is associated. Recent regulatory changes have opened up local phone markets to Competitive Local Exchange Carriers ("CLECs"). As CLECs enter new markets, they may not want to incur the significant upfront costs necessary to sell advertising, and compile, create and publish a yellow pages directory. Reuben H. Donnelley believes it can provide a quick, cost-effective, integrated yellow pages advertising and publishing solution for these companies. Reuben H. Donnelley management believes that there is the potential for existing local telephone service providers to outsource an increasing amount of their non-core business processes over time due to changes in the telecommunications industry. Because Reuben H. Donnelley is a highly specialized company dedicated to the yellow pages industry with a proven track record of success in establishing and maintaining relationships with local telephone companies, and because Reuben H. Donnelley does not compete directly with the local phone companies for their telecommunications business, Reuben H. 81 84 Donnelley management believes that Reuben H. Donnelley is well positioned to capture any potential outsourcing from both existing local telephone service providers and new entrants into local telephone markets. Capitalize on New Technology. Reuben H. Donnelley believes its recent investment in technology will provide it with a greater competitive advantage, further strengthen its cost-effective advertising sales and publishing services solution and enable it to successfully resolve its own internal Year 2000 issues. Reuben H. Donnelley believes that since its technology investments were made earlier than most of its competitors, Reuben H. Donnelley will be ahead of such competitors in the areas of cost, quality and cycle time. COMPETITION There is competition to varying degrees from other yellow pages publishers in the markets that Reuben H. Donnelley serves. While the largest potential competitor in each market is the local telephone company, in most of its markets, Reuben H. Donnelley has a contractual relationship with that company. There is also competition for advertising dollars by newspapers, radio, direct mail, online information services and television. The increasing use of the Internet by consumers as a means to transact commerce may result in new technologies being developed and services provided that could compete with Reuben H. Donnelley's products and services. Reuben H. Donnelley has developed non-traditional relationships with businesses not formerly associated with the yellow pages industry to develop revenues from other sources, including the sale of advertising for internet yellow pages as well as cable television advertising. Reuben H. Donnelley believes that it will be able to maintain its long-term relationships with local telephone companies because of its productive sales force, sophisticated marketing techniques, advanced technology and innovative products. INTELLECTUAL PROPERTY Reuben H. Donnelley owns and controls a number of trade secrets, confidential information, trademarks, service marks, trade names, copyrights and other intellectual property rights which, in the aggregate, are of material importance to Reuben H. Donnelley's business. Management of Reuben H. Donnelley believes that the "Reuben H. Donnelley" name and related names, marks and logos are of material importance. Reuben H. Donnelley is licensed to use certain technology and other intellectual property rights owned and controlled by others, and, similarly, other companies are licensed to use certain technology and other intellectual property rights owned and controlled by Reuben H. Donnelley. Reuben H. Donnelley considers its trademarks, service marks, databases, software and other intellectual property to be proprietary and Reuben H. Donnelley relies on a combination of copyright, trademark, trade secret, non-disclosure and contract safeguards for protection. The names of Reuben H. Donnelley's products and services referred to herein are trademarks, service marks or registered trademarks or service marks owned by Reuben H. Donnelley. EMPLOYEES As of December 31, 1997, the number of full-time equivalent employees of Reuben H. Donnelley was approximately 1,420. LITIGATION Reuben H. Donnelley is involved in legal proceedings, claims and litigation arising in the ordinary course of business. In the opinion of Reuben H. Donnelley management, the outcome of such legal proceedings will not materially affect Reuben H. Donnelley's financial position or results of operations. PROPERTIES Reuben H. Donnelley's operations are conducted from 21 leased locations throughout the United States. 82 85 THE REUBEN H. DONNELLEY CORPORATION MANAGEMENT AND EXECUTIVE COMPENSATION Frank R. Noonan is currently Senior Vice President of D&B and President of Reuben H. Donnelley and will be the President and Chief Executive Officer and a director of Reuben H. Donnelley after the Distribution. The other directors of Reuben H. Donnelley immediately after the Distribution will include certain persons who are currently directors of D&B and certain persons who are not currently directors of D&B. See "-- Reuben H. Donnelley Board of Directors". In addition to Mr. Noonan, the other executive officers of Reuben H. Donnelley immediately after the Distribution will be drawn from the current management of D&B and Reuben H. Donnelley. See "-- The Reuben H. Donnelley Corporation Executive Officers". THE REUBEN H. DONNELLEY CORPORATION BOARD OF DIRECTORS Immediately after the Distribution, Reuben H. Donnelley expects to have a Board of Directors composed of six directors. The following table sets forth the names, in alphabetical order, and information as to the persons who are expected to serve as directors of Reuben H. Donnelley following the Distribution, including information as to service with D&B, if applicable.
DIRECTOR POSITIONS WITH OF D&B OTHER NAME D&B SINCE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS AGE* DIRECTORSHIPS ---- -------------- -------- ------------------------------------------- ---- ------------- Frank R. Noonan.... Senior Vice -- President, Reuben H. Donnelley, 8/91 to 55 President present; Senior Vice President, D&B, 8/91 to present; Senior Vice President -- Finance, Dun & Bradstreet Information Services, 5/89 to 8/91.
- --------------- * As of March 6, 1998 DIRECTOR'S COMPENSATION Under the Director compensation program of Reuben H. Donnelley, each non-employee Director will receive a 1998 retainer of $ ; thereafter, the retainer will be paid at an annual rate of $ . Each non-employee Director who is the Chairman of a Committee of the Board of Directors will be paid an additional retainer of $ for 1998 and annually thereafter. A fee of $ will be paid to each non-employee Director for every Board or Committee meeting attended. Directors who are employed by Reuben H. Donnelley will receive no retainers or meeting fees. COMMITTEES OF THE REUBEN H. DONNELLEY CORPORATION BOARD OF DIRECTORS D&B's Board of Directors currently has Audit, Executive Compensation and Stock Option, Employee Benefits, Executive, Finance, Nominating and Policy and Planning Committees with designated specific functions and areas of oversight as to such committees. The Reuben H. Donnelley Board of Directors is expected to continue most of such committees. However, no final determination has yet been made as to the identity or the memberships of such standing committees after the Distribution. 83 86 THE REUBEN H. DONNELLEY CORPORATION EXECUTIVE OFFICERS Listed below is certain information as to the executive officers who have been selected to serve after the Distribution.
NAME, POSITION WITH REUBEN H. DONNELLEY AND AGE BIOGRAPHICAL DATA - ----------------------------------------------- ----------------- Frank R. Noonan, 55........................... See information under "The Reuben H. President and Chief Executive Officer Donnelley Corporation Board of Directors". Philip C. Danford, 54......................... Senior Vice President, Reuben H. Donnelley, Senior Vice President and Chief Financial 3/98 to present; Vice President and Officer Treasurer, D&B, 9/92 to 3/98; Assistant Treasurer, D&B, 8/88 to 9/92. Frederick J. Groser, 43....................... Executive Vice President -- Telco Operations, Senior Vice President Reuben H. Donnelley, 7/97 to present; Executive Vice President -- Strategic Marketing and New Business Development, Reuben H. Donnelley, 10/95 to 7/97; Vice President and General Manager -- Sprint Operations, Reuben H. Donnelley, 2/94 to 10/95; Vice President -- Sales, Reuben H. Donnelley, 12/90 to 2/94. Alexander R. Marasco, 45...................... Executive Vice President -- Operations and Senior Vice President Systems Development, Reuben H. Donnelley, 10/95 to present; Senior Vice President -- Planning, Reuben H. Donnelley, 4/91 to 10/95; Assistant Vice President of Strategic Planning, Reuben H. Donnelley, 3/89 to 4/91. Judith A. Norton, 54.......................... Senior Vice President -- Human Resources, Senior Vice President -- Human Resources Reuben H. Donnelley, 1/98 to present; Senior Human Resources Consultant, 1/97 to 1/98; Senior Vice President Human Resources, Chase Manhattan Bank, 4/96 to 1/97; Senior Vice President and Director of Staffing and Development, Chemical Bank, 1/91 to 4/96. David C. Swanson, 43.......................... Executive Vice President and General Senior Vice President Manager -- Proprietary Operations, Reuben H. Donnelley, 7/97 to present; Executive Vice President -- Sales, Reuben H. Donnelley, 10/95 to 7/97; Vice President and General Manager -- Cincinnati Operations, Reuben H. Donnelley, 9/93 to 10/95; Assistant Vice President -- Operations, Reuben H. Donnelley, 1/93 to 9/93; General Sales Manager, Reuben H. Donnelley, 1/92 to 1/93. Stephen B. Wiznitzer, 47...................... Senior Vice President and General Counsel, Senior Vice President and General Counsel Reuben H. Donnelley, 6/97 to present; Counsel, NYNEX Corporation, 12/89 to 6/97.
COMPENSATION OF THE REUBEN H. DONNELLEY CORPORATION EXECUTIVE OFFICERS The following table discloses the compensation paid by D&B or Reuben H. Donnelley for services rendered to D&B or Reuben H. Donnelley in 1997 by Reuben H. Donnelley's Chief Executive Officer and by each of the persons who are anticipated to be one of the four other most highly compensated executive officers 84 87 of Reuben H. Donnelley following the Distribution. During the period presented, the individuals were compensated in accordance with D&B's plans and policies. SUMMARY COMPENSATION TABLE FOR SERVICES WITH D&B OR REUBEN H. DONNELLEY
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS PAYOUTS --------------------------------------- ----------------------- --------- (a) (b) (c) (d) (e) (f) (g) (h) (j) SECURITIES RESTRICTED UNDERLYING LONG-TERM NAME AND PRINCIPAL STOCK OPTIONS/ INCENTIVE ALL OTHER POSITION WITH SALARY BONUS(1) OTHER ANNUAL AWARD(S) SARs(3) PAYOUTS COMPENSATION(4) REUBEN H. DONNELLEY YEAR ($) ($) COMPENSATION(2)($) ($) ($) ($) ($) ------------------- ---- ------- -------- ------------------ ---------- ---------- --------- --------------- Frank R. Noonan............ 1997 347,000 346,913 11,630 0 33,480 0 11,863 Chief Executive Officer Philip C. Danford.......... 1997 265,000 236,878 0 0 27,671 0 8,787 Senior Vice President and Chief Financial Officer Frederick J. Groser........ 1997 195,000 41,288 29 0 13,340 0 6,238 Senior Vice President Alexander R. Marasco....... 1997 207,900 81,200 6,590 0 13,340 0 6,742 Senior Vice President David C. Swanson........... 1997 195,000 41,927 2,162 0 13,340 0 6,238 Senior Vice President
- --------------- (1) The 1997 bonus amounts shown were earned with respect to that year and paid in 1998. Included in the 1997 amounts is one-half of the 1997 performance share grant made under the Key Employees Performance Unit Plan for D&B and its subsidiaries (the "PUP") and earned with respect to 1997. The remaining one-half of the 1997 performance share grant is payable, pro rata, at the time of the reorganization of D&B into two separate companies, based on performance goals covering the period January, 1997 through the Distribution Date and will be reflected as long-term incentive payouts in the Summary Compensation Table appearing in Reuben H. Donnelley's 1999 Proxy Statement. The performance shares will be paid in unrestricted shares of D&B Common Stock. (2) Amounts shown represent reimbursement for taxes paid by the named executive officers with respect to D&B-directed spousal travel and personal use of automobiles and/or reimbursement for certain other expenses. (3) Amounts shown represent the number of non-qualified stock options granted in 1997. (4) Amounts shown represent aggregate annual D&B contributions for the account of each named executive officer under the Dun & Bradstreet Profit Participation Plan (the "PPP") and the Profit Participation Benefit Equalization Plan (the "PPBEP"), which plans are open to employees of D&B and certain subsidiaries. The PPP is a tax-qualified defined contribution plan and the PPBEP is a non-qualified plan that provides benefits to participants in the PPP equal to the amount of D&B contributions that would have been made to the participant's PPP account but for certain Federal tax laws. OPTION GRANTS ON D&B COMMON STOCK TO THE REUBEN H. DONNELLEY CORPORATION EXECUTIVES IN LAST FISCAL YEAR The following table provides information on fiscal year 1997 grants of options to the named Reuben H. Donnelley executives to purchase shares of D&B Common Stock. Upon the Distribution, options to acquire D&B Common Stock will become options to purchase Reuben H. Donnelley Common Stock. See "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Employee Benefits Agreement". 85 88 OPTION GRANTS/SAR GRANTS IN LAST FISCAL YEAR TO PURCHASE D&B COMMON STOCK
(a) (b) (c) (d) (e) (f) NUMBER OF SECURITIES % OF TOTAL UNDERLYING OPTIONS/SARs OPTIONS/SARs GRANTED TO EXERCISE OR GRANT DATE GRANTED(1) EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE(2) NAME (#) FISCAL YEAR ($/SHARE) DATE ($) ---- ------------ ------------ ----------- ---------- ---------------- Frank R. Noonan........... 33,480 1.06% 30.2188 12/22/07 186,818 Philip C. Danford......... 13,340 0.42% 30.2188 12/22/07 74,437 14,231 0.45% 27.7188 7/16/07 75,140 Frederick J. Groser....... 13,340 0.42% 30.2188 12/22/07 74,437 Alexander R. Marasco...... 13,340 0.42% 30.2188 12/22/07 74,437 David C. Swanson.......... 13,340 0.42% 30.2188 12/22/07 74,437
- --------------- (1) Amounts shown represent the number of non-qualified stock options, without tandem stock appreciation rights ("SARs"), granted in 1997. Options may not be exercised for at least one year after grant and may then be exercised in installments of 25% of the grant amount each year until they are 100% vested. Payments for all options must be made in full upon exercise in cash or D&B Common Stock. The option holder may elect to have shares of D&B Common Stock issuable upon exercise withheld by D&B to pay withholding taxes due. The options shown for Mr. Noonan include Limited SARs in tandem with the options. Limited SARs are exercisable only if and to the extent that the related option is exercisable and are exercisable only during the 30-day period following the acquisition of at least 20% of the outstanding D&B Common Stock pursuant to a tender or exchange offer not made by D&B. Each Limited SAR permits the holder to receive cash equal to the excess over the related option exercise price of the highest price paid pursuant to a tender or exchange offer for D&B Common Stock which is in effect at any time during the 60 days preceding the date upon which the Limited SAR is exercised. Limited SARs can be exercised regardless of whether D&B supports or opposes the offer. (2) Grant date present value is based on the Black-Scholes option valuation model applied to D&B prior to the Distribution, which makes the following material assumptions for the July 16, 1997 grant and the December 22, 1997 grant: an expected stock-price volatility factor of 20.0%, a risk-free rate of return of 6.06% and 5.71% respectively, a dividend yield of 3.3% and a weighted average exercise date of 4.5 years from date of grant. These assumptions may or may not be fulfilled. The amounts shown cannot be considered predictions of future value. In addition, the options will gain value only to the extent the stock price exceeds the option exercise price during the life of the option. 86 89 AGGREGATE D&B OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR END D&B OPTION VALUES The following table provides information on option exercises in 1997 by the named executives of Reuben H. Donnelley and the value of each such executive's unexercised options to acquire D&B Common Stock at December 31, 1997. See also, "Relationship Between The New Dun & Bradstreet Corporation and The Reuben H. Donnelley Corporation After the Distribution -- Employee Benefits Agreement". AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
(a) (b) (c) (d) (e) NUMBER OF SECURITIES VALUE OF UNEXERCISED, UNDERLYING UNEXERCISED IN-THE-MONEY D&B OPTIONS/SARs AT D&B OPTIONS/SARs AT SHARES ACQUIRED VALUE FISCAL YEAR-END(#) FISCAL YEAR-END(2)($) ON EXERCISE REALIZED(1) --------------------------- --------------------------- NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- --------------- ----------- ----------- ------------- ----------- ------------- Frank R. Noonan......... 0 0 110,593 87,423 1,148,181 455,428 Phillip C. Danford...... 0 0 34,630 38,432 282,389 143,915 Frederick J. Groser..... 0 0 24,337 34,450 225,489 176,427 Alexander R. Marasco.... 0 0 35,774 38,384 375,216 206,047 David C. Swanson........ 2,604 25,640 15,803 33,502 131,210 169,679
- --------------- (1) Amounts shown represent the value realized upon the exercise of stock options during 1997, which equals the difference between the exercise price of the options and the average of the high and low market price of the underlying D&B Common Stock on the exercise date. (2) The values shown equal the difference between the exercise price of unexercised in-the-money options and the closing market price of the underlying D&B Common Stock at December 31, 1997. Options are in-the-money if the fair market value of the D&B Common Stock exceeds the exercise price of the option. LONG-TERM D&B INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
(a) (b) (c) (d) (e) (f) PERFORMANCE ESTIMATED FUTURE PAYOUTS NO. OF OR OTHER UNDER NON-STOCK PRICE-BASED PLANS(2) SHARES, UNITS PERIOD UNTIL --------------------------------------- OR OTHER MATURATION THRESHOLD(#) TARGET(#) MAXIMUM(#) NAME RIGHTS(1)(#) OR PAYOUT (0%) (100%) (200%) ---- ------------- ------------ ------------ --------- ---------- Frank R. Noonan............... 11,200 Two Years 0 11,200 22,400 Phillip C. Danford............ 4,460 Two Years 0 4,460 8,920 Frederick J. Groser........... 4,460 Two Years 0 4,460 8,920 Alexander R. Marasco.......... 4,460 Two Years 0 4,460 8,920 David C. Swanson.............. 4,460 Two Years 0 4,460 8,920
- --------------- (1) Amounts shown represent the performance shares granted under the Dun & Bradstreet Performance Unit Plan for the intended performance period of 1998-1999. At the time of the Distribution, each named executive officer will receive a pro rata award of performance shares based on achievement of performance goals from January, 1998 through the Distribution Date. Earned pro rata awards will be paid in unrestricted shares of D&B Common Stock. (2) Pro rata awards may range from 0 to 200% of the targeted performance shares based on achievements within a range of performance goals. 87 90 RETIREMENT BENEFITS The following table sets forth the estimated aggregate annual benefits payable under D&B's Retirement Account Plan, Supplemental Executive Benefit Plan ("SEBP") and Pension Benefit Equalization Plan ("PBEP") to persons in specified average final compensation and credited service classification upon retirement at age 65. Amounts shown in the table include U.S. Social Security benefits and benefits payable under predecessor plans of D&B which would be deducted in calculating benefits payable under these plans. These aggregate annual retirement benefits do not increase as a result of additional credited service after 20 years.
ESTIMATED AGGREGATE ANNUAL RETIREMENT BENEFIT AVERAGE ASSUMING CREDITED SERVICE OF: FINAL -------------------------------------------------- COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS ------------ -------- ---------- ---------- ---------- $ 550,000.................................. $275,000 $ 330,000 $ 330,000 $ 330,000 700,000................................. 350,000 420,000 420,000 420,000 850,000................................. 425,000 510,000 510,000 510,000 1,000,000................................. 500,000 600,000 600,000 600,000 1,300,000................................. 650,000 780,000 780,000 780,000 1,600,000................................. 800,000 960,000 960,000 960,000 1,900,000................................. 950,000 1,140,000 1,140,000 1,140,000
The number of years of credited service under the plans as of December 31, 1997 of Messrs. Noonan and Danford are 8 and 9, respectively. Compensation, for the purpose of determining retirement benefits, consists of salary, wages, regular cash bonuses, commissions and overtime pay. Severance pay, contingent payments and other forms of special remuneration are excluded. Bonuses included in the Summary Compensation Table are normally not paid until the year following the year in which they are accrued and expensed; therefore, compensation for purposes of determining retirement benefits varies from the Summary Compensation Table amounts in that bonuses expensed in the previous year, but paid in the current year, are part of retirement compensation in the current year, and current year's bonuses accrued and included in the Summary Compensation Table are not. For 1997, compensation for purposes of determining retirement benefits also varies from the Summary Compensation Table in that the amounts shown in the "Bonus" column include performance share payouts under the PUP, which are not creditable compensation under the retirement plans. For the reasons discussed above, compensation for determining retirement benefits for the named executive officers differed by more than 10% from the amounts shown in the Summary Compensation Table. 1997 compensation for purposes of determining retirement benefits for Messrs. Noonan and Danford was $382,000 and $285,333, respectively. Average final compensation is defined as the highest average annual compensation during five consecutive twelve-month periods in the last ten consecutive twelve-month periods of the member's credited service. Members vest in their accrued retirement benefit upon completion of five years of service. The benefits shown in the table above are calculated on a straight-life annuity basis. The Retirement Account Plan, together with the PBEP, provides retirement income based on a percentage of annual compensation. The percentage of compensation allocated annually ranges from 3% to 12.5%, based on age and credited service. Amounts allocated also receive interest credits based on 30-year Treasuries with a minimum interest credit rate of 3%. Executives close to or eligible to retire as of January 1, 1997 will receive the higher of benefits provided by the final pay formula in effect prior to 1997 or the Retirement Account formula. The SEBP provides retirement benefits in addition to the benefits provided under the Retirement Account Plan and the PBEP. The SEBP has the effect of increasing the retirement benefits under the Retirement Account Plan and the PBEP to the amounts depicted in the preceding table. The SEBP provides maximum benefits after 20 years. Executives close to or eligible for retirement, as approved by the Chairman and Chief Executive Officer, will receive maximum benefits after 15 years. Messrs. Groser, Marasco and Swanson participate in the Retirement Account Plan and the PBEP, but do not participate in the SEBP. 88 91 THE REUBEN H. DONNELLEY CORPORATION SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT After the Distribution, shares of D&B Common Stock will be shares of Reuben H. Donnelley Common Stock. The following table sets forth the number of shares of D&B Common Stock, par value $1.00 per share, the only outstanding equity security (other than stock options) or voting security of D&B, beneficially owned by each of the directors, each of the executive officers named in the Summary Compensation Table above, and all persons expected to be directors and executive officers of D&B after the Distribution as a group, at December 31, 1997. The table also sets forth the name and address of the only persons known to D&B to be the beneficial owners of more than 5% of the outstanding D&B Common Stock (the "5% Owners") and the number of shares so owned, to D&B's knowledge, on December 31, 1997. This information is based upon information furnished by each such person (or, in the case of the 5% Owners, based upon a Schedule 13G filed by the 5% Owners with the SEC). Please note that in certain cases shares required under rules of the SEC to be shown as beneficially owned are shares as to which the indicated person holds only rights to acquire within 60 days through exercise of stock options. Unless otherwise stated, the indicated persons have sole voting and investment power over the shares listed. All persons expected to be directors and executive officers of Reuben H. Donnelley after the Distribution as a group owned % of the D&B Common Stock on December 31, 1997 and are expected to own % of the Reuben H. Donnelley Common Stock as of the Distribution Date. Percentages are based upon the number of shares of D&B Common Stock outstanding at December 31, 1997, plus, where applicable, the number of shares of D&B Common Stock that the indicated person or group had a right to acquire within 60 days of such date. Unless otherwise stated, the indicated persons have sole voting and investment power over the shares listed. Percentages are based upon the number of shares of D&B Common Stock outstanding on December 31, 1997, plus, where applicable, the number of shares that the indicated person or group had a right to acquire within 60 days of such date. The mailing address for each of the Reuben H. Donnelley directors and executive officers listed below is One Manhattanville Road, Purchase, NY 10577.
NAME AND ADDRESS OF BENEFICIAL NUMBER OF SHARES OWNER AND NATURE OF OWNERSHIP PERCENT OF CLASS(1) ------------------------------ ---------------------------------------------------- ------------------- Frank R. Noonan................... 6,465 Owned 110,593 Rights to Acquire Within 60 Days(2) ---------- 117,058 -- Phillip C. Danford................ 539 Owned 34,630 Rights to Acquire Within 60 Days ---------- 35,169 -- ---------- Frederick J. Groser............... 0 Owned 24,337 Rights to Acquire Within 60 Days ---------- 24,337 -- Alexander R. Marasco.............. 10,102 Owned 35,774 Rights to Acquire Within 60 Days ---------- 45,876 -- David C. Swanson.................. 2,733 Owned 16,805 Rights to Acquire Within 60 Days ---------- 19,538 -- All Directors and Executive Officers as a Group............. Owned Rights to Acquire Within 60 Days ---------- -- Harris Associates L.P. and its 8.72% general partner, Harris Associates, Inc. ............... 14,903,640(3) Two North LaSalle Street, Ste. 500 Chicago, Illinois 60602-3790 AMVESCAP, PLC and certain of its 7.05% subsidiaries.................... 12,048,320(4) 11 Devonshire Square London EC2M 4YR England
- --------------- (1) Represents ownership of less than 1% of the outstanding D&B Common Stock unless otherwise indicated. 89 92 (2) Includes the following number of performance shares delivered under the D&B 1996 Non-Employee Directors' Stock Incentive Plan (the "1996 Directors' Plan") (in the case of directors) and the D&B Key Employees Performance Unit Plan (the "PUP") (in the case of executive officers) in February 1998 based upon performance goals for the 1997 fiscal year: The balance of the indicated shares represents stock options granted under a D&B plan. (3) Harris Associates L.P. ("Harris") and its sole general partner, Harris Associates, Inc.("Harris Inc."), jointly filed a Schedule 13G with the SEC on February 11, 1998. This Schedule 13G shows that Harris, a registered investment adviser, had as of December 31, 1997, shared voting power over 14,903,640 shares of D&B Common Stock. Of such shares, Harris had sole dispositive power over 5,171,140 shares and shared dispositive power over 9,732,500 shares. In addition, Harris and Harris Inc. jointly filed an amendment to their Schedule 13G with the SEC on April 4 , 1998. This amended Schedule 13G shows that Harris had as of March 31, 1998 shared voting power over 17,374,440 shares of D&B Common Stock. Of such shares, Harris had sole dispositive power over 5,435,440 shares and shared dispositive power over 11,939,000 shares. (4) AMVESCAP PLC and its subsidiaries, AVZ, Inc. (a holding company), AIM Management Group Inc. (a holding company), INVESCO, Inc. (a holding company), INVESCO North American Holdings, Inc. (a holding company), INVESCO Capital Management, Inc. (a registered investment adviser), INVESCO Funds Group, Inc. (a registered investment adviser), INVESVCO Management & Research, Inc. (a registered investment adviser), and INVESCO Realty Advisers, Inc. (a registered investment adviser), jointly filed a Schedule 13G with the SEC on February 11, 1998. This Schedule 13G shows that these companies had, as of December 31, 1997, shared voting power and shared dispositive power over 12,048,320 shares. AVAILABLE INFORMATION New D&B has filed with the SEC a Registration Statement on Form 10 with respect to the shares of New D&B Common Stock to be received by the stockholders of D&B in the Distribution. This Information Statement does not contain all of the information set forth in the Form 10 Registration Statement and the exhibits thereof, to which reference is hereby made. Statements made in this Information Statement as to the contents of any contract, agreement or other documents referred to herein are not necessarily complete. With respect to each such contract, agreement or other documents filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits thereto may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the SEC at Seven World Trade Center, Suite 1300, New York, New York 10048 and in the Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60662. In addition, copies of the Registration Statement and related documents may be obtained through the SEC Internet address at http://www.sec.gov. REPORTS OF THE NEW DUN & BRADSTREET CORPORATION After the Distribution, New D&B will be required to comply with the reporting requirements of the Exchange Act and, in accordance therewith, to file reports, proxy statements and other information with the SEC. After the Distribution, such reports, proxy statements and other information may be inspected and copied at the public reference facilities of the SEC listed above and obtained by mail from the SEC as described above. Application will be made for listing the shares of New D&B Common Stock on the NYSE and, when such shares of New D&B Common Stock commence trading on the NYSE, such reports, proxy statements and other information will be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Additionally, New D&B will be required to provide annual reports, containing audited financial statements, to its stockholders in connection with its annual meetings of stockholders. 90 93 INDEX TO FINANCIAL STATEMENTS
PAGE ------------ THE DUN & BRADSTREET CORPORATION Report of Independent Accountants........................... F-2 Financial Statements: Consolidated Statements of Operations for the Three Years Ended December 31, 1997................................ F-3 Consolidated Balance Sheets at December 31, 1997 and 1996................................................... F-4 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1997................................ F-5 Consolidated Statements of Shareholders' Equity for the Three Years Ended December 31, 1997.................... F-6 Notes to Financial Statements............................. F-7 THE NEW DUN & BRADSTREET CORPORATION Report of Independent Accountants........................... F-28 Financial Statements: Balance Sheet as of April 14, 1998........................ F-29 Notes to Financial Statements............................. F-30 THE REUBEN H. DONNELLEY CORPORATION Report of Independent Accountants........................... F-31 Financial Statements: Statements of Operations for the Three Years Ended December 31, 1997...................................... F-32 Balance Sheets at December 31, 1997 and 1996.............. F-33 Statements of Cash Flows for the Three Years Ended December 31, 1997...................................... F-34 Statements of Changes in Shareholder's Equity for the Three Years Ended December 31, 1997.................... F-35 Notes to Financial Statements............................. F-36 DONTECH Report of Independent Accountants........................... F-47 Financial Statements: Combined Statements of Operations for the Three Years Ended December 31, 1997................................ F-48 Combined Balance Sheets as of December 31, 1997 and 1996................................................... F-49 Combined Statements of Cash Flows for the Three Years Ended December 31, 1997................................ F-50 Combined Statements of Partners' Capital for the Three Years Ended December 31, 1997.......................... F-51 Notes to Financial Statements............................. F-52
F-1 94 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and the Board of Directors of The Dun & Bradstreet Corporation: We have audited the accompanying consolidated balance sheets of The Dun & Bradstreet Corporation and Subsidiaries at December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 1997, 1996 and 1995. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Dun & Bradstreet Corporation and Subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for the years ended December 31, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company changed certain revenue recognition accounting policies in 1997. /s/ COOPERS & LYBRAND L.L.P. -------------------------------------- COOPERS & LYBRAND L.L.P. New York, New York February 13, 1998, except for the effect of the 1998 Distribution described in Note 2 for which the date is April 15, 1998 F-2 95 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31,
1997 1996 1995 -------------- -------------- --------------- (DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) Operating Revenues................................. $ 1,811.0 $ 1,781.7 $ 1,734.5 ----------- ----------- ------------ Operating Costs.................................... 487.0 617.0 625.9 Selling and Administrative Expenses................ 788.4 806.3 748.4 Depreciation and Amortization...................... 131.9 140.6 147.9 Reorganization Costs............................... -- 161.2 -- ----------- ----------- ------------ Operating Income................................... 403.7 56.6 212.3 ----------- ----------- ------------ Interest Income.................................... 1.8 4.4 10.2 Interest Expense................................... (53.4) (37.1) (37.3) Other Expense -- Net............................... (19.7) (38.5) (40.9) ----------- ----------- ------------ Non-Operating Expense -- Net....................... (71.3) (71.2) (68.0) ----------- ----------- ------------ Income (Loss) from Continuing Operations before Provision for Income Taxes....................... 332.4 (14.6) 144.3 Provision for Income Taxes......................... 113.4 102.1 49.4 ----------- ----------- ------------ Income (Loss) from Continuing Operations........... 219.0 (116.7) 94.9 ----------- ----------- ------------ Discontinued Operations: Income from Discontinued Operations, Net of Income Taxes of $52.2, $207.5 and $73.4 for 1997, 1996 and 1995, respectively............. 92.0 230.5 225.9 Loss on Disposal, Net of Income Tax Benefit of $62.4 for 1996................................ -- (158.2) -- ----------- ----------- ------------ Income from Discontinued Operations................ 92.0 72.3 225.9 ----------- ----------- ------------ Income (Loss) before Cumulative Effect of Accounting Changes............................... 311.0 (44.4) 320.8 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit of $104.1..................... (150.6) -- -- ----------- ----------- ------------ Net Income (Loss).................................. $ 160.4 $ (44.4) $ 320.8 =========== =========== ============ Basic Earnings (Loss) Per Share of Common Stock: Continuing Operations............................ $ 1.28 $ (0.69) $ 0.56 Discontinued Operations.......................... 0.54 0.43 1.33 ----------- ----------- ------------ Before Cumulative Effect of Accounting Changes... 1.82 (0.26) 1.89 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit............................ (0.88) -- -- ----------- ----------- ------------ Basic Earnings (Loss) Per Share of Common Stock.... $ 0.94 $ (0.26) $ 1.89 =========== =========== ============ Diluted Earnings (Loss) Per Share of Common Stock: Continuing Operations............................ $ 1.27 $ (0.68) $ 0.55 Discontinued Operations.......................... 0.53 0.42 1.32 ----------- ----------- ------------ Before Cumulative Effect of Accounting Changes... 1.80 (0.26) 1.87 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit............................ (0.87) -- -- ----------- ----------- ------------ Diluted Earnings (Loss) Per Share of Common Stock............................................ $ 0.93 $ (0.26) $ 1.87 =========== =========== ============ Weighted Average Number of Shares Outstanding: Basic............................................ 170,765,000 170,017,000 169,522,000 ----------- ----------- ------------ Diluted.......................................... 172,552,000 171,576,000 171,608,000 ----------- ----------- ------------
The accompanying notes are an integral part of the consolidated financial statements. F-3 96 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 1997 1996 ----------- ------------ (DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) ASSETS Current Assets Cash and Cash Equivalents................................... $ 81.8 $ 127.8 Accounts Receivable -- Net of Allowance of $39.4 in 1997 and $26.5 in 1996............................................. 454.5 442.4 Other Current Assets........................................ 269.2 190.1 -------- --------- Total Current Assets.............................. 805.5 760.3 -------- --------- Non-Current Assets Investments and Notes Receivable............................ 12.3 58.5 Property, Plant and Equipment............................... 317.2 342.3 Prepaid Pension Costs....................................... 190.7 161.8 Computer Software........................................... 128.0 108.7 Goodwill.................................................... 194.6 216.2 Other Non-Current Assets.................................... 141.2 130.6 -------- --------- Total Non-Current Assets.......................... 984.0 1,018.1 Net Assets of Discontinued Operations....................... 296.5 430.6 -------- --------- Total Assets................................................ $2,086.0 $ 2,209.0 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes Payable............................................... $ 451.5 $ 1,120.7 Accrued and Other Current Liabilities....................... 472.0 550.1 Unearned Subscription Income................................ 573.5 297.0 -------- --------- Total Current Liabilities......................... 1,497.0 1,967.8 Postretirement and Postemployment Benefits.................. 389.0 344.1 Other Non-Current Liabilities............................... 388.3 328.8 Minority Interest........................................... 301.9 -- Shareholders' Equity 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 -- 188,420,996 shares for 1997 and 1996.................................. 188.4 188.4 Capital Surplus............................................. 80.2 72.6 Retained Earnings........................................... 405.2 480.3 Treasury Stock, at cost, 17,853,652 and 17,612,776 shares for 1997 and 1996, respectively........................... (964.0) (1,019.7) Cumulative Translation Adjustment........................... (162.6) (153.3) Minimum Pension Liability Adjustment........................ (37.4) -- -------- --------- Total Shareholders' Equity.................................. (490.2) (431.7) -------- --------- Total Liabilities and Shareholders' Equity.................. $2,086.0 $ 2,209.0 ======== =========
The accompanying notes are an integral part of the consolidated financial statements. F-4 97 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,
1997 1996 1995 --------- ------- ------- (DOLLAR AMOUNTS IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss)........................................... $ 160.4 $ (44.4) $ 320.8 Less: Income (Loss) from Discontinued Operations................ 92.0 72.3 225.9 --------- ------- ------- Income (Loss) from Continuing Operations.................. 68.4 (116.7) 94.9 Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities: Cumulative Effect of Accounting Change, Net of Income Tax Benefit................................................ 150.6 -- -- Depreciation and Amortization............................. 131.9 140.6 147.9 (Gains) Loss from Sale of Businesses, Net of Income Taxes.................................................. -- 68.2 (118.0) Decrease (Increase) Note Receivable....................... 47.5 (55.3) 2.2 Non-Recurring Charge...................................... -- -- 188.5 Restructuring Payments.................................... -- (39.4) (60.1) Postemployment Benefit Payments........................... (30.6) (50.3) (60.0) Net Increase in Accounts Receivable....................... (33.8) (52.1) (44.0) Deferred Income Taxes..................................... 7.0 83.2 (66.9) Accrued Income Taxes...................................... (38.7) 16.2 27.2 Increase in Long Term Liabilities......................... 38.7 105.4 (21.0) Net Decrease in Other Working Capital Items............... 84.3 90.1 41.6 Other..................................................... (45.3) (10.0) 6.2 --------- ------- ------- Net Cash Provided By Operating Activities................... 380.0 179.9 138.5 --------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sales of Marketable Securities................ 27.2 17.6 34.1 Payments for Marketable Securities.......................... (27.1) (2.4) (22.9) Proceeds from Sale of Businesses............................ -- 93.9 230.0 Capital Expenditures........................................ (50.3) (57.9) (97.5) Additions to Computer Software and Other Intangibles........ (78.8) (94.1) (118.3) Other....................................................... 7.4 13.3 (12.5) --------- ------- ------- Net Cash (Used In) Provided By Investing Activities......... (121.6) (29.6) 12.9 --------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of Dividends........................................ (150.6) (310.8) (446.1) Payments for Purchase of Treasury Shares.................... (60.1) (25.6) (72.3) Net Proceeds from Exercise of Stock Options................. 40.8 63.7 42.2 Increase (Decrease) in Commercial Paper Borrowings.......... 421.6 (405.0) (38.7) Increase in Minority Interest............................... 300.0 -- -- (Decrease) Increase in Other Short-Term Borrowings.......... (1,090.6) 1,116.2 -- Payment of Redeemable Partnership Interests................. -- (575.0) -- Other....................................................... 9.2 (1.1) (0.4) --------- ------- ------- Net Cash Used In Financing Activities....................... (529.7) (137.6) (515.3) --------- ------- ------- Effect of Exchange Rate Changes on Cash and Cash Equivalents............................................... (0.8) (2.1) 4.0 --------- ------- ------- (Decrease) Increase in Cash and Cash Equivalents............ (272.1) 10.6 (359.9) Net Cash (Used In) Provided By Discontinued Operations...... 226.1 (28.4) 382.4 Cash and Cash Equivalents , Beginning of Year............... 127.8 145.6 123.1 --------- ------- ------- Cash and Cash Equivalents, End of Year...................... $ 81.8 $ 127.8 $ 145.6 ========= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-5 98 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997 ------------------------------------------------------------------------------------------- MINIMUM COMMON CUMULATIVE PENSION TOTAL STOCK CAPITAL RETAINED TREASURY TRANSLATION LIABILITY SHAREHOLDERS' ($1 PAR VALUE) SURPLUS EARNINGS STOCK ADJUSTMENT ADJUSTMENT EQUITY -------------- ------- --------- --------- ----------- ---------- ------------- (DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) BALANCE, JANUARY 1, 1995............ $188.4 $67.2 $2,323.7 $(1,077.2) $(183.5) $ -- $ 1,318.6 ------ ----- -------- --------- ------- ------ --------- Net Income.......................... 320.8 320.8 Cash Dividends ($2.63 per share).... (446.1) (446.1) Treasury Shares Reissued Under Stock Options and Deferred Compensation Plans (741,526)................... 2.8 34.2 37.0 Treasury Shares Reissued Under Restricted Stock Plan (174,100)... 8.0 8.0 Treasury Shares Acquired (1,297,138)....................... (72.3) (72.3) Change in Cumulative Translation Adjustment........................ 6.2 6.2 Unrealized Gains on Investments..... 10.3 10.3 ------ ----- -------- --------- ------- ------ --------- BALANCE, DECEMBER 31, 1995.......... 188.4 70.0 2,208.7 (1,107.3) (177.3) -- 1,182.5 ------ ----- -------- --------- ------- ------ --------- Net Loss............................ (44.4) (44.4) Cash Dividends ($1.82 per share).... (310.8) (310.8) Stock Dividend to Shareholders of Cognizant and ACNielsen, Including 800,000 Treasury Shares........... (1,370.2) 49.5 79.8 (1,240.9) Treasury Shares Reissued Under Stock Options and Deferred Compensation Plans (1,525,935)................. 2.6 59.0 61.6 Treasury Shares Reissued Under Restricted Stock Plan (16,410).... 4.7 4.7 Treasury Shares Acquired (923,199)......................... (25.6) (25.6) Change in Cumulative Translation Adjustment........................ (55.8) (55.8) Unrealized Losses on Investments.... (3.0) (3.0) ------ ----- -------- --------- ------- ------ --------- BALANCE, DECEMBER 31, 1996.......... 188.4 72.6 480.3 (1,019.7) (153.3) -- (431.7) ------ ----- -------- --------- ------- ------ --------- Net Income.......................... 160.4 160.4 Cash Dividends ($.88 per share)..... (150.6) (150.6) Adjustment to Stock Dividend to Shareholders of Cognizant and ACNielsen......................... (11.3) (11.3) Treasury Shares Reissued Under Stock Options and Deferred Compensation Plans (2,010,091)................. 7.6 (72.4) 115.6 50.8 Treasury Shares Reissued Under Restricted Stock Plan (20,884).... 0.2 0.2 Treasury Shares Acquired (2,271,851)....................... (60.1) (60.1) Change in Cumulative Translation Adjustment........................ (9.3) (9.3) Minimum Pension Liability Adjustment........................ (37.4) (37.4) Unrealized Losses on Investments.... (1.2) (1.2) ------ ----- -------- --------- ------- ------ --------- BALANCE, DECEMBER 31, 1997.......... $188.4 $80.2 $ 405.2 $ (964.0) $(162.6) $(37.4) $ (490.2) ====== ===== ======== ========= ======= ====== =========
The accompanying notes are an integral part of the consolidated financial statements. F-6 99 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include those of The Dun & Bradstreet Corporation (the "Company") and its subsidiaries and investments in which the Company has a controlling interest. Investments in companies over which the Company has significant influence but not a controlling interest are carried on an equity basis. The effects of all significant intercompany transactions have been eliminated. The financial statements of subsidiaries outside the United States and Canada reflect a fiscal year ending November 30 to facilitate timely reporting of the Company's consolidated financial results. As discussed more thoroughly in Note 2, Reuben H. Donnelley, Cognizant Corporation ("Cognizant"), ACNielsen Corporation ("ACNielsen"), Dun & Bradstreet Software ("DBS") and NCH Promotional Services ("NCH") are presented as discontinued operations. Cash Equivalents Marketable securities that mature within 90 days of purchase date are considered cash equivalents and are stated at cost, which approximates fair value. Marketable Securities In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," marketable securities at December 31, 1997 and 1996, are classified as "available for sale" and are reported at fair value, with net unrealized gains and losses reported in shareholders' equity. The fair value of current and non-current marketable securities was estimated based on quoted market prices. Realized gains and losses on marketable securities are determined on the specific identification method. The Company's marketable securities, $53.0 million and $46.1 million at December 31, 1997 and 1996, respectively, consisted primarily of debt securities of the U.S. Government and its agencies. Property, Plant and Equipment Buildings, machinery and equipment are depreciated principally using the straight-line method over a period of three to 40 years. 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. Computer Software, Goodwill and Intangible Assets Certain computer software costs are capitalized in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," and are reported at the lower of unamortized cost or net realizable value. Costs in connection with business process reengineering are expensed as incurred. Other intangibles result from acquisitions and database enhancements. Computer software and other intangibles are being amortized, using principally the straight-line method, over three to five years and five to 15 years, respectively. Goodwill represents the excess purchase price over the fair value of identifiable net assets of businesses acquired and is amortized on a straight-line basis over five to 40 years. The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121") in 1995. This statement requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for F-7 100 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, this statement requires recognition of an impairment loss when the sum of undiscounted expected future cash flows is less than the carrying amount of such assets. The measurement for such an impairment loss is then based on the fair value of the asset (see Note 3). At each balance sheet date, the Company reviews the recoverability of goodwill, not identified with long-lived assets, based on estimated undiscounted future cash flows from operating activities compared with the carrying value of goodwill, and recognizes any impairment on the basis of such comparison. The recognition and measurement of goodwill impairment is assessed at the business unit level. Revenue Recognition The Company recognizes revenue as services are performed, information is delivered and products and services are used by its customers. Amounts billed for service and subscriptions are credited to unearned subscription income and reflected in operating revenues over the subscription term, which is generally one year. Accounting Changes Effective January 1, 1997, the Company changed its revenue recognition method for its Credit Information Services business to recognize revenue as products and services are used by its customers. Previously, the Company recognized revenue ratably over the contract period. This change is consistent with the Company's change in focus from a sales contract basis to a product usage basis in order to drive revenue growth and increase customer satisfaction. Additionally, the Company changed certain of its revenue recognition methods in the Marketing Information Services, Receivables Management Services and Moody's Investors Service ("Moody's") businesses to recognize revenue over the service period from previously recognizing revenues and costs at the time of shipment or billing. In the opinion of management, these accounting changes bring revenue recognition methods more in line with the economics of the business and provide a better measure of operating results. In accordance with Accounting Principles Board Opinion ("APB") No. 20, "Accounting Changes," the cumulative effect of changing the accounting for certain of the Company's revenue recognition policies resulted in a pre-tax, non-cash charge of $254.7 million ($150.6 million after tax or $.88 per share basic, $.87 per share diluted). On a pro-forma basis these changes would have increased 1996 and decreased 1995 net income by $3.7 million and $7.5 million, respectively. The impact on basic and diluted earnings per share would have been an increase in 1996 of $.02 per share and a decrease in 1995 of $.04 per share. Foreign Currency Translation For all operations outside the United States where the Company has designated the local currency as the functional currency, assets and liabilities are translated using the end-of-year exchange rates, and revenues and expenses are translated using average exchange rates for the year. For these countries, currency translation adjustments are accumulated in a separate component of shareholders' equity, whereas realized transaction gains and losses are recognized in other expense-net. For operations in countries that are considered to be highly inflationary, where the U.S. dollar is designated as the functional currency, monetary assets and liabilities are translated using end-of-year exchange rates, nonmonetary accounts are translated using historical exchange rates, and all translation and transaction adjustments are recognized in other expense-net. F-8 101 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) Earnings Per Share of Common Stock The Company adopted SFAS No. 128, "Earnings per Share," ("SFAS No. 128"), in 1997. As required by the statement, the Company restated all prior-period per share data presented. SFAS No. 128 requires presentation of both basic and diluted earnings per share. Basic earnings per share are calculated based on the weighted average number of shares of common stock outstanding during the reporting period. Diluted earnings per share are calculated giving effect to all potentially dilutive common shares, assuming such shares were outstanding during the reporting period. Financial Instruments At times, the Company uses forward foreign exchange contracts and interest rate swaps to hedge existing assets, liabilities and firm commitments. The Company does not use any derivatives for trading or speculative purposes. Gains and losses on forward foreign exchange contracts that qualify as hedges of existing assets or liabilities are included in the carrying amounts of those assets or liabilities and are ultimately recognized in income as part of those carrying amounts. Gains and losses related to qualifying hedges of firm commitments are also deferred and are recognized in income or as adjustments of carrying amounts when the hedged transactions occur. For forward foreign exchange contracts, the risk reduction is assessed on a transaction basis, and contract amounts and terms are matched to existing intercompany transactions. The Company uses interest rate swaps to hedge interest rate risk on commercial paper. Settlement accounting is accorded to the swaps that have contractual, periodic payment terms considered to be aligned to the expected future commercial paper issuances. The commercial paper issuances are expected to continue through the term of the existing interest rate swaps. Periodic swap payments and receipts under the interest rate swaps are recorded as part of interest expense. Neither the swap contracts nor the gains or losses on these contracts, which are designated and effective as hedges, are recognized in the financial statements. If a hedging instrument is sold or terminated prior to maturity, gains and losses will continue to be deferred until the hedged item is recognized in income. If a hedging instrument ceases to qualify for settlement accounting, any subsequent gains and losses are recognized currently in income. 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 the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Estimates are used in the determination of allowances for doubtful accounts, depreciation and amortization, computer software, employee benefits plans, taxes and contingencies, among others. Reclassifications As discussed in Note 2, the consolidated financial statements have been reclassified to identify separately the results of operations, net assets and cash flows of the Company's discontinued operations. In addition, certain prior-year amounts have been reclassified to conform to the 1997 presentation. NOTE 2 REORGANIZATION AND DISCONTINUED OPERATIONS Pursuant to APB No. 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the F-9 102 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) consolidated financial statements of the Company have been reclassified to reflect as discontinued operations, the companies that comprised the Company's Directory Information Services business segment as a result of the expected 1998 Distribution and the companies that comprised the Company's Marketing Information Services, Software Services and Other Business Services business segments as a result of the 1996 Distribution. 1998 Distribution On December 17, 1997, the Company announced a plan to separate into two publicly traded independent companies -- The New Dun & Bradstreet Corporation ("New D&B") and The Reuben H. Donnelley Corporation. The separation (the "1998 Distribution") of the two companies will be accomplished through a tax-free dividend of a new entity comprised of the Company's Risk Management Services segment (Moody's Investors Service ("Moody's") and Dun & Bradstreet, the operating company ("D&B")). The new entity, New D&B, will change its name to "The Dun & Bradstreet Corporation" and the continuing entity will change its name to "The Reuben H. Donnelley Corporation" and will consist of the Company's Directory Information Services segment (Reuben H. Donnelley, the operating company and the DonTech partnership). Due to the relative significance of the Risk Management Services segment, the transaction will be accounted for as a reverse spin-off, and as such the Risk Management Services and Directory Information Services segments have been classified as continuing and discontinued operations, respectively. In April 1998, the Company received a favorable ruling from the Internal Revenue Service with respect to the tax-free treatment of the 1998 Distribution. The transaction is expected to be completed in the summer of 1998. For purposes of governing certain of the ongoing relationships among the Company and Reuben H. Donnelley as a result of the 1998 Distribution, the companies will enter into various agreements, including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits Agreement, Intellectual Property Agreement, Shared Transaction Services Agreement, Data Services Agreement and a Transition Services Agreement. For financial reporting purposes the assets and liabilities of the Directory Information Services segment have been separately classified on the balance sheet as "Net Assets of Discontinued Operations." A summary of these assets and liabilities at December 31, 1997 and 1996 was as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Current assets............................. $ 92.7 $157.0 Total assets............................... 362.3 515.7 Current liabilities........................ 64.6 49.7 Total liabilities.......................... 65.8 85.1 Net assets of discontinued operations...... 296.5 430.6
The net operating results of the Directory Information Services segment have been reported in the caption "Income from Discontinued Operations," in the consolidated statements of operations. Summarized operating results for the Directory Information Services segment for the years ended December 31, were as follows:
1997* 1996* 1995 ------ ------ ------ Operating revenues............................... $343.4 $377.6 $423.7 Income before provision for income taxes......... 144.2 141.1 186.4 Net income....................................... 92.0 89.5 122.7
- --------------- * 1997 net income included a pre-tax gain on the sale of the East Coast proprietary operations of Reuben H. Donnelley ("P-East") of $9.4 million and 1996 net income included a pre-tax loss on the sale of the West Coast proprietary operations of Reuben H. Donnelley ("P-West") of $28.5 million. F-10 103 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) 1996 Distribution On November 1, 1996, the Company reorganized into three publicly traded independent companies by spinning off through a tax-free distribution two of its businesses to shareholders (the "1996 Distribution"). The Distribution resulted in the following three companies: 1) The Dun & Bradstreet Corporation, consisting of Dun & Bradstreet, the operating company ("D&B"), Moody's and Reuben H. Donnelley, 2) ACNielsen; and 3) Cognizant, consisting of IMS International, Inc. ("IMS"), Gartner Group, Nielsen Media Research, Pilot Software, Cognizant Technology Solutions Corporation, Cognizant Enterprises and Erisco. In connection with the 1996 Distribution, DBS and NCH were sold. On October 10, 1996, following receipt of a ruling from the Internal Revenue Service that the transaction would be tax-free to the Company and its U.S. shareholders, the Company's Board of Directors declared a dividend distribution to shareholders of record on October 21, 1996, consisting of one share of Cognizant common stock for each share of the Company's common stock and one share of ACNielsen common stock for every three shares of the Company's common stock held on such record date. The 1996 Distribution was effected on November 1, 1996. These transactions resulted in a non-cash dividend that reduced shareholders' equity by $1,240.9 million. During 1997, adjustments to the dividend of $11.3 million were recorded, primarily as a result of employee benefits plan revisions. For purposes of governing certain of the ongoing relationships among the Company, Cognizant and ACNielsen as a result of the 1996 Distribution, the three new companies entered into various agreements, including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits Agreement, Indemnity and Joint Defense Agreement, Intellectual Property Agreement, Shared Transaction Services Agreement, Data Services Agreement and a Transition Services Agreement. These agreements set forth the principles to be applied in allocating certain related costs and specified portions of contingent liabilities to be share if certain amounts are exceeded, which by their nature, cannot be predicted at this time, but could be significant. The net operating results of the Company's Marketing Information Services, Software Services and Other Business Services business segments have been included in the Consolidated Statements of Operations in the caption "Net Income (Loss) from Discontinued Operations." These segments included the companies that made up Cognizant and ACNielsen, along with DBS and NCH. Summarized operating results for those discontinued operations for the years ended December 31, were as follows:
1996* 1995 -------- -------- Operating revenues.............................. $2,761.6 $3,256.9 Income before provision for income taxes........ 297.0 113.0 Net income...................................... 141.1 103.3
- --------------- * 1996 revenues include the results of Cognizant, ACNielsen and DBS for the 10 months ended October 31, 1996, and the results of NCH for the full year. The Company completed the sale of DBS on Novemer 1, 1996, for proceeds of $191.3 million, including a note of $41.2 million, resulting in a pre-tax loss of $220.6 million ($158.2 million after-tax). Pursuant to the Distribution Agreement, the cash proceeds from the sale were transferred to Cognizant. During the third quarter of 1997, cash was received from the buyer to satisfy the note receivable, which was due in May 1998. The sale of NCH was completed on December 31, 1996. Pursuant to the Distribution Agreement, the proceeds of $20.5 million from the sale of NCH, which included a note of $8.5 million, were transferred to Cognizant. At December 31, 1996, the Company recorded a receivable of $20.5 million from the buyer of NCH and a corresponding payable to Cognizant. These transactions were settled in January 1997. The Company did not incur a gain or loss on the sale. F-11 104 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) Also included in 1996 results, within discontinued operations, are tax costs allocated to discontinued operations of $49.1 million. NOTE 3 NON-RECURRING ITEMS The 1996 results for the Company reflect after-tax non-recurring charges of $262.3 million, incurred as a result of the 1996 Distribution and the sale of American Credit Indemnity ("ACI"). Of the $262.3 million, $229.4 million was recorded in pre-tax income and a net tax cost of $32.9 million was recorded in the provision for income taxes. The $229.4 million represents reorganization costs of $161.2 million (professional and consulting fees of $75.0 million and settlement of executive compensation plans and retention bonuses of $86.2 million) and $68.2 million resulting from the losses incurred on the sale of ACI completed in October 1996. In the fourth quarter of 1995, the Company recorded within operating costs a charge of $188.5 million. This charge primarily reflected an impairment loss in connection with the adoption of the provisions of SFAS No. 121 ($93.7 million), a provision for postemployment benefits ($56.3 million) under the Company's severance plan, an accrual for contractual obligations that have no future economic benefits and for penalties to cancel certain contracts ($19.8 million) and other asset revaluations ($18.7 million). This non-recurring charge evolved from the Company's annual budget and strategic planning process, which included a review of the Company's underlying cost structure, products and services, and assets used in the business. Based upon such analysis, management, having the authority to approve such business decisions, committed in December 1995 to a plan to discontinue certain product lines and dispose of certain other assets, resulting in the charge. These decisions were not reversed or modified as a result of the Company's 1996 Distribution, which was reviewed and approved by the Board of Directors on January 9, 1996. Also in 1995, the Company recorded in operating costs a $28.0 million gain related to the sale of warrants received in connection with the divestiture of Donnelley Marketing and a $90.0 million gain relating to the sale of Interactive Data Corporation ("IDC"). NOTE 4 RECONCILIATION OF WEIGHTED AVERAGE SHARES
1997 1996 1995 (SHARE DATA IN THOUSANDS) ------- ------- ------- Weighted average number of shares-basic..................... 170,765 170,017 169,522 Dilutive effect of shares issuable as of year-end under stock options, restricted stock and performance unit plans..................................................... 1,629 1,430 2,061 Adjustment of shares applicable to stock options exercised during the year and performance unit plans................ 158 129 25 ------- ------- ------- Weighted average number of shares-diluted................... 172,552 171,576 171,608 ======= ======= =======
As required by SFAS No. 128, the Company has provided a reconciliation of basic weighted average shares to diluted weighted average shares within the table outlined above. The conversion of diluted shares has no impact on the Company's operating results. Options to purchase 3.1 million, 4.4 million and 3.2 million shares of common stock were outstanding at December 31, 1997, 1996 and 1995, respectively, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the Company's common stock. The Company's options generally expire 10 years after the initial grant date. NOTE 5 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS The Company uses interest rate swap agreements and forward foreign exchange contracts to reduce exposure to fluctuations in interest and foreign exchange rates. The Company does not use derivative financial F-12 105 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) instruments for trading or speculative purposes. If a hedging instrument ceases to qualify as a hedge, any subsequent gains and losses are recognized currently in income. Collateral is generally not required for these types of instruments. By their nature, all such instruments involve risk, including the credit risk of non-performance by counterparties. However, at December 31, 1997 and 1996, in management's opinion there was no significant risk of loss in the event of non-performance of the counterparties to these financial instruments. The Company controls its exposure to credit risk through monitoring procedures. Interest Rate Swap Agreements The Company enters into interest rate swap agreements to manage exposure to changes in interest rates. Interest rate swaps allow the Company to raise funds at floating rates and effectively swap them into fixed rates that are lower than those available to it if fixed-rate borrowings were made directly. These agreements involve the exchange of floating-rate for fixed-rate payments without the exchange of the underlying principal amount. Fixed-interest-rate payments are at rates ranging from 6.67% to 7.02%. Floating-rate payments received are based on rates tied to prevailing short-term 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. In the first quarter of 1997, $2.9 million was recorded in connection with the termination of swaps and corresponding debt. At December 31, 1997, the unrealized fair value of the interest rate swaps was a loss of $11.1 million, of which $3.2 million has been recorded in 1997 relating to swaps which do not qualify for settlement accounting. At December 31, 1996, the unrealized fair value of the interest rate swaps was a loss of $15.8 million. The following table indicates the type of swaps in use at December 31, 1997 and 1996, and their weighted average interest rates. Average variable rates are those in effect at the reporting date and may change significantly over the lives of the contracts.
1997 1996 ------ ------ Variable to fixed swaps -- Notional amount.................................. $300.0 $600.0 Average pay (fixed) rate......................... 6.84% 6.94% Average receive (variable) rate.................. 5.75% 5.57%
The swap contracts expire from August 31, 2001, through January 15, 2005. In connection with the 1998 Distribution and repayment of outstanding notes payable, the Company will cancel the interest rate swap agreements and will record into income the previously unrecognized fair value loss at the time of termination. Foreign Exchange In order to reduce the risk of foreign currency exchange rate fluctuations, the Company follows a policy of hedging substantially all cross-border intercompany transactions denominated in a currency other than the functional currency applicable to each of its various subsidiaries. The financial instruments used to hedge these cross-border intercompany transactions are forward foreign exchange contracts with maturities of six months or less. These forward contracts are executed with creditworthy institutions and are denominated primarily in the British Pound, German Mark, Swedish Krona and Japanese Yen. The gains and losses on these forward contracts are recorded to income or expense and are essentially offset by the gains and losses on the underlying foreign currency transactions. The Company does not enter into forward foreign exchange contracts for speculative or trading purposes. F-13 106 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) At December 31, 1997 and 1996, the Company had approximately $117 million and $114 million, respectively, of forward foreign exchange contracts outstanding with various expiration dates through March 1998 and March 1997, respectively. At December 31, 1997, unrealized gains on these contracts were $1.5 million and the unrealized losses were $.4 million. At December 31, 1996, unrealized gains on these contracts were $3.5 million and the unrealized losses were $1.3 million. NOTE 6 PENSION AND POSTRETIREMENT BENEFITS Pension Plans The Company has defined benefit pension plans covering substantially all associates in the United States. The benefits to be paid to associates under these plans are based on years of credited service and average final compensation. Pension costs are determined actuarially and funded in accordance with the Internal Revenue Code. Supplemental and excess plans in the United States are maintained to provide retirement benefits in excess of levels allowed by ERISA . Effective January 1, 1997, the D&B Retirement Plan was amended to provide retirement income based on a percentage of annual compensation, rather than final pay. The percentage of compensation allocated annually to a retirement account ranges from 3% to 12.5%, based on age and service. Amounts allocated under the plan also receive interest credits based on 30-year Treasury Bonds with a minimum interest credit rate of 3%. Associates close to or eligible for retirement as of January 1, 1997, will receive the higher of benefits provided by the final pay formula or retirement account formula. In accordance with SFAS No. 87, "Employers' Accounting for Pensions," the Company has recorded an additional minimum pension liability for each benefits plan for which the accumulated benefits obligation exceeds plan assets. This amount has been recorded as a long-term liability with an offsetting intangible asset. To the extent that these additional liabilities exceeded related unrecognized prior service cost and net transition obligation, the increase in liabilities is charged directly to shareholders' equity. At December 31, 1997, $37.4 million was reported as a separate reduction of shareholders' equity. The Company has retained the obligation for pension benefits for personnel who retired prior to November 1, 1996 from the businesses that comprise discontinued operations from the 1996 Distribution. The Company will also retain the obligation for pension benefits for personnel who retire from Reuben H. Donnelley prior to the effective date of the 1998 Distribution. The Company's non-U.S. subsidiaries provide retirement benefits for associates consistent with local practices, primarily using defined benefit or termination indemnity plans. The components of net periodic pension costs for the years ended December 31, for both continuing and discontinued operations, are summarized as follows:
1997 1996 1995 ------ ------ ------ Service cost............................. $18.4 $34.8 $43.1 Interest cost............................ 83.4 87.4 108.5 Actual return on plan assets............. (242.8) (173.2) (248.1) Net amortization and deferral............ 137.5 67.3 126.8 ------ ------ ------ Net periodic pension cost (income)....... $(3.5) $16.3 $30.3 ====== ====== ======
Discontinued operations were allocated pension expense of $1.0 million, $11.5 million and $12.2 million in 1997, 1996 and 1995, respectively. F-14 107 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) The status of defined benefit pension plans at December 31, 1997 and 1996 (which includes both the Company and Reuben H. Donnelley) is as follows:
FUNDED UNFUNDED ------------------- --------------------------------- U.S.(1) NON-U.S. ----------------- ------------- 1997 1996 1997 1996 1997 1996 -------- -------- ------- ------- ----- ----- Fair value of plan assets.................... $1,328.7 $1,146.5 $ -- $ -- $ -- $ -- -------- -------- ------- ------- ----- ----- Actuarial present value of benefit obligations: Vested benefits............................ 954.5 811.8 162.0 95.8 6.3 7.1 Non-vested benefits........................ 18.4 35.7 3.4 4.6 -- -- -------- -------- ------- ------- ----- ----- Accumulated benefit obligations............ 972.9 847.5 165.4 100.4 6.3 7.1 Effect of projected future salary increases............................... 69.3 89.7 18.3 60.5 -- -- -------- -------- ------- ------- ----- ----- Projected benefit obligations.............. 1,042.2 937.2 183.7 160.9 6.3 7.1 -------- -------- ------- ------- ----- ----- Plan assets in excess of (less than) projected benefit obligations.............. 286.5 209.3 (183.7) (160.9) (6.3) (7.1) Unrecognized net loss (gain)................. (59.0) 0.5 55.8 30.2 -- -- Unrecognized prior service cost.............. 9.9 6.7 23.9 22.8 -- -- Unrecognized net transition (asset) obligation................................. (37.2) (44.4) 1.2 1.6 -- -- Adjustment to recognize minimum liability.... -- -- (62.6) (6.4) -- -- -------- -------- ------- ------- ----- ----- Prepaid (accrued) pension cost............... $ 200.2 $ 172.1 $(165.4) $(112.7) $(6.3) $(7.1) ======== ======== ======= ======= ===== =====
- --------------- (1) Represents supplemental and excess plans for which grantor trusts (with assets of $57.4 million and $58.9 million at December 31, 1997 and 1996, respectively) have been established to pay plan benefits. The weighted average expected long-term rate of return on pension plan assets was 9.70% for 1997 and 9.75% for 1996 and 1995. At December 31, 1997 and 1996, the projected benefit obligations were determined using weighted average discount rates of 7.01% and 7.77%, respectively, and weighted average rates of increase in future compensation levels of 4.46% and 5.15%, respectively. Plan assets are invested in diversified portfolios that consist primarily of equity and debt securities. Postretirement Benefits In addition to providing pension benefits, the Company provides various health-care and life-insurance benefits for retired associates. Substantially all of the Company's associates in the United States become eligible for these benefits if they reach normal retirement age while working for the Company. Certain of the Company's subsidiaries outside the United States have postretirement benefit plans, although most participants are covered by government sponsored or administered programs. The cost of Company sponsored postretirement benefit plans outside the U.S. is not significant. The Company has retained the obligation for postretirement benefits for personnel who retired prior to November 1, 1996 from the businesses that comprise discontinued operations. The Company will retain the obligation for postretirement benefits for personnel who retire from Reuben H. Donnelley with Company benefits prior to the effective date of the 1998 Distribution. F-15 108 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) The components of net periodic postretirement benefit cost other than pensions for the years ended December 31, for both continuing and discontinued operations are summarized as follows:
1997 1996 1995 ----- ----- ----- Service cost................................ $3.5 $5.9 $5.1 Interest cost............................... 14.6 15.4 16.0 Net amortization and deferral............... (4.5) (4.8) (5.0) ----- ----- ----- Net periodic postretirement benefit cost.... $13.6 $16.5 $16.1 ===== ===== =====
Discontinued operations were allocated net periodic postretirement benefit cost of $1.7 million, $6.3 million and $6.7 million in 1997, 1996 and 1995, respectively. The status of postretirement benefit plans other than pensions at December 31, 1997 and 1996 (which includes both the Company and Reuben H. Donnelley) is as follows:
1997 1996 ------- ------- Actuarial present value of benefit obligation: Retirees and dependents................................ $(175.6) $(165.9) Active associates -- eligible.......................... (18.9) (15.7) Active associates -- not yet eligible.................. (22.0) (15.0) ------- ------- Accumulated postretirement benefit obligation............ (216.5) (196.6) Unrecognized net (gain) loss............................. 18.0 (0.2) Unrecognized prior service credit........................ (7.3) (11.9) ------- ------- Accrued postretirement benefit obligation................ $(205.8) $(208.7) ======= =======
Benefits are paid as incurred from general corporate assets. The accumulated postretirement benefit obligation at December 31, 1997 and 1996 was determined using discount rates of 7.0% and 7.75%, respectively. The assumed rate of future increases in per capita cost of covered health-care benefits is 7.3% in 1998, decreasing gradually to 5.0% for the year 2021 and remaining constant thereafter. Increasing the assumed health-care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation by $22.3 million and would increase annual aggregate service and interest costs by $1.9 million. NOTE 7 EMPLOYEE STOCK PLANS The Company has granted options to certain associates, under its Key Employees Stock Option Plans, to purchase shares of its common stock at the market price on the date of the grant. Under the plans, the options vest ratably over a four year period and expire ten years from the date of the grant. The 1991 Key Employees Stock Option Plan provides for the granting of up to 17 million shares. When the 1998 Distribution is completed, employees of D&B will be granted substitute awards, preserving the economic value, as closely as possible, of the options that existed immediately prior to the 1998 Distribution and any awards or options held by them in respect of The Reuben H. Donnelley Corporation will be surrendered. For employees of Reuben H. Donnelley, the number of shares subject to options and the option exercise price will be adjusted immediately following the 1998 Distribution to preserve, as closely as possible the economic value of the options that existed immediately prior to the 1998 Distribution. The remaining holders of unexercised options, including retirees and certain other former employees of the Company will be offered the choice of converting their options to the Company's or continuing to hold The Reuben H. Donnelley Corporation options. F-16 109 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) In November 1996, in conjunction with the 1996 Distribution, those individuals who became employees of Cognizant or ACNielsen were granted substitute awards in the stock of their new employer, and any stock awards or options held by them in respect of the Company were reflected as surrendered in the following table. For the remaining holders of unexercised options, including employees of the Company, retirees and certain other former employees of the Company, the number of shares subject to options and the option exercise price was adjusted immediately following the 1996 Distribution to preserve, as closely as possible, the economic value of the options that existed prior to the 1996 Distribution, pursuant to the plans. The Company applies APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the stock option plans. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards in 1997, 1996 and 1995 (excluding awards granted to employees of discontinued operations) consistent with the provisions of SFAS No. 123, the Company's income (loss) from continuing operations and earnings (loss) per share would have been reduced to the pro-forma amounts indicated below:
1997 1996 1995 ------ ------- ----- Income (loss) from continuing operations As reported......................................... $219.0 $(116.7) $94.9 Pro forma........................................... $215.4 $(120.3) $94.9 Basic earnings (loss) per share of common stock from continuing operations As reported......................................... $ 1.28 $ (0.69) $0.56 Pro forma........................................... $ 1.26 $ (0.71) $0.56 Diluted earnings (loss) per share of common stock from continuing operations As reported......................................... $ 1.27 $ (0.68) $0.55 Pro forma........................................... $ 1.25 $ (0.70) $0.55
The pro-forma disclosures shown are not representative of the effects on income (loss) and earnings (loss) per share in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
AFTER 1996 PRIOR TO DISTRIBUTION 1996 AND FOR 1997 DISTRIBUTION CONVERSION --------- ------------ ------------ Expected dividend yield.................... 3.3% 4.7% 3.7% Expected stock volatility.................. 20% 15% 17% Risk-free interest rate.................... 5.73% 6.08% 5.85% Expected holding period.................... 4.5 years 5.0 years 4.5 years
Options outstanding at December 31, 1997 were granted during the years 1988 through 1997 and are exercisable over periods ending not later than 2007. At December 31, 1997, 1996 and 1995, options for 8,133,155 shares, 8,313,166 shares and 4,859,596 shares of common stock, respectively, were exercisable and 1,450,195 shares, 4,240,772 shares and 10,306,592 shares, respectively, were available for future grants under the plans. F-17 110 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) Changes in stock options for the three years ended December 31, 1997, are summarized as follows:
WEIGHTED AVERAGE EXERCISE SHARES PRICE($) ---------- ---------------- Options outstanding, January 1, 1995.................. 8,733,172 53.57 Granted............................................. 1,821,780 63.35 Exercised........................................... (736,145) 46.11 Surrendered or expired.............................. (671,079) 56.63 ---------- ----- Options outstanding, December 31, 1995................ 9,147,728 55.90 Granted............................................. 10,704 60.25 Exercised........................................... (977,042) 51.09 Surrendered or expired.............................. (689,297) 59.10 ---------- ----- Options outstanding at October 31, 1996............... 7,492,093 56.23 Attributable to 1996 Distribution................... (2,958,686) 57.08 ---------- ----- Options outstanding at October 31, 1996............... 4,533,407 55.68 ---------- ----- Options converted at November 1, 1996................. 11,958,980 21.10 Granted............................................. 4,452,250 22.96 Exercised........................................... (543,354) 21.02 Surrendered or expired.............................. (451,416) 22.87 ---------- ----- Options outstanding at December 31, 1996.............. 15,416,460 21.59 Granted............................................. 3,151,980 30.01 Exercised........................................... (2,008,234) 20.38 Surrendered or expired.............................. (840,878) 22.97 ---------- ----- OPTIONS OUTSTANDING AT DECEMBER 31, 1997.............. 15,719,328 23.36 ========== =====
The options outstanding at December 31, 1997, include 1,410,088 of options held by employees of Reuben H. Donnelley. The weighted average fair value of options granted during 1997, 1996 and 1995 was $5.52, $3.61, and $7.61, respectively. The following table summarizes information about stock options outstanding at December 31, 1997:
STOCK OPTIONS STOCK OPTIONS OUTSTANDING EXERCISABLE ---------------------------------------------- -------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE - --------------- ---------- ---------------- -------------- --------- -------------- $15.73 - $22.55 5,705,704 4.2 Years... $19.74 5,270,726 $19.68 $22.75 - $30.22 10,013,624 8.9 Years... $25.42 2,862,429 $23.50 ---------- --------- 15,719,328 8,133,155 ========== =========
The plans also provide for the granting of stock appreciation rights and limited stock appreciation rights in tandem with stock options to certain key employees. At December 31, 1997, there were 34,048 stock appreciation rights attached to stock options and 1,154,495 limited stock appreciation rights ("LSARs") attached to stock options, which are exercisable only if, and to the extent that, the related option is exercisable and, in the case of LSARs, only upon the occurrence of specified contingent events. F-18 111 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) Under the 1989 Key Employees Restricted Stock Plan, key associates may be granted restricted shares of the Company's stock. The plan provides for the granting of up to 1,800,000 shares of the Company's common stock prior to December 31, 1998. During 1997, 1996 and 1995, restricted shares of 20,000, 19,779 and 184,465, respectively, were awarded under the plan. Forfeitures in 1996 and 1995 totaled 6,877 and 10,365, respectively. There were no forfeitures during 1997. The restrictions on the majority of such shares lapse over a period of three years from the date of the grant and the cost is charged to compensation expense ratably. Under the 1997 Key Employees Performance Unit Plan, key associates may be granted shares of the Company's stock based on the achievement of two year revenue growth goals or other key operating objectives, where appropriate. At the end of the performance period, Company performance at target will yield the targeted amount of shares, while Company performance above or below target will yield larger or smaller share awards, respectively. During 1997, 471,644 shares were granted at a weighted average fair value of $30.94 per share. Recorded in selling and administrative expenses in 1997 was compensation expense of $14.6 million for the plan. NOTE 8 INCOME TAXES Income before provision for income taxes consisted of:
1997 1996 1995 ------ ------ ------ U.S.............................................. $321.8 $(15.9) $170.1 Non-U.S.......................................... 10.6 1.3 (25.8) ------ ------ ------ $332.4 $(14.6) $144.3 ====== ====== ======
The provision (benefit) for income taxes consisted of:
1997 1996 1995 ------ ------ ------ Current tax provision: U.S. Federal................................... $ 31.9 $ 40.6 $ 72.8 State and local................................ 52.9 (22.4) 14.6 Non-U.S. ...................................... 21.6 0.7 28.9 ------ ------ ------ Total current tax provision...................... 106.4 18.9 116.3 ------ ------ ------ Deferred tax (benefit) provision: U.S. Federal................................... 36.5 52.7 (30.5) State and local................................ (23.1) 15.0 (24.5) Non-U.S. ...................................... (6.4) 15.5 (11.9) ------ ------ ------ Total deferred tax (benefit) provision:.......... 7.0 83.2 (66.9) ------ ------ ------ Provision for income taxes....................... $113.4 $102.1 $ 49.4 ====== ====== ======
F-19 112 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company's effective tax rate for financial statement purposes.
1997 1996 1995 ----- ------- ----- Statutory tax rate................................ 35.0% 35.0% 35.0% State and local taxes, net of U.S. Federal tax benefit......................................... 4.9 33.1 (4.5) Non-U.S. taxes.................................... 4.6 (110.9) 8.9 Recognition of capital and ordinary losses........ (10.4) 181.4 (21.5) Non-recurring reorganization costs................ -- (814.6) -- Repatriation of foreign earnings.................. -- (11.5) 16.3 Other............................................. -- (10.9) -- ----- ------- ----- Effective tax rate................................ 34.1% (698.4%) 34.2% ----- ------- -----
Income taxes paid were approximately $170.3 million, $170.2 million, $119.9 million in 1997, 1996, and 1995, respectively. Income taxes refunded were approximately $37.6 million, $140.9 million, and $17.8 million in 1997, 1996 and 1995, respectively. Deferred tax assets (liabilities) are consisted of the following at December 31:
1997 1996 1995 ------ ------- ------- Deferred tax assets: Operating losses..................................... $ 53.7 $ 33.6 $ 117.6 Postretirement benefits.............................. 49.0 79.5 49.1 Postemployment benefits.............................. 12.8 22.5 34.5 Reorganization and restructuring costs............... 4.4 11.3 34.7 Bad debts............................................ 12.7 5.7 5.1 Other................................................ 12.3 13.4 18.2 ------ ------- ------- Total deferred tax assets.............................. 144.9 166.0 259.2 Valuation allowance.................................... (53.7) (33.6) (16.4) ------ ------- ------- Net deferred tax asset................................. 91.2 132.4 242.8 ------ ------- ------- Deferred tax liabilities: Intangibles.......................................... (31.7) (47.4) (40.2) Revenue recognition.................................. -- (12.3) (10.6) Tax-leasing transactions............................. (22.1) (37.8) (68.9) Depreciation......................................... (13.5) (4.0) (9.0) ------ ------- ------- Total deferred tax liability........................... (67.3) (101.5) (128.7) ------ ------- ------- Net deferred tax asset................................. $ 23.9 $ 30.9 $ 114.1 ====== ======= =======
At December 31, 1997, undistributed earnings of non-U.S. subsidiaries aggregated approximately $98.1 million. Deferred tax liabilities have not been recognized for these undistributed earnings because its management's intention to reinvest such undistributed earnings outside the U.S. If all undistributed earnings were remitted to the U.S., the amount of incremental U.S. Federal and foreign income taxes payable, net of foreign tax credits, would be approximately $39.3 million. During 1996, $467.9 million of non-U.S. earnings, primarily from the Cognizant and ACNielsen businesses, were repatriated by the Company in order to facilitate its 1996 reorganization. During the three year period ended December 31, 1983, the Company invested $304.4 million in tax-leasing transactions, varying in length from 4.5 to 25 years. These leases F-20 113 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) provided the Company with benefits from tax deductions in excess of taxable income for Federal income tax purposes. These amounts are included in deferred income taxes. NOTE 9 NOTES PAYABLE Notes payable consisted of the following at December 31:
1997 1996 ------ -------- Commercial paper................................. $421.6 $ -- Bank notes....................................... 29.9 1,120.7 ------ -------- $451.5 $1,120.7 ====== ========
The Company had commercial paper borrowings of $421.6 million at December 31, 1997. Interest rates on these borrowings ranged from 5.62% to 6.10%. The Company has two committed bank facilities that support the Company's commercial paper borrowings. One of the facilities permits borrowings of up to $750 million and matures in August 2001. The second facility permits borrowings of up to $150 million and matures in August 1998. Under these facilities the Company has the ability to borrow at prevailing short-term interest rates. At December 31, 1997, there was no outstanding balance against these facilities. At December 31, 1996, $880.0 million was borrowed against these facilities. The Company also had non-committed lines of credit of $111 million at December 31, 1997. At year-end 1997, $29.9 million was borrowed against these non-committed facilities. At December 31, 1996, $240.7 million was borrowed against non-committed facilities of $305 million. None of these arrangements had material commitment fees or compensating balance requirements. The weighted average interest rates on commercial paper and notes payable at December 31, 1997 and 1996 were 5.97% and 5.78%, respectively. Interest paid totaled $49.6 million, $43.2 million and $28.3 million for the years ended December 31, 1997, 1996 and 1995, respectively. In connection with the 1998 Distribution, the Company will borrow approximately $500 million. A portion of the proceeds of this borrowing will be used to repay existing indebtedness of D&B. This approximately $500 million of debt will be an obligation of Reuben H. Donnelley after the 1998 Distribution. NOTE 10 INVESTMENT PARTNERSHIPS During 1993, the Company participated in the formation of a limited partnership to invest in various securities, including those of the Company. Third-party investors held limited-partner and special investors interests totaling $500.0 million. Funds raised by the partnership provided a source of financing for the Company's repurchase in 1993 of 8.3 million shares of its common stock. During the fourth quarter of 1996, the Company redeemed these partnership interests. This redemption was financed with short-term borrowings. The partnership is presently engaged in the business of licensing database assets and computer software. One of the Company's subsidiaries serves as managing general partner, and two subsidiaries hold limited-partner interests. In April 1997, the partnership raised $300.0 million of minority interest financing from a third-party investor. The Company's subsidiaries contributed assets to the partnership, and the third-party investor contributed cash ($300.0 million) in exchange for a limited-partner interest. Funds raised by the partnership were loaned to the Company and used to repay existing short-term debt in April 1997. At December 31, 1997, the third-party investment in this partnership was included in minority interest. F-21 114 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) For financial reporting purposes, the results of operations, assets, liabilities and cash flows of the partnership described above are included in the Company's consolidated financial statements. NOTE 11 CAPITAL STOCK In October 1988, the Company adopted a Shareholders' Rights Plan. The plan is intended to protect the shareholders' interests in the event of an unsolicited attempt to acquire the Company. The plan is not intended to prevent a takeover of the Company on terms that are favorable and fair to all shareholders and will not interfere with a merger approved by the Board of Directors. Under the plan, each share of the Company's common stock has a right that trades with the stock until the right becomes exercisable. Each right entitles the shareholders to buy 1/100 of a share of Series A participating preferred stock at a purchase price of $230, subject to adjustment. The rights will not be exercisable until a person or group ("Acquiring Person") acquires beneficial ownership of, or commences a tender offer for, 20% or more of the Company's outstanding common stock. In the event the Company is acquired in a merger or other business combination or subject to other transactions, as described in the Shareholders' Rights Plan, each right will entitle its holder (other than the Acquiring Person) to receive, upon exercise, stock with a value of two times the exercise price in the form of the Company's common stock or, where appropriate, the Acquiring Person's common stock. The Company may redeem the rights, which expire in October 1998, for $.01 per right, under certain circumstances. The shareholders have authorized the issuance of 10.0 million shares of $1 par value preferred stock. The preferred stock can be issued with varying terms, as determined by the Board of Directors. NOTE 12 LEASE COMMITMENTS Certain of the Company's operations are conducted from leased facilities, which are under operating leases that expire over the next 10 years. The Company also leases certain computer and other equipment under operating leases that expire over the next five years. These leases are frequently renegotiated or otherwise changed as advancements in computer technology produce opportunities to lower costs and improve performance. Additionally, the Company has agreements with various third parties to purchase certain data processing and telecommunications services extending beyond one year. Rental expenses under operating leases were $80.9 million, $106.3 million and $110.7 million for the years ended December 31, 1997, 1996 and 1995, respectively. Future minimum lease payments under noncancelable leases at December 31, 1997, are as follows: 1998........................................................ $ 77.1 1999........................................................ 63.5 2000........................................................ 40.1 2001........................................................ 28.6 2002........................................................ 22.6 Thereafter.................................................. 23.0 ------ Total............................................. $254.9 ======
NOTE 13 LITIGATION The Company and its subsidiaries are involved in legal proceedings, claims and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such current legal proceedings, claims and litigation could have a material effect on quarterly or annual operating results or cash flows when F-22 115 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) resolved in a future period. However, in the opinion of management, these matters will not materially affect the Company's consolidated financial position. INFORMATION RESOURCES On July 29, 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, A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS International, Inc. The complaint alleges various violations of United States antitrust laws, including alleged violations of Section 1 and 2 of the Sherman Act. The complaint also alleges a claim of tortious interference with a contract and a claim of tortious interference with a prospective business relationship. These claims relate to the acquisition by defendants of Survey Research Group Limited ("SRG"). IRI alleges SRG violated an alleged agreement with IRI when it agreed to be acquired by the defendants and that the defendants induced SRG to breach that agreement. On October 15, 1996, defendants moved for an order dismissing all claims in the complaint. On May 6, 1997, the United States District Court for the Southern District of New York issued a decision dismissing IRI's claim of attempted monopolization in the United States, with leave to replead within 60 days. The Court denied defendants' motion with respect to the remaining claims in the complaint. On June 3, 1997, defendants filed an answer denying the material allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim alleging that IRI has made false and misleading statements about its services and commercial activities. On July 7, 1997, IRI filed an Amended and Restated Complaint repleading its alleged claim of monopolization in the United States and realleging its other claims. By notice of motion dated August 18, 1997, defendants moved for an order dismissing the amended claim. On December 1, 1997, the Court denied the motion and, on December 16, 1997, defendants filed a supplemental answer denying the remaining material allegations of the amended complaint. IRI's complaint alleges damages in excess of $350 million, which amount IRI asked to be trebled under antitrust laws. IRI also seeks punitive damages in an unspecified amount. In connection with the IRI action, Cognizant, ACNielsen and the Company entered into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense Agreement") pursuant to which they have agreed (i) to certain arrangements allocating potential liabilities ("IRI Liabilities") that may arise out of or in connection with the IRI Action and (ii) to conduct a joint defense of such action. In particular, the Indemnity and Joint Defense Agreement provides that ACNielsen will assume exclusive liability for IRI Liabilities up to a maximum amount to be calculated at such time such liabilities, if any, become payable (the "ACN Maximum Amount"), and that the Company and Cognizant will share liability equally for any amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by an investment banking firm as the maximum amount that ACNielsen is able to pay after giving effect to (i) any plan submitted by such investment bank which is designed to maximize the claims-paying ability of ACNielsen without impairing the investment banking firm's ability to deliver a viability opinion (but which will not require any action requiring stockholder approval) and (ii) payment of related fees and expenses. For these purposes, financial viability means the ability of ACNielsen, after giving effect to such plan, the payment of related fees and expenses and the payment of the ACN Maximum Amount, to pay its debts as they become due and to finance the current and anticipated operating and capital requirements of its business, as reconstituted by such plan, for two years from the date any such plan is expected to be implemented. In connection with the 1998 Distribution, the Company and Reuben H. Donnelley will enter into an agreement whereby the Company will retain all potential liabilities arising from the IRI Action. F-23 116 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) Management is unable to predict at this time the final outcome of the IRI Action or whether the resolution of this matter could materially affect the Company's results of operations, cash flows or financial position. NOTE 14 SUPPLEMENTAL FINANCIAL DATA Other Current Assets:
AT DECEMBER 31, ---------------- 1997 1996 ------ ------ Deferred taxes............................................. $ 67.1 $ 50.3 Prepaid expenses........................................... 200.0 136.0 Other...................................................... 2.1 3.8 ------ ------ $269.2 $190.1 ====== ======
Property, Plant and Equipment -- Net, carried at cost:
AT DECEMBER 31, 1997 1996 -------- -------- Buildings................................................ $203.1 $197.8 Machinery and equipment.................................. 455.1 447.8 ------ ------ 658.2 645.6 Less accumulated depreciation............................ 398.6 364.4 ------ ------ 259.6 281.2 Leasehold improvements, less: accumulated amortization of $52.6 and $48.0........................................ 28.7 32.1 Land..................................................... 28.9 29.0 ------ ------ $317.2 $342.3 ====== ======
Computer Software and Goodwill:
COMPUTER SOFTWARE GOODWILL -------- -------- January 1, 1996.......................................... $ 80.1 $282.0 Additions at cost........................................ 82.4 0.8 Amortization............................................. (33.6) (7.6) Other deductions and reclassifications................... (20.2) (59.0)(1) ------ ------ December 31, 1996........................................ 108.7 216.2 Additions at cost........................................ 68.7 -- Amortization............................................. (50.6) (5.1) Other deductions and reclassifications................... 1.2 (16.5)(2) ------ ------ December 31, 1997........................................ $128.0 $194.6 ====== ======
- --------------- (1) Sale of ACI in 1996. (2) Impact of foreign currency fluctuations. F-24 117 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
ADDITIONS BALANCE CHARGED TO BALANCE BEGINNING COSTS AND AT END OF PERIOD EXPENSES DEDUCTIONS OF PERIOD --------- ---------- ---------- --------- Allowance for Doubtful Accounts: For the year ended December 31, 1997................ $26.5 $9.0 $ 3.9 $39.4 For the year ended December 31, 1996................ $14.5 $7.2 $ 4.8 $26.5 For the year ended December 31, 1995................ $15.4 $7.8 $(8.7) $14.5
NOTE 15 SEGMENT INFORMATION The Company, operating in 38 countries, provides commercial credit and business marketing information, receivable management services, debt rating and financial information for investors. Intersegment sales are immaterial. Geographic Segments
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- OPERATING REVENUES: United States............................................. $1,240.5 $1,186.5 $1,158.9 Europe.................................................... 467.6 481.6 465.5 Other Non-U.S............................................. 102.9 113.6 110.1 -------- -------- -------- Total....................................................... $1,811.0 $1,781.7 $1,734.5 ======== ======== ======== OPERATING INCOME (LOSS): United States(1).......................................... $ 396.4 $ 41.2 $ 220.1 Europe(2)................................................. 8.8 12.9 3.5 Other Non-U.S. (3)........................................ (1.5) 2.5 (11.3) -------- -------- -------- Total....................................................... 403.7 56.6 212.3 Non-Operating Expense -- Net.............................. (71.3) (71.2) (68.0) -------- -------- -------- Income from Continuing Operations before Provision for Income Taxes.............................................. $ 332.4 $ (14.6) $ 144.3 ======== ======== ======== ASSETS: United States............................................. $1,104.2 $ 995.4 $1,151.9 Europe.................................................... 583.6 660.0 774.1 Other Non-U.S............................................. 101.7 123.0 50.3 Discontinued Operations................................... 296.5 430.6 1,652.2 -------- -------- -------- Total....................................................... $2,086.0 $2,209.0 $3,628.5 ======== ======== ========
- --------------- (1) 1996 Operating Income included a loss on the sale of ACI of $68.2 million and reorganization costs of $161.2 million. 1995 included a fourth-quarter non-recurring charge of $167.0 million partially offset by gains on the sale of IDC of $90.0 million and the sale of warrants received in connection with the sale of Donnelley Marketing of $28.0 million. (2) 1995 Operating Income included a fourth-quarter non-recurring charge of $8.4 million. (3) 1995 Operating Loss included a fourth-quarter non-recurring charge of $13.1 million. F-25 118 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED ----------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR -------- ------- ------------ ----------- -------- 1997(1)(2)(3) Operating Revenues................................... $ 436.4 $440.9 $447.8 $ 485.9 $1,811.0 ------- ------ ------ ------- -------- Operating Income..................................... $ 77.9 $ 89.1 $ 97.8 $ 138.9 $ 403.7 ------- ------ ------ ------- -------- Income (Loss): Continuing Operations, Net of Income Taxes......... $ 36.5 $ 47.7 $ 54.6 $ 80.2 $ 219.0 Discontinued Operations, Net of Income Taxes(4).... (1.6) 6.3 30.6 56.7 92.0 ------- ------ ------ ------- -------- Before Cumulative Effect of Accounting Changes....... 34.9 54.0 85.2 136.9 311.0 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit................................. (150.6) -- -- -- (150.6) ------- ------ ------ ------- -------- Net Income (Loss).................................... $(115.7) $ 54.0 $ 85.2 $ 136.9 $ 160.4 ------- ------ ------ ------- -------- Basic Earnings (Loss) Per Share of Common Stock: Continuing Operations.............................. $ 0.21 $ 0.28 $ 0.32 $ 0.47 $ 1.28 Discontinued Operations............................ (0.01) 0.04 0.18 0.33 0.54 ------- ------ ------ ------- -------- Before Cumulative Effect of Accounting Changes..... 0.20 0.32 0.50 0.80 1.82 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit............................... (0.88) -- -- -- (0.88) ------- ------ ------ ------- -------- Basic Earnings (Loss) Per Share of Common Stock...... $ (0.68) $ 0.32 $ 0.50 $ 0.80 $ 0.94 ------- ------ ------ ------- -------- Diluted Earnings (Loss) Per Share of Common Stock(5): Continuing Operations.............................. $ 0.21 $ 0.28 $ 0.31 $ 0.46 $ 1.27 Discontinued Operations............................ (0.01) 0.03 0.18 0.33 0.53 ------- ------ ------ ------- -------- Before Cumulative Effect of Accounting Changes..... 0.20 0.31 0.49 0.79 1.80 Cumulative Effect of Accounting Changes, Net of Income Tax Benefit............................... (0.87) -- -- -- (0.87) ------- ------ ------ ------- -------- Diluted Earnings (Loss) Per Share of Common Stock.... $ (0.67) $ 0.31 $ 0.49 $ 0.79 $ 0.93 ======= ====== ====== ======= ======== 1996(2)(3) Operating Revenues................................... $ 429.0 $438.2 $442.0 $ 472.5 $1,781.7 ------- ------ ------ ------- -------- Operating Income (Loss)(6)........................... $ 53.0 $ (3.4) $ 54.8 $ (47.8) $ 56.6 ------- ------ ------ ------- -------- Income (Loss): Continuing Operations, Net of Income Taxes......... $ 28.6 $(25.1) $(12.6) $(107.6) $ (116.7) Discontinued Operations, Net of Income Taxes(7).... 35.6 (18.5) 63.5 (8.3) 72.3 ------- ------ ------ ------- -------- Net Income (Loss).................................... $ 64.2 $(43.6) $ 50.9 $(115.9) $ (44.4) ======= ====== ====== ======= ======== Basic Earnings (Loss) Per Share of Common Stock(5): Continuing Operations.............................. $ 0.17 $(0.15) $(0.07) $ (0.63) $ (0.69) Discontinued Operations............................ 0.21 (0.11) 0.37 (0.05) 0.43 ------- ------ ------ ------- -------- Basic Earnings (Loss) Per Share of Common Stock...... $ 0.38 $(0.26) $ 0.30 $ (0.68) $ (0.26) ======= ====== ====== ======= ======== Diluted Earnings (Loss) Per Share of Common Stock: Continuing Operations.............................. $ 0.17 $(0.15) $(0.07) $ (0.63) $ (0.68) Discontinued Operations............................ 0.21 (0.11) 0.37 (0.05) 0.42 ------- ------ ------ ------- -------- Diluted Earnings (Loss) Per Share of Common Stock.... $ 0.38 $(0.26) $ 0.30 $ (0.68) $ (0.26) ======= ====== ====== ======= ========
- --------------- (1) In 1997, the Company changed its revenue recognition methods as discussed in Note 1. This resulted in a one-time non-cash cumulative effect charge of $150.6 million, after tax, effective January 1, 1997. As a result of this accounting change, results for the first three quarters of 1997 have been restated as follows: Revenue decreased by $3.6 million, increased by $6.8 million and decreased by $2.7 million; Operating Income decreased by $4.7 million, increased by $5.8 million and decreased by $3.8 million; Net Income (Loss) decreased by $153.6 million, increased by $3.8 million and decreased by $2.5 million, respectively. F-26 119 THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) (2) In connection with the Company's adoption of SFAS No. 128, all prior-period earnings per share data were restated to reflect basic and diluted earnings per share. (3) Results have also been reclassified to reflect Reuben H. Donnelley as discontinued operations. (4) Income from Discontinued Operations included a $9.4 million pre-tax gain on the sale of P-East in the quarter ended December 31, 1997. (5) The number of weighted average shares outstanding changes as common shares are issued for employee plans and other purposes or as shares are repurchased. For this reason, the sum of quarterly earnings per common share may not be the same as earnings per common share for the year. (6) Operating Income (Loss) included reorganization costs of $1.4 million, $7.6 million, $18.9 million and $133.3 million incurred in the quarters ended March 31, June 30, September 30 and December 31, 1996, respectively, and loss on the sale of ACI of $63.8 million and $4.4 million for quarters ended June 30 and September 30, 1996, respectively. (7) Income (Loss) from Discontinued Operations included a pre-tax loss on the sale of P-West of $25.0 million and $3.5 million in the quarters ended June 30 and September 30, 1996, respectively. F-27 120 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholder of The New Dun & Bradstreet Corporation: We have audited the accompanying balance sheet of The New Dun & Bradstreet Corporation, a wholly owned subsidiary of The Dun & Bradstreet Corporation, as of April 14, 1998. This financial statement is the responsibility of the management of The New Dun & Bradstreet Corporation. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of The New Dun & Bradstreet Corporation as of April 14, 1998, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. -------------------------------------- COOPERS & LYBRAND L.L.P. New York, New York April 15, 1998 F-28 121 THE NEW DUN & BRADSTREET CORPORATION BALANCE SHEET APRIL 14, 1998 ASSETS Cash........................................................ $10.00 ======
LIABILITIES AND SHAREHOLDER'S EQUITY Common Stock, par value $0.01 per share; authorized -- 1,000 shares; issued and outstanding -- 1,000 shares............ $10.00 ======
F-29 122 THE NEW DUN & BRADSTREET CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1. ORGANIZATION On April 8, 1998, The New Dun & Bradstreet Corporation (the "Company") was incorporated under the General Corporation Law of the State of Delaware. The Company has the authority under its Certificate of Incorporation to issue 1,000 shares of common stock, par value $0.01 per share, one thousand shares of which were issued to The Dun & Bradstreet Corporation ("D&B") on April 14, 1998. The Company has no assets other than cash and has not commenced operations. The Company's activities to date have been solely related to its incorporation. NOTE 2. PROPOSED REORGANIZATIONS On December 17, 1997, the Board of Directors of D&B announced a plan to distribute the Common Stock of the Company to all holders of outstanding shares of Common Stock of D&B (the "Distribution"). Through a series of transactions to be effected prior to the Distribution, the businesses of Dun & Bradstreet Inc. and Moody's Investors Service will become part of the Company. After the Distribution, the Company will operate as an independent company providing commercial credit and business marketing information, receivable management services, debt rating and financial information for investors, in approximately 38 countries. In connection with the Distribution, application has been made to list the Common Stock on the New York Stock Exchange. NOTE 3. AMENDED CERTIFICATE OF INCORPORATION Prior to the date of the Distribution, the Company will file a Restated Certificate of Incorporation which will authorize the issuance of 420,000,000 shares of all classes of stock of which 10,000,000 shares will represent shares of preferred stock, par value $.01 per share, 400,000,000 shares will represent shares of Common Stock, par value $.01 per share, and 10,000,000 shares will represent shares of Series Common Stock, par value $.01 per share. F-30 123 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholder of The Reuben H. Donnelley Corporation: We have audited the accompanying balance sheets of The Reuben H. Donnelley Corporation (a wholly owned subsidiary of the The Dun & Bradstreet Corporation) at December 31, 1997 and 1996, and the related statements of operations, shareholder's equity and cash flows for each of the years in the three year period ended December 31, 1997. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Reuben H. Donnelley Corporation at December 31, 1997 and 1996, and the results of its operations and cash flows for each of the years in the three year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. -------------------------------------- COOPERS & LYBRAND L.L.P. New York, New York March 31, 1998 F-31 124 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, -------------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues................................................... $239,865 $270,029 $312,940 Expenses: Operating Expenses....................................... 132,278 135,500 157,559 General and Administrative............................... 81,089 83,803 75,754 Depreciation and Amortization............................ 21,930 16,229 16,322 Restructuring Charges.................................... -- -- 17,690 -------- -------- -------- Subtotal......................................... 235,297 235,532 267,325 Income from Partnerships and Related Fees.................. 130,171 132,945 137,180 -------- -------- -------- Operating Income................................. 134,739 167,442 182,795 Gain (Loss) on Dispositions................................ 9,412 (28,500) -- -------- -------- -------- Income Before Provision for Income Taxes......... 144,151 138,942 182,795 Provision for Income Taxes................................. 59,246 60,857 74,398 -------- -------- -------- Net Income....................................... $ 84,905 $ 78,085 $108,397 ======== ======== ======== Pro Forma Earnings Per Share: Basic.................................................... $ 0.50 $ 0.46 $ 0.64 ======== ======== ======== Diluted.................................................. $ 0.50 $ 0.46 $ 0.64 ======== ======== ======== Shares Used in Computing Pro Forma Earnings Per Share: Basic.................................................... 170,765 170,017 169,522 Diluted.................................................. 171,065 170,289 169,883
The accompanying notes are an integral part of the financial statements. F-32 125 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) BALANCE SHEETS
DECEMBER 31, ---------------------- 1997 1996 --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash and Cash Equivalents................................. $ 32 $ 60 Accounts Receivable: Billed................................................. 5,208 21,322 Unbilled............................................... 129,620 143,443 Allowance for Doubtful Accounts........................ (4,014) (11,607) -------- -------- Total Accounts Receivable -- net.................. 130,814 153,158 Deferred Contract Costs................................... 6,944 17,301 Other Current Assets...................................... 4,950 13,630 -------- -------- Total Current Assets.............................. 142,740 184,149 Property and Equipment -- net............................. 25,460 30,752 Prepaid Pension Costs..................................... 9,530 10,329 Computer Software -- net.................................. 37,546 40,050 Partnership Investments................................... 167,010 233,706 Other Non-Current Assets.................................. -- 3,207 -------- -------- Total Assets...................................... $382,286 $502,193 ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES: Accounts Payable.......................................... $ 1,395 $ 785 Accrued and Other Current Liabilities..................... 58,070 57,764 -------- -------- Total Current Liabilities......................... 59,465 58,549 Postretirement and Postemployment Benefits................ 12,920 10,020 Deferred Income Taxes..................................... 34,456 53,990 Other Liabilities......................................... 16,770 450 -------- -------- Total Liabilities................................. 123,611 123,009 Commitments and Contingencies SHAREHOLDER'S EQUITY: Common Stock, No Par Value, Authorized -- 100 Shares; Issued -- 100 Shares................................... 12,002 12,002 Capital Surplus........................................... 101,032 101,032 Retained Earnings......................................... 145,641 266,150 -------- -------- Total Shareholder's Equity........................ 258,675 379,184 -------- -------- Total Liabilities and Shareholder's Equity........ $382,286 $502,193 ======== ========
The accompanying notes are an integral part of the financial statements. F-33 126 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 --------- -------- -------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income.............................................. $ 84,905 $ 78,085 $108,397 Reconciliation of Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization........................ 21,930 16,229 16,322 Provision for Doubtful Accounts...................... 11,815 11,743 10,861 (Gain) Loss from Sales of Businesses................. (9,412) 28,500 -- Cash Received in Excess of (Less Than) Income from Partnerships....................................... 62,540 (18,593) (11,609) Loss on Sale of Property, Plant and Equipment........ 1,551 724 1,149 Net (Increase) Decrease in Accounts Receivable....... (37,519) (5,616) (11,000) Change in Deferred Contracts Costs................... (6,746) (8,403) 262 Change in Accounts Payable and Accrued Expense....... (38,993) (26,781) 7,396 Change in Postretirement and Postemployment Benefits Liabilities........................................ 2,900 (5,100) 4,120 Change in Long Term Liabilities...................... 16,320 -- 450 Change in Deferred Income Taxes...................... (19,534) 23,586 11,969 Change in Other Assets............................... 8,460 6,709 (1,715) Other................................................ 1,437 (545) -- --------- -------- -------- Net Cash Provided by Operating Activities....... 99,654 100,538 136,602 --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sale of Businesses........................ 122,000 21,368 -- Additions to Property, Plant and Equipment.............. (9,078) (15,965) (19,289) Additions to Computer Software and Other................ (7,190) (21,859) (23,723) --------- -------- -------- Net Cash (Used In) Provided by Investing Activities.................................... 105,732 (16,456) (43,012) --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Distributions to D&B................................ (205,414) (85,466) (92,146) --------- -------- -------- Net Cash Used In Financing Activities........... (205,414) (85,466) (92,146) --------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents................................... (28) (1,384) 1,444 Cash and Cash Equivalents, Beginning of Year.............. 60 1,444 -- --------- -------- -------- Cash and Cash Equivalents, End of Year.................... $ 32 $ 60 $ 1,444 ========= ======== ========
The accompanying notes are an integral part of the financial statements. F-34 127 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, --------------------------------------------------------- COMMON TOTAL STOCK CAPITAL RETAINED SHAREHOLDER'S (NO PAR VALUE) SURPLUS EARNINGS EQUITY --------------- -------- --------- ------------- (IN THOUSANDS) BALANCE, JANUARY 1, 1995................. $12,002 $101,032 $ 257,280 $ 370,314 Net Income............................... 108,397 108,397 Net Distributions to D&B................. (92,146) (92,146) ------- -------- --------- --------- BALANCE, DECEMBER 31, 1995............... 12,002 101,032 273,531 386,565 ------- -------- --------- --------- Net Income............................... 78,085 78,085 Net Distributions to D&B................. (85,466) (85,466) ------- -------- --------- --------- BALANCE, DECEMBER 31, 1996............... 12,002 101,032 266,150 379,184 ------- -------- --------- --------- Net Income............................... 84,905 84,905 Net Distributions to D&B................. (205,414) (205,414) ------- -------- --------- --------- BALANCE, DECEMBER 31, 1997............... $12,002 $101,032 $ 145,641 $ 258,675 ======= ======== ========= =========
The accompanying notes are an integral part of the financial statements. F-35 128 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) 1. BACKGROUND AND BASIS OF PRESENTATION On December 17, 1997, the Board of Directors of The Dun & Bradstreet Corporation ("D&B") approved in principle a plan to separate into two publicly traded companies -- The Reuben H. Donnelley Corporation and The New Dun & Bradstreet Corporation ("New D&B"). The distribution ("Distribution") is the method by which D&B will distribute to its stockholders shares of New D&B Common Stock, which will represent a continuing interest in D&B's businesses to be conducted by New D&B. After the Distribution, D&B's only business will be the Reuben H. Donnelley business and shares of D&B Common Stock held by D&B stockholders will represent a continuing ownership interest in that business. In connection with the Distribution, D&B will change its name to "The Reuben H. Donnelley Corporation" ("RHD") and therefore from and after the Distribution, D&B Common Stock will be RHD Common Stock and New D&B will change its name to "The Dun & Bradstreet Corporation." D&B has received a ruling from the Internal Revenue Service to the effect that the Distribution will be tax-free for Federal income tax purposes. Due to the relative significance of D&B to RHD, the transaction will be accounted for as a reverse spin-off. RHD operates through a number of long-term strategic alliances with Ameritech, Bell Atlantic, Sprint and other smaller local telephone service providers acting as publisher, partner or sales agent based on its contractual business relationships. RHD's revenue and cash flow is principally derived from commissions received from the sale of advertisements placed in yellow pages directories. In addition, RHD also receives revenue for publishing services such as advertisement creation and database management on a negotiated fee basis. RHD was incorporated on August 9, 1961 with 100 shares of Common Stock authorized, and outstanding with no par value, all of which are owned by D&B. RHD provides sales, marketing and publishing services for yellow pages and other directory products and is the largest independent marketer of yellow pages advertising in the United States. RHD will retain all the assets and liabilities related to the yellow pages and other directory product sales, marketing and publishing service businesses after the Distribution. The financial statements reflect the financial position, results of operations, and cash flows of RHD as if it were a separate entity for all periods presented. The financial statements include allocations of certain D&B Corporate headquarters assets (including prepaid pension assets) and liabilities (including postretirement benefits), and expenses (including cash management, legal, accounting, tax, employee benefits, insurance services, data services and other D&B corporate overhead) relating to RHD's businesses that will be transferred to RHD from D&B. Management believes these allocations are reasonable. However, the costs of these services and benefits charged to RHD are not necessarily indicative of the costs that would have been incurred if RHD had performed or provided these functions as a separate entity. The financial information included herein may not necessarily reflect the results of operations, balance sheets, changes in shareholder's equity and cash flows of RHD in the future or what they would have been had it been a separate, stand-alone entity during the periods presented. For purposes of governing certain of the ongoing relationships between RHD and D&B after the Distribution and to provide for orderly transition, RHD and D&B will enter into various agreements including a Distribution agreement, Tax Allocation Agreement, Employee Benefits Agreement, Shared Transaction Services Agreements, Intellectual Property Agreement, Data Services Agreements, and Transition Services Agreement. Summaries of these agreements are set forth elsewhere in this Information Statement. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents Cash equivalents include highly liquid investments with a maturity of less than three months at the time of acquisition. F-36 129 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) Property and Equipment Machinery and equipment are depreciated over their estimated useful lives using principally 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. Capitalized Software Costs Certain direct costs incurred for computer software to meet the internal needs of RHD are capitalized. These costs are amortized on a straight-line basis, over five years. Long-Lived Assets RHD adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121") in 1995. This statement requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, this statement requires recognition of an impairment loss when the sum of undiscounted expected future cash flows is less than the carrying amount of such assets. The measurement for such an impairment loss is then based on the fair value of the asset. Revenue Recognition RHD recognizes revenue as earned, which is based on contractual relationships. For relationships where RHD acts as a sales agent, revenue is comprised of sales commissions and is recognized upon execution of contracts for the sale of advertising. For relationships where RHD is the publisher, revenues are recognized when directories publish. Publishing services are recognized throughout the year as the services are performed. Income from Partnerships and Related Fees RHD has significant influence, but not a controlling interest over partnerships and accounts for them under the equity method of accounting. Income from partnerships represent the Company's share of the DonTech, CenDon and C-Don profits during 1997, 1996 and 1995, and of the UniDon profits during 1995. Other related fees represents RHD's revenue participation earnings in 1997 from Ameritech advertising services. Unbilled Receivables For sales agency relationships, unbilled receivables represent revenues earned from the sale of advertising on directories that are scheduled to be published by the publisher. These receivables will be billed upon directory publication in accordance with contractual provisions. For businesses where RHD is the publisher, unbilled receivables represent revenues earned on published directories. Customers are billed ratably over the life of the directories, generally 12 months. Income Taxes RHD has been included in the Federal and certain state income tax returns of D&B. The provision for income taxes in the financial statements has been calculated on a separate-company basis income taxes paid on behalf of RHD by D&B are included in equity. After the Distribution, RHD will file separate income tax returns. F-37 130 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) Concentration of Credit Risk RHD maintains significant accounts receivable balances from the relationships with Ameritech advertising services, Bell Atlantic and the CenDon partnership. Deferred Contract Costs Direct costs incurred by RHD as publisher are deferred until these directories are published. Direct costs on contracts for which RHD is a sales agent are expensed in the year in which they are incurred. Contract Fees All costs associated with the renegotiation and extension of contracts are expensed when incurred. Financial Instruments At December 31, 1997, RHD's financial instruments included cash, receivables, and accounts payable. At December 31, 1997, the fair values of cash, receivables and accounts payable approximated carrying values because of the short-term nature of these instruments. Pro Forma Earnings Per Share of Common Stock In 1997, RHD adopted SFAS No. 128, "Earnings Per Share." Basic earnings per share are calculated by dividing net income by D&B's historical weighted average common shares outstanding, reflecting the one-for-one distribution ratio. Diluted earnings per share are calculated by dividing net income by the sum of D&B's historical weighted average common shares outstanding and potentially dilutive RHD common shares. Potentially dilutive common shares are calculated in accordance with the treasure stock method, which assumes that proceeds from the exercise of all employee options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the options. 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, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates are used in the determination of allowances for doubtful accounts, depreciation and amortization, computer software, employee benefit plans, taxes and contingencies among others. 3. RECONCILIATION OF SHARES USED IN COMPUTING PRO FORMA EARNINGS PER SHARE
1997 1996 1995 ------- ------- ------- Weighted average number of shares -- basic.................. 170,765 170,017 169,522 Effect of potentially dilutive stock options as of year end....................................................... 300 272 361 ------- ------- ------- Weighted average number of shares -- diluted................ 171,065 170,289 169,883 ======= ======= =======
As required by SFAS No. 128, RHD has provided a reconciliation of basic weighted average shares to diluted weighted average shares within the table outlined above. The conversion of diluted shares has no impact on operating results. The RHD's options generally expire 10 years after the initial grant date. F-38 131 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) 4. NON-RECURRING ITEMS Sale of Businesses In 1997, included in the operating results was a pretax gain of $9,412, related to the sale of its East Coast proprietary operations ("P-East"). In connection with the sale of the P-East business, RHD has accrued for the continuing obligation to provide publishing service through the year 2002. The 1996 results reflect a pre-tax charge of $28,500, incurred as a result of the sale of the West Coast proprietary operations ("P-West"). Restructuring In 1995, RHD recorded a restructuring charge of $17,690 for the closing of the Terre Haute publishing facility. RHD moved its publishing operations from Terre Haute, Indiana to Raleigh, North Carolina. The restructuring charge was recorded to cover fixed asset write-offs, severance, legal costs, publishing costs, and advertising claims. At December 31, 1997, no restructuring reserve remains. 5. PARTNERSHIPS DonTech In 1991, RHD formed a general partnership with Ameritech Corporation ("Ameritech"), the DonTech Partnership ("DonTech"). Prior to August 1997, DonTech published various directories, solicited advertising, and manufactured and delivered directories in Illinois and Northwest Indiana. Under this agreement, the RHD's share in DonTech declined 1% each year between 1995 and 1997, from 55% to 53%. During August 1997, RHD signed a series of agreements with Ameritech changing the structure of the existing partnership. A new partnership was formed appointing DonTech the exclusive sales agent in perpetuity for yellow page directories published by Ameritech in Illinois and Northwest Indiana. Under the new sales agency partnership of which RHD receives a 50% share of the profits, DonTech performs the advertising sales function for the directories and earns a commission, while Ameritech advertising services ("Aas"), a subsidiary of Ameritech Corporation, serves as the directories publisher. RHD receives an ongoing revenue participation fee from Aas in exchange for exclusive publishing rights. RHD receives payments directly from Aas for publishing services pursuant to a contract valid through the year 2003. RHD recognized equity earnings of $64,618, $121,354, and $125,578 from the DonTech partnership during 1997, 1996, and 1995, respectively. In addition, RHD recognized Revenue Participation earnings from Aas of $51,610 during 1997. Together, they represent 86%, 72% and 69% of RHD's operating income for the three years ended December 31, 1997, respectively. RHD's investment in DonTech was $151,979 and $215,373 at December 31, 1997 and 1996, respectively. CenDon RHD has a partnership with the Sprint Corporation ("Sprint") through a subsidiary of Sprint, the CenDon Partnership ("CenDon"). RHD has a 50% interest in CenDon which publishes directories in selected Sprint markets in Nevada, Florida, Virginia and North Carolina. RHD earns a 50% share of CenDon's income. RHD provides sales and publishing services for the CenDon partnership. The partnership is billed upon the publication of each directory based on a contractual rate for sales and is billed pro rata during the year for publishing for services based on a contractual fee. Sales and publishing services revenue for RHD were $35,126, $32,258, and $29,800 for 1997, 1996 and 1995, respectively. The CenDon partnership agreement extends until 2004. RHD recognized equity earnings of $12,219, $9,695 and $9,451 from the F-39 132 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) CenDon partnership during 1997, 1996 and 1995, respectively. RHD's investment in CenDon was $15,031 and $15,902 at December 31, 1997 and 1996, respectively. 6. OTHER TRANSACTIONS WITH AFFILIATES D&B uses a centralized cash management system to finance its operations. Cash deposits from the RHD's businesses are transferred to D&B on a daily basis and D&B funds the RHD's disbursement bank accounts as required. No interest has been charged on these transactions D&B provided certain centralized services (see Note 1 to the financial statements) to RHD. Expenses related to these services were allocated to RHD based on utilization of specific services or, where not estimable, based on RHD's revenues in proportion to D&B's total revenues. Management believes these allocation methods are reasonable. However, the costs of these services and benefits charged to RHD are not necessarily indicative of the costs that would have been incurred if RHD had performed or provided these services as a separate entity. These allocations were $21,531, $18,626 and $24,111 in 1997, 1996, and 1995 respectively, and are included in operating expenses and general and administrative expenses in the Statement of Operations. Amounts due to D&B for these expenses are included in equity. Net distributions to D&B, included in equity, includes net cash transfers third party liabilities paid on behalf of RHD by D&B, amounts due to/from D&B for services and other charges. No interest has been charged on these intercompany transactions. 7. COMMITMENTS AND CONTINGENCIES Certain of the RHD's operations are conducted from leased facilities, which are under operating leases. Rent expense under real estate operating leases for the years 1997, 1996, and 1995 was $8,612, $9,482 and $10,068, respectively. The approximate minimum rent for real estate operating leases that have remaining noncancelable lease terms in excess of one year at December 31, 1997, are: 1998....................................................... $8,031 1999....................................................... 6,325 2000....................................................... 5,365 2001....................................................... 4,874 2002....................................................... 5,030 Thereafter................................................. 27,742 ------- Total............................................ $57,367 =======
RHD also leases certain computer and other equipment under operating leases. Rent expense under computer and other equipment leases was $2,245, $1,762 and $1,072 for 1997, 1996, and 1995 respectively. At December 31, 1997 the approximate minimum annual rental obligation for computer and other equipment under operating leases that have remaining noncancelable lease terms in excess of one year is not significant. In the normal course of business, RHD is subject to proceedings, lawsuits and other claims. In the opinion of RHD management, the outcome of such current legal proceedings, claims and litigation will not materially affect RHD's financial position or results of operations. 8. PENSION AND POSTRETIREMENT BENEFITS Upon the Distribution, RHD will assume responsibility for pension benefits for active employees of RHD, DonTech active employees and DonTech vested terminated employees with benefits under the D&B F-40 133 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) Retirement Plan. The responsibility for RHD retirees and vested terminated employees prior to the Distribution will remain with New D&B. RHD will assume responsibility for postretirement benefits for active employees of RHD and a portion of the cost of postretirement benefits for certain DonTech employees. An allocation of assets and liabilities related to active employee benefits has been included in the financial statements. Pension The RHD participates in D&B's defined benefit pension plan covering substantially all employees. Effective January 1, 1997, the D&B Retirement Plan was amended to provide retirement income based on a percentage of annual compensation, rather than final pay. RHD accounts for the plan as a multi-employer plan. Accordingly, RHD has recorded pension costs as allocated by D&B totaling $996, $1,082, and $1,077 for the years 1997, 1996 and 1995, respectively. The assumptions of the multi-employer plan are described below. The weighted average expected long-term rate of return on pension plan assets was 9.70% for 1997 and 9.75% for 1996, and 1995. At December 31, 1997 and 1996, the projected benefit obligations were determined using weighted average discount rates of 7.01% and 7.77%, respectively, and weighted average rates of increase in future compensation levels of 4.46% and 5.15%, respectively. Plan assets are invested in diversified portfolios that consist primarily of equity and debt securities. Savings Plan Certain employees of RHD are also eligible to participate in the D&B sponsored defined contribution plan. RHD makes a matching contribution of up to 50% of employees' contribution based on specified limits of the employee's salary. RHD's expense related to this plan was $2,243, $2,268, and $3,288 for the years 1997, 1996 and 1995, respectively. Postretirement Benefits In addition to providing pension benefits, D&B provides various health-care and life-insurance benefits for retired employees. Employees are eligible for these benefits if they reach normal retirement age while working for RHD. RHD accounts for the plan as a multi-employer plan. Accordingly, RHD has recorded postretirement benefits costs as allocated by D&B totaling $1,724, $1,873, and $1,864 for the years 1997, 1996 and 1995. The assumption used for the multi-employer plan follows. The accumulated postretirement benefits obligation at December 31, 1997 and 1996, was determined using discount rates of 7.0% and 7.75%, respectively. The assumed rate of future increases in per capita cost of covered health-care benefits is 7.3% in 1998, decreasing gradually to 5.0% for the year 2021 and remaining constant thereafter. 9. EMPLOYEE STOCK OPTION PLANS Under D&B's Key Employees Stock Option Plans, certain employees of RHD are eligible for the grant of stock options, stock appreciation rights and limited stock appreciation rights in tandem with stock options. These awards are granted at the market price on the date of the grant. Immediately following the distribution, outstanding awards under the D&B Key Employees Stock Option Plans held by RHD employees will be replaced by substitute awards under the RHD's plan. The substitute awards will have the same ratio of the exercise price per option to the market value per share, the same F-41 134 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) aggregate difference between market value and exercised price and the same vesting provisions, option periods and other terms and conditions as the options they replace. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation", which requires that companies with stock-based compensation plans either recognize compensation expense based on the fair value of options granted or continue to apply the existing accounting rules and disclose pro forma net income and earnings per share assuming the fair value method had been applied. RHD has chosen to continue applying Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the fixed stock option plans. Had compensation cost for RHD's stock-based compensation plans been determined based on the fair value at the grant dates for awards to RHD's employees under those plans, consistent with the method of SFAS No. 123, RHD's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 ------- ------- -------- Net income: As reported................................ $84,905 $78,085 $108,397 Pro forma.................................. $84,542 $77,844 $108,397 Pro forma basic earnings per share of common stock As reported............................. $ 0.50 $ 0.46 $ 0.64 Pro forma............................... $ 0.50 $ 0.46 $ 0.64 Pro forma diluted earnings per share of common stock As reported............................. $ 0.50 $ 0.46 $ 0.64 Pro forma............................... $ 0.49 $ 0.46 $ 0.64
The pro-forma disclosures shown are not representative of the effects on income and earnings per share in future years. The fair value of D&B's stock options used to compute the RHD's pro forma income disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model. The weighted average assumptions used for 1997 were as follows dividend yield of 3.3%, expected volatility of 20%, risk-free interest rate of 5.73%, and an expected holding period of 4.5 years. The following weighted average assumptions were used to value grants made prior to the November 1, 1996 distribution: dividend yield of 4.7%, expected volatility of 15%, a risk-free interest rate of 6.08%, and an expected holding period of five years. The incremental fair value of the RHD's options converted on October 31, 1996, used to compute pro-forma income disclosures and the value of new grants after November 1, 1996, was determined using the Black-Scholes option-pricing model with the following weighted average assumptions; dividend yield of 3.7%, expected volatility of 17%, a risk-free interest rate of 5.85%, and an expected holding period of 4.5 years. The D&B assumptions used in the option-pricing model may not be valid for RHD on a going forward basis. Options outstanding at December 31, 1997, were granted during the years 1988 through 1997 and are exercisable over periods ending not later than 2007. At December 31,1997 and 1996, options for 606,459 shares and 575,941 shares of common stock, respectively, were exercisable and 1,450,195 shares, 4,240,772 shares and 10,306,592 shares, respectively, were available for future grants under the plans. F-42 135 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) Changes in stock options for the three years ended December 31, 1997, are summarized as follows:
WEIGHTED AVERAGE EXERCISE SHARES PRICE($) --------- -------- Options outstanding, January 1, 1995: 340,730 $53.48 Granted................................................... 79,228 63.20 Exercised................................................. (27,619) 44.54 Surrendered or expired.................................... -- -- --------- ------ Options outstanding, December 31, 1995: 392,339 56.07 Granted................................................... -- -- Exercised................................................. (52,133) 51.99 Surrendered or expired.................................... (8,034) 57.18 --------- ------ Options outstanding, October 31, 1996....................... 332,172 56.68 --------- ------ Options converted, November 1, 1996......................... 876,137 21.48 Granted................................................... 474,305 22.87 Exercised................................................. (9,053) 20.95 Surrendered or expired.................................... (15,816) 22.12 --------- ------ Options outstanding, December 31, 1996:..................... 1,325,573 21.97 Granted................................................... 378,991 29.95 Exercised................................................. (175,064) 20.45 Surrendered or expired.................................... (119,412) 22.87 --------- ------ Options outstanding, December 31, 1997...................... 1,410,088 $24.23 ========= ======
The weighted average fair value of options granted during 1997, 1996 and 1995 was $5.54, $3.60 and $7.60, respectively. The following table summarizes information about stock options outstanding at December 31, 1997:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE ---------------------------------- -------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE -------------- --------- ----------- -------- ----------- ------------ $ 15.73-$20.46 271,096 4 years $19.36 230,672 $19.17 $ 20.94-$24.75 767,626 6.7 years $23.13 375,787 $23.05 $ 27.72-$30.22 371,366 9.8 years $30.06 -- $ -- --------- ------- 1,410,088 606,459 ========= =======
F-43 136 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) 10. INCOME TAXES Provision for income taxes consisted of:
1997 1996 1995 -------- -------- -------- Current Tax Provision: U.S. Federal............................. $ 63,629 $ 28,634 $ 48,839 State and local.......................... 8,660 15,675 13,232 -------- -------- -------- Total current tax provision...... 72,289 44,309 62,071 Deferred tax (benefit) provision U.S. Federal............................. (15,777) 19,347 9,473 State and local.......................... 2,734 (2,799) 2,854 -------- -------- -------- Total deferred tax (benefit) provision...................... (13,043) 16,548 12,327 -------- -------- -------- Provision for income taxes............... $ 59,246 $ 60,857 $ 74,398 ======== ======== ========
The following table summarizes the significant differences between the U.S. Federal statutory tax rate and RHD's effective tax rate for financial statement purposes.
1997 1996 1995 ------ ----- ----- Statutory tax rate................................. 35.0% 35.0% 35.0% State and local taxes, net of U.S. Federal tax benefit.......................................... 5.1 6.0 5.7 Non-deductible capital losses...................... 0.0 2.8 0.0 Non-deductible expense............................. 1.0 0.0 0.0 ------ ----- ----- Effective tax rate................................. 41.1% 43.8% 40.7% ====== ===== =====
Deferred tax assets (liabilities) consisted of the following at December 31,
1997 1996 ------- ------- Deferred tax assets: Postretirement benefits................................ $ 4,288 $ 4,008 Postemployment benefits................................ 3,210 1,718 Reorganization and restructuring costs................. 937 1,606 Bad debts.............................................. 1,606 4,643 Intangibles............................................ 2,571 2,367 Other.................................................. 15,535 401 ------- ------- Total deferred tax asset................................. 28,147 14,743 ------- ------- Deferred tax liabilities: Revenue recognition.................................... 45,160 51,270 Pension................................................ 3,812 4,132 Plant, property and equipment.......................... 829 906 Capitalized project costs.............................. 12,802 12,425 ------- ------- Total deferred tax liabilities........................... 62,603 68,733 ------- ------- Net deferred tax liability............................... $34,456 $53,990 ======= =======
F-44 137 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) 11. SUPPLEMENTAL FINANCIAL INFORMATION Property and Equipment, Net:
1997 1996 -------- -------- Computer equipment..................................... $ 35,516 $ 38,971 Machinery and equipment................................ 4,949 5,368 Furniture and fixtures................................. 7,927 8,417 Leasehold improvements................................. 7,193 5,541 -------- -------- Total at cost................................ 55,585 58,297 Less accumulated depreciation.......................... (30,125) (27,545) -------- -------- Total net fixed assets................................. $ 25,460 $ 30,752 ======== ========
Computer Software:
COMPUTER SOFTWARE -------- January 1, 1996............................................. $22,101 Additions at cost........................................... 21,859 Amortization................................................ (3,910) ------- December 31, 1996...................................... 40,050 Additions at cost........................................... 7,190 Transfer in................................................. 95 Amortization................................................ (9,789) ------- December 31, 1997...................................... $37,546 =======
Accumulated amortization on computer software costs was $14,001 and $5,896 at December 31, 1997 and 1996, respectively. F-45 138 THE REUBEN H. DONNELLEY CORPORATION (A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION) NOTES TO FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) 12. VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND END OF DESCRIPTION PERIOD EXPENSES DEDUCTIONS(a) PERIOD - ------------------------------------------------- ------------ ----------- ------------- ---------- Allowance for Doubtful Accounts: For the year ended December 31, 1997........... $11,607 $11,815 $19,408 $ 4,014 For the year ended December 31, 1996........... 21,167 11,743 21,303 11,607 For the year ended December 31, 1995........... 32,421 10,861 22,115 21,167
- --------------- (a) Includes accounts written off. 13. QUARTERLY INFORMATION (UNAUDITED)
THREE MONTHS ENDED --------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR -------- -------- ------------ ----------- -------- 1997 Revenues.......................... $20,207 $ 60,465 $62,728 $ 96,465 $239,865 Operating income (loss)........... $(2,290) $ 9,789 $46,833 $ 80,407 $134,739 Net income........................ $(1,374) $ 5,873 $28,100 $ 52,306 $ 84,905 Pro forma earning per share data: Basic........................... $ (0.01) $ 0.03 $ 0.16 $ 0.31 $ 0.50 Diluted......................... $ (0.01) $ 0.03 $ 0.16 $ 0.31 $ 0.50 1996 Revenues.......................... $23,170 $ 64,615 $57,743 $124,501 $270,029 Operating income (loss)........... $ 6,921 $ (4,400) $27,468 $137,453 $167,442 Net income........................ $ 3,889 $(18,490) $15,437 $ 77,249 $ 78,085 Pro forma earning per share data: Basic........................... $ 0.02 $ (0.11) $ 0.09 $ 0.45 $ 0.46 Diluted......................... $ 0.02 $ (0.11) $ 0.09 $ 0.45 $ 0.46
F-46 139 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Partners of DonTech We have audited the accompanying combined balance sheets of AM-DON (doing business as "DonTech" and hereafter referred to as "DonTech I") and the DonTech II Partnership ("DonTech II") as of December 31, 1997 and 1996, and the related combined statements of operations, partners' capital, and cash flows for each of the years in the three year period ended December 31, 1997. These financial statements are the responsibility of the management of DonTech I and DonTech II. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of DonTech I and DonTech II as of December 31, 1997 and 1996, and the combined results of their operations and their cash flows for each of the years in the three year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. -------------------------------------- COOPERS & LYBRAND L.L.P. Chicago, Illinois January 8, 1998 F-47 140 DONTECH COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Sales...................................................... $503,912 $459,083 $442,952 Less Allowances............................................ 77,788 50,202 51,076 -------- -------- -------- Net Sales........................................ 426,124 408,881 391,876 Expenses: Salary and Wages......................................... 12,133 -- -- Commission............................................... 4,558 -- -- Telephone Company Fees................................... 83,210 83,532 83,995 Printing and Manufacturing............................... 39,085 35,221 34,632 Selling.................................................. 36,236 33,060 30,464 Compilation.............................................. 8,888 9,067 9,870 Delivery................................................. 7,703 7,316 10,950 Administrative........................................... 7,696 3,444 6,138 Occupancy and Depreciation............................... 9,880 8,148 6,175 Other.................................................... 12,489 9,476 8,980 -------- -------- -------- Total Operating Expenses......................... 221,878 189,264 191,204 -------- -------- -------- Income from Operations........................... 204,246 219,617 200,672 Other Income............................................... 2,064 2,677 3,775 -------- -------- -------- Net Income....................................... $206,310 $222,294 $204,447 ======== ======== ========
The accompanying notes are an integral part of the combined financial statements. F-48 141 DONTECH COMBINED BALANCE SHEETS
DECEMBER 31, -------------------- 1997 1996 -------- -------- (IN THOUSANDS) ASSETS Current Assets: Cash and Cash Equivalents................................. $ 6,824 $ 4,559 Accounts Receivable, Net of Allowance for Doubtful Accounts of $35,581 (1997) and $13,908 (1996).......... 225,240 261,252 Deferred Expenses......................................... 41,513 86,329 Commission Receivable..................................... 43,681 -- Other..................................................... 6,241 3,057 -------- -------- Total Current Assets.............................. 323,499 355,197 Fixed Assets, Net of Accumulated Depreciation and Amortization.............................................. 4,898 6,621 -------- -------- Total Assets...................................... $328,397 $361,818 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Current Liabilities: Accounts Payable.......................................... $ 21,417 $ 23,720 Accrued Liabilities....................................... 5,623 5,106 Deferred Sales Revenue.................................... 162,760 174,105 -------- -------- Total Current Liabilities......................... 189,800 202,931 Partners' Capital........................................... 165,597 158,887 Partnership Contributions Receivable........................ (27,000) -- -------- -------- Total Partners' Capital........................... 138,597 158,887 -------- -------- Total Liabilities and Partners' Capital........... $328,397 $361,818 ======== ========
The accompanying notes are an integral part of the combined financial statements. F-49 142 DONTECH COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 --------- --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income............................................ $ 206,310 $ 222,294 $ 204,447 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization...................... 3,246 3,526 2,806 Provision for Uncollectible Accounts............... 32,474 7,105 6,190 Changes in Assets and Liabilities: Increase in Accounts Receivable.................. (40,144) (27,791) (28,295) (Increase) Decrease in Deferred Printing and Manufacturing................................. 20,788 (5,460) (2,476) (Increase) Decrease in Deferred Selling.......... 13,076 (1,430) (4,957) Decrease in Deferred Compilation................. 5,309 255 1,046 Decrease in Deferred Delivery.................... 1,895 19 518 Decrease in Deferred Directory Operating Service....................................... 1,468 322 630 (Increase) Decrease in Deferred Other............ 2,280 702 (1,616) (Increase) Decrease in Other Current Assets...... (3,184) (1,675) 75 Increase (Decrease) in Accounts Payable.......... (2,303) 923 (3,433) Increase (Decrease) in Accrued Liabilities....... 517 (5,420) 712 Increase (Decrease) in Deferred Sales Revenue.... (11,345) 5,280 17,920 --------- --------- --------- Total Adjustments............................. 24,077 (23,644) (10,880) --------- --------- --------- Net Cash Provided by Operating Activities..... 230,387 198,650 193,567 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Fixed Assets............................. (1,522) (1,029) (5,850) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Partner Contributions................................. 2,998 -- -- Distributions to Partners............................. (229,598) (195,553) (191,200) --------- --------- --------- Net Cash Used in Financing Activities......... (226,600) (195,553) (191,200) --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents.... 2,265 2,068 (3,483) Cash and Cash Equivalents, Beginning of Year............ 4,559 2,491 5,974 --------- --------- --------- Cash and Cash Equivalents, End of Year.................. $ 6,824 $ 4,559 $ 2,491 ========= ========= ========= NONCASH FINANCING ACTIVITIES: Partnership Capital Contributions Receivable.......... $ 27,000 $ -- $ -- ========= ========= =========
The accompanying notes are an integral part of the combined financial statements. F-50 143 DONTECH COMBINED STATEMENTS OF PARTNERS' CAPITAL THREE YEARS ENDED DECEMBER 31, 1997 (IN THOUSANDS)
THE REUBEN H. AMERITECH DONNELLEY PUBLISHING OF CORPORATION ILLINOIS, INC. TOTAL ----------- -------------- --------- Balance, December 31, 1994............................. $ 67,749 $ 51,150 $ 118,899 Net Income............................................. 112,446 92,001 204,447 Distributions to Partners.............................. (107,525) (83,675) (191,200) --------- --------- --------- Balance, December 31, 1995............................. 72,670 59,476 132,146 Net Income............................................. 120,039 102,255 222,294 Distributions to Partners.............................. (106,920) (88,633) (195,553) --------- --------- --------- Balance, December 31, 1996............................. 85,789 73,098 158,887 Contributions, Per Agreement........................... 13,500 13,500 27,000 Contributions Receivable............................... (13,500) (13,500) (27,000) Net Income............................................. 118,162 88,148 206,310 Distributions to Partners.............................. (121,688) (104,912) (226,600) --------- --------- --------- Balance, December 31, 1997............................. $ 82,263 $ 56,334 $ 138,597 ========= ========= =========
The accompanying notes are an integral part of the combined financial statements. F-51 144 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) 1. FORM OF ORGANIZATION AND NATURE OF BUSINESS AM-DON d.b.a. DonTech ("DonTech") is a general partnership between The Reuben H. Donnelley Corporation ("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 Donnelley formed a new partnership defined as "DonTech II". DonTech I participates in a Directory Agreement with Donnelley, Illinois Bell Telephone Company ("IBT"), doing business as Ameritech Illinois, API/IL and Aas. DonTech I also participates in a Subcontracting Agreement with 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 publishes various directories, as identified in the Directory Agreements, solicits advertising, its primary source of revenues, and manufactures and delivers 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 will cease publishing directories as of January 1, 1998. The partnership will recognize the deferred revenue and expenses recorded as of December 31, 1997 over the remaining life of those directories published prior to January 1, 1998. Upon completion of the earnings process, the partnership will thereafter wind up in accordance with the agreement. In August 1997, 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 directories to be published in Illinois and Northwest Indiana by APIL Partners Partnership (the "Publisher"). The new partnership, known as "DonTech II", receives a 27% commission on sales, net of provisions (capped at 6.1%), from the Publisher. DonTech II's cost structure includes only sales, sales operations, office services, finance, facilities and related overhead. DonTech II profits are shared equally between the partners. A Board of Directors (the "Board") was appointed to administer the activities of each partnership. From time to time during the term of the partnerships, 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 partnerships. The accompanying financial statements of DonTech I and DonTech II are shown on a combined basis. As DonTech II was formed in August 1997, the combined statements of operations for the three years in the period ended December 31, 1997 only include the results of operations of DonTech II for the period from August 1997 through December 1997. All significant affiliated accounts and transactions have been eliminated in preparation of the combined financial statements. 2. SIGNIFICANT ACCOUNTING POLICIES a. 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 estimates fair value due to the short-term nature. b. 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 the lives of the directories, generally twelve months. Sales made to customers outside the F-52 145 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) 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 and is recognized upon execution of contracts for the sale of advertising. c. 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, cost and the related accumulated depreciation are removed from the accounts, and gain or loss is included in the statement of operations. Amounts for repairs and maintenance are charged to operations as incurred. d. Deferred Expenses The printing, manufacturing, compilation, sales, delivery and administrative costs of DonTech I publications are deferred and recognized in proportion to revenue. e. Postretirement Benefits Other Than Pensions The partnerships are obligated to provide postretirement benefits consisting mainly of life and health insurance to substantially all employees and their dependents. The accrual method of accounting is utilized for postretirement health care and life insurance benefits. f. Income Taxes No provision for income taxes is made as the proportional share of each partnership's income is the responsibility of the individual partners. 3. DEFERRED EXPENSES Deferred expenses consist of the following at December 31:
1997 1996 ------- ------- Printing and manufacturing.................................. $13,932 $34,720 Selling..................................................... 20,331 33,407 Compilation................................................. 3,310 8,619 Delivery.................................................... 1,089 2,984 Directory operating services................................ 750 2,218 Other....................................................... 2,101 4,381 ------- ------- $41,513 $86,329 ======= =======
F-53 146 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) 4. FIXED ASSETS Fixed assets consist of the following at December 31:
1997 1996 ------- ------- Machinery and equipment..................................... $18,816 $17,329 Furniture and fixtures...................................... 3,727 3,712 Leasehold improvements...................................... 995 974 ------- ------- 23,538 22,015 Less accumulated depreciation and amortization.............. 18,640 15,394 ------- ------- $ 4,898 $ 6,621 ======= =======
5. RELATED PARTY TRANSACTIONS DonTech I Under the Directory Agreement, DonTech I is obligated to pay IBT a minimum of $75 million per year in exchange for billing and collection services performed by IBT. The base fee for these services is $75 million for each calendar year until the Directory Agreement is terminated. Under the terms of the recently revised partnership agreement the responsibility for payment of these fees is transferred to Ameritech effective January 1, 1998. In addition to the base fee, DonTech I has agreed to pay IBT an amount equal to 7 1/2% of the increase in total revenue received from certain sources identified in the Directory Agreement over such revenues received in the immediately preceding calendar year. The additional fee due to IBT was $609, $1,122 and $487 in 1997, 1996 and 1995, respectively. IBT also provides directory operations services (white pages compilation) to DonTech I. DonTech I paid approximately $2 million to IBT in 1997, 1996 and 1995 for these services. However, effective January 1, 1998, under the terms of the revised partnership agreement the cost of these services becomes the responsibility of Ameritech. Donnelley provides compilation, photocomposition, and data processing services to DonTech I. The Dun & Bradstreet Corporation, of which Donnelley is a wholly owned subsidiary, provides employee benefits and administrative services, and certain business insurance coverages for each partnership. The amount paid for these services is determined at the beginning of each year based upon estimated activity and adjusted to actual at the end of each year. The amount paid for these services was approximately $22 million in each of the years ended December 31, 1997, 1996 and 1995. The amount paid for employee benefits includes the administration of each partnership's Profit Sharing and 401(k) Plans as well as its health care, long and short term disability, dental and pension plans. Effective June 1, 1997, DonTech I became self-insured for health care, long and short term disability and dental plans at which time it terminated its coverages for these plans through The Dun & Bradstreet Corporation. DonTech II will assume the obligations of these plans. DonTech I also entered into subcontracting agreements for the publishing of certain Indiana Bell directories. For the first four months of 1997, under a Directory Fulfillment Memorandum of Understanding, DonTech I was obligated to perform certain directory fulfillment services for Aas. The obligation for these services was transferred to an outside vendor effective May 1, 1997. Amended Partnership Allocation In 1997, the partners negotiated a settlement agreement regarding excessive bad debt write-offs incurred by DonTech I during the year ended December 31, 1997. The agreement provided for a special allocation of the excessive bad debts between the partners based upon a negotiated ratio. The effect of this settlement F-54 147 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) agreement has been included in the allocation of net income as presented in the statement of partners' capital at December 31, 1997. DonTech II Under the terms of the DonTech II partnership agreement, The Dun & Bradstreet Corporation provides certain employee benefits and administrative services. These include the administration of the partnership's profit Sharing and 401(k) Plans, as well as its pension plans. Also, certain business insurance coverages for the partnership will be provided by both The Dun & Bradstreet Corporation and Ameritech. Under the provisions of the "Revenue Participation Agreement" dated August 19, 1997, in exchange for exclusive publishing rights, the Publisher agreed to pay Donnelley revenue participation interests. The revenue participation interests are based upon gross revenues of DonTech II, net of provisions (capped at 6.1% per annum) and sales commissions paid by DonTech II. The revenue participation interest is as follows: 1997................................................. 43.7% 1998................................................. 34.8% 1999 and thereafter.................................. 35.9%
6. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject each partnership to concentration of credit risk consist principally of commercial paper and accounts receivables. The partnerships invest its excess cash in commercial paper with an investment rating of AA or higher and has not experienced any losses on these investments. Each partnership's trade accounts receivable are primarily composed of amounts due from customers whose businesses are in the state of Illinois. Collateral is generally not required from either partnership's customers. 7. PARTNERSHIP CONTRIBUTION RECEIVABLE For DonTech II, the respective partner capital contributions are to be made in equal proportion according to the Initial Capital Schedule as reflected in the DonTech II Partnership Agreement. As of December 31, 1997, the total amount of capital required to be contributed by the partners was $27,000. At December 31, 1997, the respective partnership capital accounts have been credited with the amount of required capital contributions and have been offset by a corresponding contributions receivable as the funds had not been received. 8. 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 revenues and expense during the reporting period. Actual results could differ from those estimates. 9. LEASE COMMITMENTS DonTech I leases certain office and warehouse facilities under noncancelable lease arrangements. These leases and the related obligations will be assumed by Don Tech II. Rent expense under these operating leases was approximately $2,603, $2,564 and $2,323 in 1997, 1996 and 1995, respectively. F-55 148 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) 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, 1997 are as follows:
AMOUNT ------ 1998................................................ $1,814 1999................................................ 843 2000................................................ 814 2001................................................ 726 2002................................................ 466 Thereafter.......................................... 831 ------ $5,494 ======
10. EMPLOYEE RETIREMENT AND PROFIT PARTICIPATION PLANS Each partnership participates in a defined benefit pension plan covering substantially all of its respective employees (the "Principal Plan"). The Principal Plan's assets are invested in equity funds, fixed income funds and real estate. Total expense for the Principal Plan was approximately $1,120, $1,181 and $1,647 in 1997, 1996 and 1995, respectively. Additionally, each respective partnership participates in a Profit Participation Plan (the "Profit Plan") that covers substantially all its employees. Employees may voluntarily contribute up to 16% of their salaries to the Profit Plan and are guaranteed a matching contribution of fifty cents per dollar contributed up to 6%. Each partnership also makes contributions to the Profit Plan based on a formula and contingent upon the attainment of financial goals set in advance as defined in the Plan. The contributions made to the plan were $926, $809 and $1,025 in 1997, 1996 and 1995, respectively. 11. VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE AT CHARGED BEGINNING TO BALANCE AT OF COSTS AND END OF DESCRIPTION PERIOD EXPENSES DEDUCTIONS(a) PERIOD ----------- ---------- --------- ------------- ---------- Allowance For Doubtful Accounts For year ended December 31, 1997............... $13,908 $40,230 $18,557 $35,581 For year ended December 31, 1996............... $23,106 $50,202 $59,400 $13,908 For year ended December 31, 1995............... $18,777 $51,076 $46,747 $23,106
- --------------- (a) Includes accounts written off. F-56 EX-99.2 8 CHAIRMAN'S LETTER TO STOCKHOLDERS 1 EXHIBIT 99.2 , 1998 To all Dun & Bradstreet Stockholders: On , 1998, the Board of Directors of The Dun & Bradstreet Corporation ("D&B") declared a dividend of shares of The New Dun & Bradstreet Corporation ("New D&B") to achieve the reorganization of D&B into two separate companies. If you are a stockholder of D&B as of the close of business on , 1998, the record date for the dividend, certificates representing shares in New D&B will be mailed to you automatically. For each share of D&B you hold, you will receive one share of New D&B. In connection with the Distribution, D&B will change its name to "The Reuben H. Donnelley Corporation" and New D&B will change its name to "The Dun & Bradstreet Corporation". Stock certificates representing your shares in New D&B will be sent to you on or about , 1998. After the Distribution, the D&B stock certificates you currently hold will represent your investment in the "new" Reuben H. Donnelley Corporation. D&B stockholders should not send in their D&B stock certificates. Shares of New D&B will trade "regular way" on the New York Stock Exchange beginning , 1998. The symbol for New D&B will be "DNB" and the symbol for the "new" Reuben H. Donnelley Corporation will become "RHD". Detailed information on the reorganization plan and the businesses of New D&B and Reuben H. Donnelley is contained in the accompanying document, which we urge you to read carefully. The Board believes the reorganization will enhance management focus on the businesses allowing the two companies to pursue opportunities that will improve their competitive position, enhance their valuation and create wealth for stockholders. Sincerely, Volney Taylor Chairman and Chief Executive Officer The Dun & Bradstreet Corporation -----END PRIVACY-ENHANCED MESSAGE-----