-----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, O3SEV49gA01yxb5eXOueHfdMTaqYJsAlIyJfMdxNz+VHcDrhkQdpY75R/fONQVOH Byxpv8oRJKYHcdlpmtySAw== 0000030419-98-000018.txt : 19981116 0000030419-98-000018.hdr.sgml : 19981116 ACCESSION NUMBER: 0000030419-98-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: R H DONNELLEY CORP CENTRAL INDEX KEY: 0000030419 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 132740040 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07155 FILM NUMBER: 98748442 BUSINESS ADDRESS: STREET 1: ONE MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9149336800 MAIL ADDRESS: STREET 1: 1 DIAMOND HILL RD CITY: MURRAY HILL STATE: NJ ZIP: 07974 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET COMPANIES INC DATE OF NAME CHANGE: 19790429 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark one) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-07155 R.H. DONNELLEY CORPORATION - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2740040 ----------------------- ----------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) One Manhattanville Road, Purchase N.Y. 10577 - --------------------------------------- --------- (Address of principal executive offices) (Zip Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Title of Class Shares Outstanding at November 12, 1998 - ------------------------------- --------------------------------------- Common Stock, par value $1 per share 34,198,780 Commission file number 333-59287 R.H. DONNELLEY INC. * - ---------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-2467635 - -------------------------- ------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) One Manhattanville Road, Purchase N.Y. 10577 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code (914) 933-6400 [FN] * R.H. Donnelley Inc. is a wholly owned subsidiary of R.H. Donnelley Corporation which became subject to the filing requirements of Section 15(d) on October 1, 1998. As of October 31, 1998, 100 shares of R.H. Donnelley Inc. common stock, no par value, were outstanding. R.H. DONNELLEY CORPORATION INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1998 and 1997 3 Consolidated Balance Sheets at September 30, 1998 and December 31, 1997 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 4. Submissions of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 16
R.H. Donnelley Corporation and Subsidiary Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, Amounts in thousands, except per share data 1998 1997 1998 1997 Revenues $53,391 $62,728 $115,740 $143,392 Expenses: Operating Expenses 23,634 28,966 42,990 61,133 General and Administrative 28,293 28,852 64,274 74,559 Depreciation and Amortization 4,854 5,460 14,710 16,490 ------- ------- ------- ------- Total Expenses 56,781 63,278 121,974 152,182 Income from Partnerships and Related Fees 46,445 47,375 108,669 63,114 Operating Income 43,055 46,825 102,435 54,324 Interest Expense, net 10,356 -- 13,371 -- Income before Provision for Income Taxes 32,699 46,825 89,064 54,324 Provision for Income Taxes 13,080 18,730 35,626 21,730 ------- ------- ------- ------- Net Income $19,619 $28,095 $53,438 $32,594 ======= ======= ======= ======= Net Income Per Share of Common Stock: Basic $0.57 $0.82 $1.56 $0.95 Diluted $0.57 $0.82 $1.55 $0.95 Shares Used in Computing Earnings Per Share: Basic 34,223 34,100 34,249 34,179 Diluted 34,443 34,348 34,491 34,367 Cash Dividends Paid Per Share $0.175 -- $0.175 -- ====== ====== ====== ====== The accompanying notes are an integral part of the consolidated financial statements.
R.H. Donnelley Corporation and Subsidiary Consolidated Balance Sheets (Unaudited)
September 30, December 31, 1998 1997 Amounts in thousands, except share data Assets Current Assets Cash and Cash Equivalents $10,204 $32 Accounts Receivable Billed 3,238 5,208 Unbilled 63,747 78,010 Other 10,286 4,562 Allowance for Doubtful Accounts (5,258) (4,014) -------- ------- Total Accounts Receivable, net 72,013 83,766 Deferred Contract Costs 11,429 6,944 Other Current Assets 2,278 388 -------- ------- Total Current Assets 95,924 91,130 Non-Current Assets Partnership Investments and Related Receivables 241,050 218,620 Property and Equipment, net 22,383 25,460 Computer Software, net 35,768 37,546 Other Non-Current Assets 19,148 9,530 -------- ------- Total Assets $414,273 $382,286 ======== ========= Liabilities and Shareholders' Equity Current Liabilities Accounts Payable $3,153 $1,395 Accrued and Other Current Liabilities 69,479 58,070 Current Portion of Long-Term Debt 3,188 -- -------- ------- Total Current Liabilities 75,820 59,465 Long-Term Debt 483,750 -- Deferred Income Taxes 39,394 34,456 Postretirement and Postemployment Benefits 13,451 12,920 Other Liabilities 13,462 16,770 -------- ------- Total Liabilities 625,877 123,611 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 - 51,621,894 shares for 1998 and 51,967,421 shares for 1997 51,622 51,967 Additional Paid In Capital 248 -- Retained (Deficit) Earnings (245,399) 224,562 Treasury Stock, at cost, 17,423,114 shares for 1998 and 17,853,652 shares for 1997 (18,075) (17,854) -------- ------- Total Shareholders' Equity (211,604) 258,675 -------- ------- Total Liabilities and Shareholders' Equity $414,273 $382,286 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
R.H. Donnelley Corporation and Subsidiary Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, Amounts in thousands 1998 1997 Cash Flows from Operating Activities: Net Income $53,438 $32,594 Reconciliation of Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 14,710 16,490 Amortization of Deferred Financing Costs 499 -- Provision for Doubtful Accounts 6,397 10,453 Cash Received (Less Than) in Excess of Income from Partnerships and Related Receivables (22,430) 33,144 Decrease in Accounts Receivable 5,356 43,780 Increase in Deferred Contract Costs (4,485) (25,253) Increase in Other Assets (1,990) (841) Increase (Decrease) in Accounts Payable, Accrued and Other Current Liabilities 14,240 (3,112) Increase in Other Long-Term Liabilities 2,161 2,450 Other, net 37 (139) ------- ------- Net Cash Provided by Operating Activities 67,933 109,566 Cash Flows from Investing Activities: Additions to Property and Equipment (4,177) (8,748) Additions to Computer Software (6,788) (5,506) ------- ------- Net Cash Used in Investing Activities (10,965) (14,254) Cash Flows from Financing Activities: Net Proceeds from Long-Term Borrowings 489,983 -- Repayment of Debt (13,062) -- Net Distributions to D&B (517,137) (95,308) Purchase of Treasury Stock (1,017) -- Payment of Dividend (6,028) -- Other, net 465 -- ------- ------- Net Cash Used in Financing Activities (46,796) (95,308) Increase in Cash and Cash Equivalents 10,172 4 Cash and Cash Equivalents, at Beginning of Year 32 60 ------- ------- Cash and Cash Equivalents, at End of Period $10,204 $64 ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 - R.H. Donnelley Corporation (the `Company') and The New Dun & Bradstreet Corporation (`New D&B'). The distribution (`Distribution') was the method by which D&B distributed to its stockholders shares of New D&B common stock, which represent a continuing interest in the D&B businesses now conducted by New D&B. On July 1, 1998, as part of the Distribution, D&B distributed to its stockholders shares of New D&B stock. Shares of D&B common stock held by D&B stockholders represent a continuing ownership interest in the Company. In connection with the Distribution, D&B changed its name to R.H. Donnelley Corporation and D&B common stock has become the Company's common stock (the `Common Stock'). After the Distribution, the Company's only operating subsidiary is R.H. Donnelley Inc. (`Donnelley'). Therefore, on a consolidated basis, the financial statements of the Company and Donnelley are substantially identical. The financial statements of the Company have been restated to reflect the recapitalization. The financial statements reflect the financial position, results of operations, and cash flows of the Company as if it were a separate entity. The financial statements include allocations of certain D&B corporate headquarters assets, liabilities and expenses relating to the Company's businesses that were transferred from D&B on June 30, 1998. Management believes these allocations are reasonable. However, the costs of these services and benefit charges are not necessarily indicative of the costs that would have been incurred if the Company had performed or provided these functions as a separate entity. These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the financial statements and related notes of the Company for the year ended December 31, 1997. Certain 1997 amounts have been restated to conform to the 1998 presentation. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. 2. Reconciliation of Shares Used in Computing Earnings Per Share As required by SFAS No. 128, the Company has provided a reconciliation of basic weighted average shares outstanding to diluted weighted average shares outstanding during the period in the table below. The conversion of dilutive shares has no impact on operating results.
Three months Nine Months ended September 30, ended September 30, ------------------ ------------------- 1998 1997 1998 1997 ---- ---- ---- ---- (in thousands) Weighted average number of shares- basic 34,223 34,100 34,249 34,179 Effect of potentially dilutive stock options 220 248 242 188 ----- ------- ------ ------ Weighted average number of shares -diluted 34,443 34,348 34,491 34,367 ====== ====== ====== ======
3. Commitment On June 5, 1998, Donnelley entered into a credit agreement with the Chase Manhattan Bank, as Administrative Agent and the Lenders party thereto (the `Credit Agreement'). Under the terms of the Credit Agreement, Donnelley obtained a Senior Revolving Credit Facility of $100 million (the `Revolver') and Senior Secured Term Facilities in the aggregate amount of $300 million, of which Donnelley initially borrowed $350 million. The Revolver expires on June 4, 2004 at which time all outstanding borrowings are due. The Senior Secured Term Facilities mature between June 4, 2004 and December 5, 2006. Donnelley also issued $150 million of Senior Subordinated Notes. These Notes pay interest semi-annually at the annual rate of 9.125% and are due in 2008. The net proceeds of the $500 million were dividended to D&B (and distributed to New D&B in connection with the Distribution), but repayment of such indebtedness remains an obligation of Donnelley, and is guaranteed by the Company. At September 30, 1998, Donnelley had outstanding borrowings under the Credit Agreement of $336.9 million at a weighted average interest rate of 7.43% per annum. To reduce the impact of changes in interest rates on its floating rate long- term debt under the Credit Agreement, Donnelley entered into three interest rate swap agreements, expiring 2001 - 2003, having an aggregate notional principal amount of $175 million. These agreements effectively change the interest rate on $175 million of floating rate borrowing to fixed rates. The differential is accrued as interest rates change and is recorded to interest expense. The notional amount of the swap agreements is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. Donnelley is exposed to credit risk in the event the counterparty does not pay the interest owed under the interest rate swap agreements; however, Donnelley does not anticipate nonperformance by the counterparty. 4. 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'). New D&B has assumed and will indemnify the Company against any payments to be made by the Company in respect to the IRI Action under the 1996 Distribution Agreement between D&B, Cognizant and ACNielsen, under the Indemnity and Joint Defense Agreement or otherwise, including any ongoing legal fees and expenses related thereto. In the normal course of business, the Company is subject to proceedings, lawsuits and other claims. In the opinion of management, the outcome of such current legal proceedings, claims and litigation will not materially affect the Company's financial position or results of operations on an annual basis. 5. DonTech Partnerships In 1991, Donnelley formed a general partnership with an affiliate of Ameritech Corporation (`Ameritech'), the DonTech Partnership (`DonTech I'). Prior to August 1997, DonTech I solicited advertising, published and delivered various directories in Illinois and Northwest Indiana. During August 1997, Donnelley signed a series of agreements with Ameritech changing the structure of the existing partnership. A new partnership was formed (`DonTech') which was appointed the exclusive sales agent, in perpetuity, for yellow page directories that will now be published by Ameritech in Illinois and Northwest Indiana. The following is summarized combined financial information of the DonTech Partnerships:
Three months Nine Months ended September 30, ended September 30, 1998 1997 1998 1997 (in thousands) Gross Revenues $69,469 $130,470 $247,684 $355,669 Gross Profit 35,321 64,255 159,877 174,314 Income Before Taxes 28,982 55,215 141,567 151,636
6. Subsequent Events On October 27, 1998, the Company announced that the Board of Directors authorized the Company to repurchase up to $20 million of its common stock. The shares may be purchased from time to time over a two year period in the open market depending on market conditions, in accordance with guidelines established by the Securities and Exchange Commission. Also on October 27, 1998, the Board of Directors declared a dividend of $0.175 per share payable on December 10, 1998 to holders of record on November 20, 1998. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The matters discussed in this Form 10-Q of R.H. Donnelley Corporation (the `Company') and R.H. Donnelley Inc. (`Donnelley') contain forward looking statements that involve risks and uncertainties including risks associated with developments in the telecommunications industry, including the ongoing consolidation of telecommunications providers, trends towards alternatives to print advertising, risks associated with addressing the Year 2000 issues, including risks related to estimating costs of remediation and predicting the readiness of third party customers and vendors, and other risks detailed from time to time in the Company's and Donnelley's filings with the Securities and Exchange Commission. These statements reflect the Company's current beliefs and specific assumptions with respect to future business decisions and are based on information currently available. Accordingly, the statements are subject to significant risks, uncertainties and contingencies which could cause the Company's actual operating results, performance or business prospects to differ from those expressed in, or implied by, these statements. FINANCIAL REVIEW 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 Company and The New Dun & Bradstreet Corporation (`New D&B'). The distribution (`Distribution') was the method by which D&B distributed to its stockholders shares of New D&B common stock, which represent a continuing interest in the D&B businesses now conducted by New D&B. On July 1, 1998, as part of the Distribution, D&B distributed to its stockholders shares of New D&B stock. Shares of D&B common stock held by D&B stockholders represent a continuing ownership interest in the Company. In connection with the Distribution, D&B changed its name to R.H. Donnelley Corporation and D&B common stock has become the Company's common stock (the `Common Stock'). After the Distribution, the Company's only operating subsidiary is Donnelley. Certain events and transactions occurred during 1997 which impact the comparability of the three and nine month results for 1997 and 1998. In August 1997, Donnelley signed a series of agreements with an affiliate of Ameritech (`Ameritech') changing the structure of the existing DonTech partnership (`DonTech I'). A new partnership was formed (`DonTech') and was appointed the exclusive sales agent, in perpetuity, for yellow page directories that are now published by Ameritech in Illinois and Northwest Indiana (the `DonTech Restructuring'). Prior to the DonTech Restructuring, DonTech I was the publisher of annual yellow page directories for Ameritech and recognized revenues and costs when related directories were published. Under the new structure, DonTech now recognizes revenues and costs when a customer signs an advertising sales contract. The total sales in any given year should be comparable regardless of whether they are recognized when a directory publishes or when an advertising sales contract is signed. Therefore, the effect of the DonTech Restructuring should not, on an annual basis, result in materially different financial results than during 1997. Also, in August 1997, the Company's contract with Cincinnati Bell expired and in December 1997, the Company sold its Proprietary-East business (`P-East'). Finally, changes in scheduling of directory publication dates and sales campaigns for both DonTech and Bell Atlantic make quarterly comparisons difficult over the time period. Three Months Ended September 30, 1998 Compared with Three Months Ended September 30, 1997 Gross advertising sales is the billing value of advertisements sold by the Company, including DonTech. Gross advertising sales figures set forth below are presented on the same basis on which revenue is recognized (that is, when a customer signs a sales contract where the Company is a sales agent or when the directory is published where the Company is the publisher). Gross advertising sales in the third quarter of 1998 were $300.1 million compared to $200.8 million for the third quarter 1997. Excluding P-East gross advertising sales of $20.3 million, gross advertising sales increased $119.6 million from $180.5 million in 1997. This increase is primarily due to the DonTech Restructuring, a shift in the scheduling of certain sales campaigns in the Bell Atlantic region and the publication of the Company's inaugural annual directory from its Cincinnati proprietary operations. On a publication cycle basis (that is, reflecting sales when a directory is published, regardless of the Company's role), gross advertising sales were $182.7 million compared to $188.5 million in 1997. Excluding P-East sales of $20.3 million, publication cycle sales for the quarter were up $14.5 million compared to the third quarter 1997 amount of $168.2 million. The increase is primarily attributable to the publication of the Company's inaugural annual directory from its Cincinnati proprietary operations and higher sales from the Company's partnerships, particularly from strong growth in the Las Vegas area. These increases were partially offset by lower sales in Bell Atlantic directories, primarily in the New York City area. Revenues are derived from commissions related to advertising sales and from publishing services provided by the Company, but do not include revenues generated by sales of advertising by the DonTech partnership. Revenues for the third quarter of 1998 were $53.4 million as compared to $62.7 million in the third quarter of 1997. Excluding revenues of the former P-East business of $23.2 million, revenues were up $13.9 million compared to $39.5 million for the third quarter of 1997. This increase is primarily due to the publication of the Company's inaugural directory in Cincinnati and higher publishing revenues principally due to publishing services which the Company began providing to an independent yellow pages publisher in 1998 under a long-term agreement. Partnership income and related fees of $46.4 million was essentially unchanged from the prior year quarter. Under the terms of the DonTech Restructuring, the Company receives 50% of the profits generated by the partnership and receives direct fees from Ameritech which are tied to advertising sales generated by the partnership. The Company also receives 50% of the profits generated by the CenDon partnership, a partnership between Donnelley and an affiliate of Sprint. Operating and general and administrative expenses were $51.9 million compared to $57.8 million in the third quarter of 1997. Excluding expenses for P-East of $19.0 million, expenses were $13.1 million higher than the third quarter of 1997 amount of $38.8 million. This increase is primarily due to the expenses related to the publication of the Company's Cincinnati proprietary directory, increased publishing costs related to the contract with an independent yellow pages publisher and higher general and administrative expenses related to being an independent public company after the separation from D&B. As a result of the above factors, operating income was $43.1 million as compared to $46.8 million in the third quarter of 1997. Excluding P-East operating income of $4.1 million, operating income was essentially unchanged from the third quarter of 1997 amount of $42.7 million. Interest expense of $10.4 million in the third quarter of 1998 represents the interest on the Debt (as defined below; see ` - Liquidity and Capital Resources'). Nine Months Ended September 30, 1998 Compared with Nine Months Ended September 30, 1997 Gross advertising sales through September 30, 1998 was $701.7 million compared to $502.8 million for the comparable period of 1997. Excluding gross advertising sales for P-East of $38.9 million, gross advertising sales increased by $237.8 million, which was primarily due to the DonTech Restructuring. Increases due to scheduling shifts for certain sales campaigns in the Bell Atlantic region were offset by the impact of the expiration of the Cincinnati Bell contract in 1997. On a publication cycle basis, gross advertising sales for 1998 were $641.1 million, compared to $709.3 million for 1997. Excluding gross advertising sales for P-East of $38.9 million, gross advertising sales decreased $29.3 million from $670.4 million in 1997. This decrease is primarily related to the expiration of the Cincinnati Bell contract partially offset by gross advertising sales from the Company's Cincinnati proprietary directory and strong growth at DonTech and in Sprint's Las Vegas business. Revenues through September 30, 1998 were $115.7 million compared to $143.4 million through September 30, 1997. Excluding revenues from the former P-East business of $37.7 million, revenues were $10.0 million higher than the 1997 amount of $105.7 million. The increase is primarily due to higher publishing revenues from publishing services which the Company began providing to an independent yellow pages publisher in 1998 and the shift in the scheduling of certain sales campaigns in the Company's Bell Atlantic markets. The Company anticipates that this increase from the Bell Atlantic markets will reverse itself in the fourth quarter and that for the full year, revenues will be essentially flat as compared to 1997. Partnership income and related fees of $108.7 million increased by $45.6 million from $63.1 million in 1997 primarily due to the DonTech Restructuring. The effect of the DonTech Restructuring is expected to reverse itself in the fourth quarter. Operating and general and administrative expenses for the nine months ended September 30, 1998 were $107.3 million compared to $135.7 million in 1997. Excluding P-East expenses of $34.2 million, operating and general and administrative expenses increased $5.8 million from the 1997 amount of $101.5 million. This increase is primarily due to higher expenses related to the publication of the Company's proprietary Cincinnati directory, higher publishing costs related to the contract with an independent yellow pages publisher and higher information technology spending, principally the result of timing. As a result of the above factors, operating income for 1998 was $102.4 million compared to $54.3 million for 1997. Excluding P-East operating income of $4.2 million, operating income increased $52.3 million compared to $50.1 million in 1997. Interest expense of $13.4 million through September 30, 1998 represents the interest on the Debt incurred in connection with the Distribution. Liquidity And Capital Resources On June 5, 1998, Donnelley entered into a credit agreement with the Chase Manhattan Bank, as Administrative Agent, and the Lenders party thereto (the `Credit Agreement'). Under the terms of the Credit Agreement, Donnelley obtained a Senior Revolving Credit Facility of $100 million (the `Revolver') and Senior Secured Term Facilities in the aggregate amount of $300 million, of which Donnelley initially borrowed $350 million. The Revolver expires on June 4, 2004 at which time all outstanding borrowings are due. The Senior Secured Term Facilities mature between June 4, 2004 and December 5, 2006. In addition, Donnelley issued $150 million of Senior Subordinated Notes (the `Notes'). These Notes pay interest semi-annually at the annual rate of 9.125%, and are due in 2008. The net proceeds of the $500 million (the `Debt') were dividended to D&B (and distributed to New D&B in connection with the Distribution), but repayment of such indebtedness remains an obligation of Donnelley, and is guaranteed by the Company. The Credit Agreement and the Indenture governing the Notes each contain various financial and other restrictions, including restrictions on indebtedness, capital expenditures and commitments. At September 30, 1998, the Company had $336.9 million of outstanding debt under the Credit Agreement at a weighted average interest rate of 7.43% per annum. To reduce the impact of changes in interest rates on its floating rate long- term debt under the Credit Agreement, Donnelley subsequently entered into three interest rate swap agreements having a total notional principal amount of $175 million. These agreements effectively change the interest rate on $175 million of floating rate borrowing to fixed rates. The interest rate swap agreements have terms of 3 - 5 years. The notional amount of the swap agreements is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. Donnelley is exposed to credit risk in the event of nonperformance by the other party to the interest rate swap agreements. However, Donnelley does not anticipate nonperformance by the counterparty. Cash Flow Net cash provided by operations was $67.9 million through September 30, 1998 compared to $109.6 million through September 30, 1997. Cash flow from operations decreased $27.9 million excluding cash provided by operations through September 30, 1997 from the P-East business of $13.8 million. This decrease is primarily attributable to significantly higher income from partnerships in excess of cash received, higher taxes paid of $11.2 million and cash provided in 1997 from the Cincinnati Bell relationship of $5.1 million. Cash received from partnerships through September 30, 1998 was $10.0 million less than cash received from partnerships through September 30, 1997, and income from partnerships for the 1998 period was $45.0 million higher than income from partnerships for the 1997 period. The increase in partnership income is related to the DonTech Restructuring, and on an annual basis, the income and cash received from partnerships should be comparable to 1997. Net cash used in investing activities was $11.0 million through September 30, 1998 compared to $14.3 million through September 30, 1997. The higher capital spending in 1997 is primarily attributable to purchases of computer equipment and furniture and fixtures in connection with the relocation of the Corporate office and the expansion of the Raleigh, N.C. office. Currently, the Company has no material commitments for capital spending. Net cash used in financing activities was $46.8 million through September 30, 1998 compared to $95.3 million through September 30, 1997. Prior to July 1, 1998, all cash deposits were transferred to D&B on a daily basis and D&B funded Donnelley's disbursement bank accounts as required. The net amounts transferred to D&B were $517.1 million in 1998 and $95.3 million through September 30, 1997. In connection with the Distribution, the Company received $490.0 million from the issuance of the Debt which was dividended to D&B and distributed to New D&B. Additionally, cash was used in 1998 to repay debt ($13.1 million), to repurchase common stock under Donnelley's systematic stock repurchase plan ($1.0 million) and to pay a dividend to shareholders ($6.0 million). On October 27, 1998, the Company announced its decision to institute a stock repurchase program and to eliminate the quarterly dividend after the payment of the 1998 fourth quarter dividend payable on December 10, 1998. Under the terms of the stock repurchase program, the Company is authorized to buy back up to $20 million of its common stock over a two year period. The Company believes that cash generation, together with available debt capacity under the Revolver will be sufficient to permit the Company to fund its cash requirements, including its operating expenses, anticipated capital expenditures and its debt service requirements, for the foreseeable future. Year 2000 Issue The Year 2000 (`Y2K') issue is the result of computer programs being written using two digits rather than four to define the applicable year. Computer programs that have date sensitive software may recognize a date using `00' as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions. As part of its Y2K compliance program, all of the Company's installed computer systems and software products have been assessed for Y2K problems and the Company anticipates that these computer systems and software products will be fully Y2K compliant. The Company is currently in the process of replacing its financial systems (General Ledger, Accounts Receivable, and Fixed Assets) with systems that use programs from Oracle Corporation. The Company anticipates that all financial systems will be tested, certified and implemented by the first quarter of 1999. For all remaining systems, software programs are being modified or replaced. The Company is requesting assurances from all software vendors from which it has purchased or licensed software, or from which it may purchase or license software, that such software will correctly process all date information at all times. Through continued modifications to existing software and the conversions to new software, the Company believes that it will be able to mitigate its exposure to the Y2K issue before 2000. However, if continued modifications and conversions are not made, or not completed on a timely basis, the Y2K issue could have a material adverse effect on the Company's operating results and financial condition. The Company's Y2K compliance program is divided into five major phases - (1) the assessment of all computer systems and software products (collectively the `Computer Systems') for Y2K compliance, (2) the remediation (i.e. conversion or modification) of each Computer System to be Y2K compliant, (3) the testing of the remediation to confirm that such remediation has not adversely impacted the operation of the Computer Systems, (4) the implementation of the remediated Computer Systems into production and (5) certification of the remediation for Y2K compliance. The percentage of completion of each phase as of October 1998 is shown in the table below:
October 1998 Assessment 100% Remediation 96% Testing 70% Implementation 70% Certification 36%
The Company expects to be substantially completed with each phase of its program by year-end and to have its Y2K compliance program completed by the first quarter of 1999. The Company has targeted this date to provide itself additional time in case of any unanticipated delays or in the event any complications arise. The Company has spent approximately $3.4 million addressing the Y2K issues and estimates that it will spend an additional $0.8 million in 1998 and approximately $1.1 million in 1999. These costs will be funded through cash flows from operations. In addition, it is possible that certain computer systems or software products with which the Company's computer systems, software, databases or other technology interface or are integrated with may not accept input of, store, manipulate and output dates in the year 2000 or thereafter without error or interruption. The Company has conducted a review of its computer systems to attempt to identify ways in which its systems could be affected by interface- or integration-related problems in correctly processing date information. The Company is also querying those third-parties with which it maintains business relationships as to their progress in identifying and addressing their Y2K issues. Detailed evaluations of the major third parties have been initiated and contingency plans will be developed if necessary. There can be no assurance that the Company will identify all interface- or integration- related or third party related problems in advance of their occurrence, or that the Company will be able to successfully remedy problems that are discovered. The expenses of the Company's efforts to identify and address such problems, or the expenses and liabilities to which the Company may become subject to as a result of such problems, could have a material adverse effect on its results of operations and financial condition. PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to the discussion of legal proceedings found in the Information Statement attached as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on June 30, 1998. New D&B has assumed the defense of the matter discussed therein and to the best of the Company's knowledge there have been no material changes in the status of the proceedings referenced therein. The Company is involved in certain legal proceedings incidental to the normal conduct of its business. The Company does not believe that any liabilities relating to such legal proceedings to which it is a party are likely to be, individually or in the aggregate, material to its consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders A Special Meeting of Stockholders of R.H. Donnelley Corporation was held on August 24, 1998. At the meeting, the stockholders acted upon a proposal to amend the Company's Restated Certificate of Incorporation to effect a one-for- five reverse split of the Company's Common Stock. The result of the voting on this matter was as follows:
Votes For Votes Against Votes Abstained 113,564,841 32,860,165 244,099
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits
Exhibit No. Document 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 3.3 Certificate of Incorporation of Donnelley (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 3.4 By-laws of Donnelley (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.1 Indenture dated as of June 5, 1998 between Donnelley, as Issuer, the Company, as Guarantor, and the Bank of New York, as Trustee, with respect to the 9 1/8% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.2 Form of the 9 1/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.1) 4.3 Company Guarantee (included in Exhibit 4.1) 4.4 Exchange and Registration Rights Agreement dated as of June 5, 1998, among the Company, Donnelley, and Goldman, Sachs & Co. and Chase Securities Inc., as Initial Purchasers (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.5 Rights Agreement, dated as of October 27, 1998 between R.H. Donnelley Corporation and First Chicago Trust Company (incorporated by reference to Exhibit 4 to the Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on November 5, 1998, Registration No. 001-07155) 10.1 Employment Agreement dated as of September 28, 1998 between the Company and Frank R. Noonan. 10.2 Employment Agreement dated as of September 28, 1998 between the Company and Philip C. Danford. 10.3 Employment Agreement dated as of September 28, 1998 between the Company and Alexander R. Marasco. 10.4 Employment Agreement dated as of September 28, 1998 between the Company and David C. Swanson. 10.5 Employment Agreement dated as of September 28, 1998 between the Company and Frederick J. Groser. 27.1 Financial Data Schedule of the Company 27.2 Financial Data Schedule of Donnelley (b) Reports on Form 8-K: A report on Form 8-K was filed July 17, 1998 under Item 5-Other Events to report on the Company's decision to (i) convene a special meeting of stockholders to approve a one-for-five reverse stock split, (ii) commence a systematic stock repurchase program to offset shares issued under the Company's employee and director compensation plans and (iii) issue a quarterly dividend. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R.H. DONNELLEY CORPORATION Date: November 13, 1998 By: PHILIP C. DANFORD ----------------------------------------------- Philip C. Danford Senior Vice President and Chief Financial Officer Date: November 13, 1998 By: ANNA M. PATRUNO ------------------------------------------------- Anna M. Patruno Vice President and Controller SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R.H. DONNELLEY INC. Date: November 13, 1998 By: PHILIP C. DANFORD -------------------------------------------------- Philip C. Danford Senior Vice President and Chief Financial Officer Date: November 13, 1998 By: ANNA M. PATRUNO -------------------------------------------------- Anna M. Patruno Vice President and Controller
EX-27.1 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM R.H. DONNELLEY CORPORATION'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS DEC-31-1998 DEC-31-1997 SEP-30-1998 SEP-30-1997 10,204 64 0 0 77,271 119,581 5,258 8,002 0 0 13,707 44,840 59,734 66,588 37,351 36,003 414,273 438,818 75,820 55,437 483,750 0 0 0 0 0 51,622 52,179 (263,226) 264,292 414,273 438,818 0 0 115,740 143,392 0 0 13,305 89,068 0 0 0 0 13,371 0 89,064 54,324 35,626 21,730 53,438 32,594 0 0 0 0 0 0 53,438 32,594 1.56 0.95 1.55 0.95
EX-27.2 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM R.H. DONNELLEY INC.'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS DEC-31-1998 DEC-31-1997 SEP-30-1998 SEP-30-1997 10,204 64 0 0 77,271 119,581 5,258 8,002 0 0 13,707 44,840 59,734 66,588 37,351 36,003 414,273 438,818 75,820 55,437 483,750 0 0 0 0 0 12,002 12,002 (223,606) 304,469 414,273 438,818 0 0 115,740 143,392 0 0 13,305 89,068 0 0 0 0 13,371 0 89,064 54,324 35,626 21,730 53,438 32,594 0 0 0 0 0 0 53,438 32,594 1.56 0.95 1.55 0.95
EX-10.1 4 EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H. Donnelley Corporation, a Delaware corporation, (the `Company') and Frank R. Noonan (the `Executive'). WHEREAS, the transaction pursuant to which the Company has been separated from its former parent company (the `Spinoff') has been consummated as of July 1, 1998, and WHEREAS, Executive is currently serving as Chief Executive Officer of the Company or of its subsidiary, R.H. Donnelley, Inc.; and WHEREAS, Executive is willing so to continue his employment on the terms hereinafter set forth in this agreement (the `Agreement'); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc. for a period (the `Employment Term') commencing on the date hereof (the `Commencement Date') and ending on the third anniversary of the Spinoff. On the third and each succeeding anniversary of the Spinoff, the Employment Term shall automatically be extended for one additional year unless, not later than ninety days prior to such anniversary, the Company or the Executive shall have given notice of its or his intention not to extend the Employment Term. Any such nonrenewal of this Agreement by the Company shall be treated as a termination of Executive's employment without Cause, as hereinafter defined. 2. Position. (a) Executive shall serve as Chief Executive Officer of the Company or of R.H. Donnelley, Inc. In such position, Executive shall have such duties and authority as shall be determined from time to time by, and shall report to, the Board of Directors of the Company (the `Board'). (b) During the Employment Term, Executive will devote substantially all of his business time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive from serving on business, civic or charitable boards or committees, as long as such activities do not materially interfere with the performance of Executive's duties hereunder. 3. Base Salary. Company shall pay Executive an annual base salary (the `Base Salary') at the initial annual rate of $430,000, payable in equal monthly installments or otherwise in accordance with the payroll and personnel practices of the Company from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the `Committee') for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. 4. Bonus. With respect to each fiscal year all or part of which is contained in the Employment Term, Executive shall be eligible to participate in the Company's Annual Incentive Plan or any successor plan thereto, with a target bonus opportunity of 80% of Base Salary and a maximum bonus opportunity not less than that for which he is eligible on the date hereof (the `Bonus'). 5. Additional Compensation. As further compensation, Executive will be eligible for participation in all bonuses, long term incentive compensation and stock options and other equity participation arrangements (at the same level of opportunity as that applicable in the ordinary course on the Effective Date) made available generally to senior executives of the Company. 6. Employee Benefits. During the Employment Term, Executive shall be eligible, on the same basis as he is currently eligible, for employee benefits (including fringe benefits, vacation, pension and profit sharing plan participation and life, health, accident and disability insurance) no less favorable than those benefits for which he is eligible immediately prior to the Commencement Date. 7. Business Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies from time to time. 8. Termination of Employment. Each of Executive and the Company may terminate the employment of Executive hereunder at any time in accordance with this Section 8. Executive's entitlements hereunder in the event of any such termination shall be as set forth in this Section 8. The provisions of this Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant to Section 1. (a) For Cause by the Company. If Executive's employment is terminated by the company for Cause, he shall be entitled to receive his Base Salary through the Date of Termination, as hereinafter defined. All other benefits due Executive following Executive's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the plans, policies and practices of the Company. Notwithstanding the foregoing, Executive's employment shall not be deemed to have been terminated for Cause unless and until the Board shall have (A) determined, by the affirmative vote (which cannot be delegated) of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after notice to Executive in accordance with Section 8(g) and an opportunity for Executive, together with his counsel, to be heard before the Board), that, in its good faith opinion, one or more of the items constituting `Cause' has occurred or existed, and (B) specified the particulars thereof in detail and in writing. (b) Death or Disability. Executive's employment hereunder shall terminate upon his death and may be terminated by the Company upon his Disability during the Employment Term. Upon termination of Executive's employment hereunder upon the Executive's Disability or death, Executive or his estate (as the case may be) shall be entitled to receive Base Salary through the date of such termination, plus a pro-rata portion of target Bonus, based on the number of whole or partial months from the beginning of the bonus period to the Date of Termination. In addition, if Executive's employment is terminated as a result of Disability, Executive shall continue to be eligible to participate in all health, medical and dental benefit plans of the Company, until age 65 in accordance with the terms, conditions and elections, if any, applicable to or in effect with respect to Executive at the time of termination of employment. (c) Without Cause by the Company; By Executive for Good Reason. If, during the Employment Term Executive's employment is terminated by the Company without Cause, or by Executive for Good Reason, as hereinafter defined, Executive shall be entitled to the following benefits: (i) Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination, as defined in Section 8(f) herein, is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus all other amounts to which Executive is entitled under any compensation or benefit plan of the Company. (ii) In lieu of any further salary payments to Executive for periods subsequent to the date of termination, the Company shall pay as severance pay, not later than the fifth day following the Date of Termination, a severance payment (the `Severance Payment') equal to three times the sum of (A) Base Salary at the rate in effect on the date Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus (B) target Bonus, paid in lump sum without reduction for time value of money. (iii) Continued eligibility to participate in all health, medical and dental benefit plans of the Company for which Executive was eligible immediately prior to the time of the Notice of Termination, or comparable coverage, for three years, or, if sooner, until comparable health insurance coverage is available to Executive in connection with subsequent employment or self-employment. The coverage for which Executive shall continue to be eligible under this Section shall be made available at no greater cost or tax cost to Executive than that applicable to Executive at the time of termination of employment. (iv) Term life insurance equivalent in coverage, and at no greater cost or tax cost to Executive, to that elected by Executive at the time of the Notice of Termination, until the last day of the third calendar year beginning after termination of employment, or, if sooner, until comparable life insurance coverage is available to Executive in connection with subsequent employment or self-employment. (v) For three years following termination of employment or, if sooner, until subsequently employed or self-employed, (A) all perquisites and similar benefits he was receiving immediately prior to the time of Notice of Termination, (B) reimbursement of expenses relating to financial planning services up to a maximum amount per year equal to the average of such amounts paid to Executive for the two calendar years preceding the Date of Termination and (C) reimbursement of expenses relating to outplacement services, subject to a maximum reimbursement under this clause (C) of $50,000 per year. (d) Retirement. If during the Employment Term, Executive retires at normal retirement age under the Company's qualified pension plan or any successor plan, Executive shall be entitled to the payments and benefits specified in Section 8(b) as if his employment had terminated as a result of Disability. (e) Voluntary Termination of Employment. If during the Employment Term, Executive terminates his employment under circumstances other than those specified in this Section 8, Executive shall be entitled to the payments and benefits specified in Section 8(a). (f) Notice and Date of Termination. (i) Any purported termination of employment by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 18(i) hereof. For purposes of this Agreement, a `Notice of Termination' shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is based is susceptible of cure, the Notice of Termination shall not be delivered until Executive or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. (ii) `Date of Termination' shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period), (B) if employment is terminated by reason of death, the date of death, and (C) if employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause shall not be less than ten (10) days after the date such Notice of Termination is given and shall coincide with the written determination referred to in the last sentence of Section 8(a); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. (g) Any provision of this Agreement to the contrary notwithstanding, Executive shall be obligated to execute a general release of claims in favor of the Company, in the form used generally by the Company in connection with termination of employment from time to time, as a condition to receiving benefits and payments under this Agreement. 9. Definitions. (a) `Cause' shall mean (i) Executive's willful and continued failure substantially to perform the duties of his position (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by Executive for Good Reason, as hereinafter defined), (ii) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably injurious to the financial condition or business reputation of the Company or any of its affiliates, or (iii) the Executive's conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company or any of its subsidiaries conducts business which materially impairs the value of Executive's services to the Company or any of its subsidiaries. For purposes of this definition, no act or failure to act shall be deemed `willful' unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. (b) `Change in Control' shall mean the occurrence of any of the following events after July 14, 1998: (i) Any `person,' as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the `Exchange Act') (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the `beneficial owner' (as defined in rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years commencing on July 14, 1998, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. (c) `Disability' shall mean the Executive's inability, as a result of physical or mental incapacity, to perform the duties of his position for a period of six (6) consecutive months or for an aggregate of six (6) months in any twelve (12) consecutive month period. Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (d) `Good Reason' means: (i) Removal from, or failure to be reappointed or reelected to, Executive's position as specified in Section 2 (other than as a result of a promotion). (ii) Material diminution in Executive's title, position, duties or responsibilities, change in Executive's reporting relationships or the assignment to Executive of duties that are inconsistent, in a material respect, with the scope of duties and responsibilities associated with Executive's position as specified in Section 2. (iii) Reduction in Base Salary or target or maximum Bonus opportunity, reduction in level of participation in long term incentive, stock option and other equity award, benefit and other plans for senior executives or other material breach of this Agreement by the Company. (iv) Relocation of the executive's principal workplace without his consent to a location outside the New York metropolitan area. 10. SERP and Retiree Health Benefits. If Executive's employment is terminated by the Company without Cause or by Executive for Good Reason, in addition to receiving the benefits described in Section 8(c) above, Executive shall receive three additional years of age and service credit for vesting, eligibility (for participation and for any early retirement or other benefit) and benefit accrual purposes under the Company's defined benefit pension plan and any related supplemental plan (including any successor plan thereto) and the Company's retiree health, medical and dental plans and shall be fully vested in his accrued benefits under such plans. Compensation paid in connection with termination of employment under this Agreement shall not be treated as compensation for purposes of computing his benefit under such plans. 11. Certain Payments. (a) If any of the payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment, whether or not pursuant to this Agreement (such payments or benefits, excluding the Gross-Up Payment, as hereinafter defined, shall hereinafter be referred to as the `Total Payments') will be subject to an excise tax as provided for in Section 4999 of the Internal Revenue Code (the `Code') (the `Excise Tax'), the Company shall pay to Executive an additional amount (the `Gross-Up Payment') such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments; provided, however, that if the Total Payments are less than 360% of the Executive's Base Amount, as defined in section 280G(b)(3) of the Code, the Executive shall not be entitled to the Gross-Up Payment, and the Total Payments shall be reduced as provided for in Section 11(d) below. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as `parachute payments' (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (`Tax Counsel') reasonably acceptable to Executive and selected by the accounting firm acting as the `Auditor', as defined below, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all `Excess parachute payments' within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence or, if higher, in the state and locality of Executive's principal place of employment, on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 11), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (including that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (d) If the Total Payments would constitute an Excess parachute payment, but are less than 360% of the Base Amount, such payments shall be reduced to the largest amount that may be paid to the Executive without the imposition of the Excise Tax or the disallowance as deductions to the Company under Section 280G of the Code of any such payments. (e) All determinations under this Section 11 shall be made by a nationally recognized accounting firm selected by the Executive (the `Auditor'). The Company shall cooperate in good faith in making such determinations and in providing the necessary information for this purpose. 12. Indemnification. The Company will indemnify Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) by applicable law, as in effect at the time of the subject act or omission, or by the Certificate of Incorporation and By-Laws of the Company, as in effect at such time or on the Commencement Date, or by the terms of any indemnification agreement between the Company and Executive, whichever affords or afforded greatest protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage available for any Company officer or director), against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives (including but not limited to any judgment entered by a court of law) at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which Executive (or his legal representatives or other successors) may be made a party by reason of his having accepted employment with the Company or by reason of his being or having been a director, officer or employee of the Company, or any subsidiary of the Company, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. Executive's rights under this Section 12 shall continue without time limit for so long as he may be subject to any such liability, whether or not the Employment Term may have ended. 13. Non-Competition. (a) Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that during the Employment Term and for a period of one year after the termination thereof; (i) The Executive will not directly or indirectly engage in any business which is in competition with any line of business conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for any person who is a customer or client of the Company or any of its affiliates) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates conducted any such competing line of business. (ii) Executive will not directly or indirectly assist others in engaging in any of the activities in which Executive is prohibited from engaging in by clause (i) above. (iii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months. (iv) Executive will not directly or indirectly solicit subscribers or suppliers of the Company or telephone companies for which the Company serves as sales agent or induce any such person to terminate its relationships with the Company. (b) It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 13 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 14. Confidentiality; Nondisparagement. (a) Executive will not at any time (whether during or after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this covenant. Executive agrees that upon termination of his employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that he may retain personal notes, notebooks and diaries. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. (b) Executive will not at any time (whether during or after his employment with the Company) knowingly make any statement, written or oral, or take any other action relating to the Company or its officers or directors that would disparage or otherwise harm the Company, its business or its reputation or those of any of its officers and directors. 15. Material Inducement; Specific Performance. Executive acknowledges and agrees that the covenants entered into by Executive in Section 13 and 14 are essential elements of the parties' agreement as expressed herein, are a material inducement for the Company to enter into this Agreement and the breach thereof would be a material breach of this Agreement. Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 13 or Section 14 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 16. Litigation Support. Executive agrees that he will assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by Executive, pertinent knowledge possessed by Executive, or any act or omission by Executive. Executive further agrees to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section. 17. Legal Fees. The Company will pay or reimburse Executive, as incurred, all legal fees and costs incurred by Executive in enforcing his rights under the Agreement, if Executive's position substantially prevails. Following a Change in Control, the Company will pay or reimburse Executive, as incurred, for all such fees and costs unless Executive's claim was frivolous or was brought or pursued by Executive in bad faith. 18. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and in the incentive compensation and other employee benefit plans and arrangements of the Company referenced herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. (e) Assignment. This Agreement shall not be assignable by Executive and shall be assignable by the Company only with the consent of Executive except as set forth in Section 18(h); provided that no such assignment by the Company shall relieve the Company of any liability hereunder, whether accrued before or after such assignment. (f)No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such employment, if obtained, or compensation or benefits payable in connection therewith, shall reduce any amounts or benefits to which Executive is entitled hereunder except as provided for in Sections 8(c) and (d). (g) Arbitration. Any dispute between the parties to this Agreement arising from or relating to the terms of this Agreement or the employment of Executive by the Company shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. (h) Successors; Binding Agreement (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Such assumption and agreement shall be obtained prior to the effectiveness of any such succession. As used in this Agreement, `Company' shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term `Company' shall also mean any affiliate of the Company to which Executive may be transferred and the Company shall cause such successor employer to be considered the `Company' bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term `Company' shall not mean any affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the `Company' bound by the terms of this Agreement and this Agreement shall be amended to so provide. (ii) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributers, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the devisee, legatee or other designee of Executive or, if there is no such designee, to the estate of Executive. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at the address appearing from time to time in the personnel records of the Company and to the Company at the address of its corporate headquarters, directed to the attention of the Board with a copy to the Secretary of the Company, or in either case to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (j) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (k) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Frank R. Noonan _____________________________ R.H. DONNELLEY CORPORATION By:__________________________ Title: EX-10.2 5 EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H. Donnelley Corporation, a Delaware corporation, (the `Company') and Philip C. Danford (the `Executive'). WHEREAS, the transaction pursuant to which the Company has been separated from its former parent company (the `Spinoff') has been consummated as of July 1, 1998, and WHEREAS, Executive is currently serving as an executive of the Company or of its subsidiary, R.H. Donnelley, Inc.; and WHEREAS, Executive is willing so to continue his employment on the terms hereinafter set forth in this agreement (the `Agreement'); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc. for a period (the `Employment Term') commencing on the date hereof (the `Commencement Date') and ending on the third anniversary of the Spinoff. On the third and each succeeding anniversary of the Spinoff, the Employment Term shall automatically be extended for one additional year unless, not later than ninety days prior to such anniversary, the Company or the Executive shall have given notice of its or his intention not to extend the Employment Term. 2. Position. (a) Executive shall serve as a senior executive officer of the Company or of R.H. Donnelley, Inc. In such position, Executive shall have such duties and authority as shall be determined from time to time by the Board of Directors of the Company (the `Board') or its designee. (b) During the Employment Term, Executive will devote substantially all of his business time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive from serving on business, civic or charitable boards or committees, as long as such activities do not materially interfere with the performance of Executive's duties hereunder. 3. Base Salary. Company shall pay Executive an annual base salary (the `Base Salary') at the initial annual rate of $300,000, payable in equal monthly installments or otherwise in accordance with the payroll and personnel practices of the Company from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the `Committee') for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. 4. Bonus. With respect to each fiscal year all or part of which is contained in the Employment Term, Executive shall be eligible to participate in the Company's Annual Incentive Plan or any successor plan thereto, with a target bonus opportunity of 60% of Base Salary and a maximum bonus opportunity not less than that for which he is eligible on the date hereof (the `Bonus'). 5. Additional Compensation. As further compensation, Executive will be eligible for participation in all bonuses, long-term incentive compensation and stock options and other equity participation arrangements (at the same opportunity as that applicable in the ordinary course on the Effective Date) made available generally to senior executives of the Company. 6. Employee Benefits. During the Employment Term, Executive shall be eligible, on the same basis as he is currently eligible, for employee benefits (including fringe benefits, vacation, pension and profit sharing plan participation and life, health, accident and disability insurance) no less favorable than those benefits for which he is eligible immediately prior to the Commencement Date. 7. Business Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies from time to time. 8. Termination of Employment. Each of Executive and the Company may terminate the employment of Executive hereunder at any time in accordance with this Section 8. Executive's entitlements hereunder in the event of any such termination shall be as set forth in this Section 8. The provisions of this Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant to Section 1. (a) For Cause by the Company. If Executive's employment is terminated by the company for Cause, he shall be entitled to receive his Base Salary through the Date of Termination, as hereinafter defined. All other benefits due Executive following Executive's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the plans, policies and practices of the Company. (b) Death or Disability. Executive's employment hereunder shall terminate upon his death and may be terminated by the Company upon his Disability during the Employment Term. Upon termination of Executive's employment hereunder upon the Executive's Disability or death, Executive or his estate (as the case may be) shall be entitled to receive Base Salary through the date of such termination, plus a pro-rata portion of target Bonus, based on the number of whole or partial months from the beginning of the bonus period to the Date of Termination. In addition, if Executive's employment is terminated as a result of Disability, Executive shall continue to be eligible to participate in all health, medical and dental benefit plans of the Company, until age 65 in accordance with the terms, conditions and elections, if any, applicable to or in effect with respect to Executive at the time of termination of employment. (c) Without Cause by the Company Not Following a Change in Control. If, during the Employment Term and prior to a Change in Control, as hereinafter defined, or more than two years after a Change in Control, Executive's employment is terminated by the Company without Cause, Executive shall be entitled to the following benefits: (i) Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination, as defined in Section 8(g) herein, is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus all other amounts to which Executive is entitled under any compensation or benefit plan of the Company. (ii) In lieu of any further salary payments to Executive for periods subsequent to the date of termination, the Company shall pay as severance pay, not later than the fifth day following the Date of Termination, a severance payment (the `Severance Payment') equal to two times the sum of (A) Base Salary at the rate in effect on the date Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus (B) target Bonus, paid in lump sum without reduction for time value of money. (iii) Continued eligibility to participate in all health, medical and dental benefit plans of the Company for which Executive was eligible immediately prior to the time of the Notice of Termination, or comparable coverage, for two years, or, if sooner, until comparable health insurance coverage is available to Executive in connection with subsequent employment or self-employment. The coverage for which Executive shall continue to be eligible under this Section shall be made available at no greater cost or tax cost to Executive than that applicable to Executive at the time of termination of employment. (iv) Term life insurance equivalent in coverage, and at no greater cost or tax cost to Executive, to that elected by Executive at the time of Notice of Termination, until the last day of the second calendar year beginning after termination of employment, or, if sooner, until comparable life insurance coverage is available to Executive in connection with subsequent employment or self-employment. (d) Termination Within Two Years Following a Change in Control. If, during the Employment Term and within two years following a Change in Control, Executive's employment is terminated by the Company without Cause, or by the Executive for Good Reason, as hereinafter defined, Executive shall be entitled to the payments and benefits set forth in Section 8(c), except that for purposes of this Section 8(d), references in such Section to `two' times or `two' years shall be changed to `three' times and `three' years. In addition, Executive shall be entitled to receive, for the three years following termination of employment or, if sooner, until subsequently employed or self-employed, (i) all perquisites and similar benefits he was receiving immediately prior to the time of Notice of Termination, (ii) reimbursement of expenses relating to financial planning services, up to a maximum amount per year equal to the average of such amounts paid to Executive for the two calendar years preceding the Date of Termination and (iii) reimbursement of expenses relating to outplacement services, subject to a maximum reimbursement under this clause (iii) of $25,000. For purposes of this Agreement, termination of employment after the commencement of negotiations with a potential acquiror or business combination partner shall be deemed to be a termination of employment within two years following a Change in Control if such negotiations result in a transaction with such acquiror or business combination partner which constitutes a Change in Control. (e) Retirement. If during the Employment Term, Executive retires at normal retirement age under the Company's qualified pension plan or any successor plan, Executive shall be entitled to the payments and benefits specified in Section 8(b) as if his employment had terminated as a result of Disability. (f) Voluntary Termination of Employment. If during the Employment Term, Executive terminates his employment under circumstances other than those specified in this Section 8, Executive shall be entitled to the payments and benefits specified in Section 8(a). (g) Notice and Date of Termination. (i) Any purported termination of employment by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 18(i) hereof. For purposes of this Agreement, a `Notice of Termination' shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is based is susceptible of cure, the Notice of Termination shall not be delivered until Executive or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. (ii) `Date of Termination' shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period), (B) if employment is terminated by reason of death, the date of death, and (C) if employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause shall not be less than ten (10) days after the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. (h) Any provision of this Agreement to the contrary notwithstanding, Executive shall be obligated to execute a general release of claims in favor of the Company, in the form used generally by the Company in connection with termination of employment from time to time, as a condition to receiving benefits and payments under this Agreement. 9. Definitions. (a) `Cause' shall mean (i) Executive's willful and continued failure substantially to perform the duties of his position (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by Executive for Good Reason, as hereinafter defined), (ii) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably injurious to the financial condition or business reputation of the Company or any of its affiliates, or (iii) the Executive's conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company or any of its subsidiaries conducts business which materially impairs the value of Executive's services to the Company or any of its subsidiaries. For purposes of this definition, no act or failure to act shall be deemed `willful' unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. (b) `Change in Control' shall mean the occurrence of any of the following events after July 14, 1998: (i) Any `person,' as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the `Exchange Act') (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the `beneficial owner' (as defined in rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years commencing on July 14, 1998, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. (c) `Disability' shall mean the Executive's inability, as a result of physical or mental incapacity, to perform the duties of his position for a period of six (6) consecutive months or for an aggregate of six (6) months in any twelve (12) consecutive month period. Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (d) `Good Reason' means: (i) Removal from, or failure to be reappointed or reelected to, Executive's position as specified in Section 2 (other than as a result of a promotion). (ii) Material diminution in Executive's title, position, duties or responsibilities, or the assignment to Executive of duties that are inconsistent, in a material respect, with the scope of duties and responsibilities associated with Executive's position as specified in Section 2. (iii) Reduction in Base Salary or target or maximum Bonus opportunity, reduction in level of participation in long term incentive, stock option and other equity award, benefit and other plans for senior executives or other material breach of this Agreement by the Company. (iv) Relocation of the executive's principal workplace without his consent to a location outside the New York metropolitan area. 10. SERP and Retiree Health Benefits. If Executive's employment is terminated by the Company without Cause or by Executive for Good Reason within two years after a Change in Control, in addition to receiving the benefits described in Section 8(c) and 8(d) above, Executive shall receive three additional years of age and service credit for vesting, eligibility (for participation and for any early retirement or other benefit) and benefit accrual purposes under the Company's defined benefit pension plan and any related supplemental plan (including any successor plan thereto) and the Company's retiree health, medical and dental plans and shall be fully vested in his accrued benefits under such plans. Compensation paid in connection with termination of employment under this Agreement shall not be treated as compensation for purposes of computing his benefit under such plans. 11. Certain Payments. (a) If any of the payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment, whether or not pursuant to this Agreement (such payments or benefits, excluding the Gross-Up Payment, as hereinafter defined, shall hereinafter be referred to as the `Total Payments') will be subject to an excise tax as provided for in Section 4999 of the Internal Revenue Code (the `Code') (the `Excise Tax'), the Company shall pay to Executive an additional amount (the `Gross-Up Payment') such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments; provided, however, that if the Total Payments are less than 360% of the Executive's Base Amount, as defined in section 280G(b)(3) of the Code, the Executive shall not be entitled to the Gross-Up Payment, and the Total Payments shall be reduced as provided for in Section 11(d) below. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as `parachute payments' (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (`Tax Counsel') reasonably acceptable to Executive and selected by the accounting firm acting as the `Auditor', as defined below, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all `Excess parachute payments' within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence or, if higher, in the state and locality of Executive's principal place of employment, on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 11), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (including that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (d) If the Total Payments would constitute an Excess parachute payment, but are less than 360% of the Base Amount, such payments shall be reduced to the largest amount that may be paid to the Executive without the imposition of the Excise Tax or the disallowance as deductions to the Company under Section 280G of the Code of any such payments. (e) All determinations under this Section 11 shall be made by a nationally recognized accounting firm selected by the Executive (the `Auditor'). The Company shall cooperate in good faith in making such determinations and in providing the necessary information for this purpose. 12. Indemnification. The Company will indemnify Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) by applicable law, as in effect at the time of the subject act or omission, or by the Certificate of Incorporation and By-Laws of the Company, as in effect at such time or on the Commencement Date, or by the terms of any indemnification agreement between the Company and Executive, whichever affords or afforded greatest protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage available for any Company officer or director), against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives (including but not limited to any judgment entered by a court of law) at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which Executive (or his legal representatives or other successors) may be made a party by reason of his having accepted employment with the Company or by reason of his being or having been a director, officer or employee of the Company, or any subsidiary of the Company, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. Executive's rights under this Section 12 shall continue without time limit for so long as he may be subject to any such liability, whether or not the Employment Term may have ended. 13. Non-Competition. (a) Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that during the Employment Term and for a period of one year after the termination thereof; (i) The Executive will not directly or indirectly engage in any business which is in competition with any line of business conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for any person who is a customer or client of the Company or any of its affiliates) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates conducted any such competing line of business. (ii) Executive will not directly or indirectly assist others in engaging in any of the activities in which Executive is prohibited from engaging in by clause (i) above. (iii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months. (iv) Executive will not directly or indirectly solicit subscribers or suppliers of the Company or telephone companies for which the Company serves as sales agent or induce any such person to terminate its relationships with the Company. (b) It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 13 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 14. Confidentiality; Nondisparagement. (a) Executive will not at any time (whether during or after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this covenant. Executive agrees that upon termination of his employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that he may retain personal notes, notebooks and diaries. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. (b) Executive will not at any time (whether during or after his employment with the Company) knowingly make any statement, written or oral, or take any other action relating to the Company or its officers or directors that would disparage or otherwise harm the Company, its business or its reputation or those of any of its officers and directors. 15. Material Inducement; Specific Performance. Executive acknowledges and agrees that the covenants entered into by Executive in Section 13 and 14 are essential elements of the parties' agreement as expressed herein, are a material inducement for the Company to enter into this Agreement and the breach thereof would be a material breach of this Agreement. Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 13 or Section 14 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 16. Litigation Support. Executive agrees that he will assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by Executive, pertinent knowledge possessed by Executive, or any act or omission by Executive. Executive further agrees to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section. 17. Legal Fees. The Company will pay or reimburse Executive, as incurred, all legal fees and costs incurred by Executive in enforcing his rights under the Agreement, if Executive's position substantially prevails. Following a Change in Control, the Company will pay or reimburse Executive, as incurred, for all such fees and costs unless Executive's claim was frivolous or was brought or pursued by Executive in bad faith. 18. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and in the incentive compensation and other employee benefit plans and arrangements of the Company referenced herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. (e) Assignment. This Agreement shall not be assignable by Executive and shall be assignable by the Company only with the consent of Executive except as set forth in Section 18(h); provided that no such assignment by the Company shall relieve the Company of any liability hereunder, whether accrued before or after such assignment. (f) No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such employment, if obtained, or compensation or benefits payable in connection therewith, shall reduce any amounts or benefits to which Executive is entitled hereunder except as provided for in Sections 8(c) and (d). (g) Arbitration. Any dispute between the parties to this Agreement arising from or relating to the terms of this Agreement or the employment of Executive by the Company shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. (h) Successors; Binding Agreement (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Such assumption and agreement shall be obtained prior to the effectiveness of any such succession. As used in this Agreement, `Company' shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term `Company' shall also mean any affiliate of the Company to which Executive may be transferred and the Company shall cause such successor employer to be considered the `Company' bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term `Company' shall not mean any affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the `Company' bound by the terms of this Agreement and this Agreement shall be amended to so provide. (ii) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributers, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the devisee, legatee or other designee of Executive or, if there is no such designee, to the estate of Executive. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at the address appearing from time to time in the personnel records of the Company and to the Company at the address of its corporate headquarters, directed to the attention of the Board with a copy to the Secretary of the Company, or in either case to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (j) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (k) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Philip C. Danford ___________________________ R.H. DONNELLEY CORPORATION By: ________________________ Title: EX-10.3 6 EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H. Donnelley Corporation, a Delaware corporation, (the `Company') and Alexander R. Marasco (the `Executive'). WHEREAS, the transaction pursuant to which the Company has been separated from its former parent company (the `Spinoff') has been consummated as of July 1, 1998, and WHEREAS, Executive is currently serving as an executive of the Company or of its subsidiary, R.H. Donnelley, Inc.; and WHEREAS, Executive is willing so to continue his employment on the terms hereinafter set forth in this agreement (the `Agreement'); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc. for a period (the `Employment Term') commencing on the date hereof (the `Commencement Date') and ending on the third anniversary of the Spinoff. On the third and each succeeding anniversary of the Spinoff, the Employment Term shall automatically be extended for one additional year unless, not later than ninety days prior to such anniversary, the Company or the Executive shall have given notice of its or his intention not to extend the Employment Term. 2. Position. (a) Executive shall serve as a senior executive officer of the Company or of R.H. Donnelley, Inc. In such position, Executive shall have such duties and authority as shall be determined from time to time by the Board of Directors of the Company (the `Board') or its designee. (b) During the Employment Term, Executive will devote substantially all of his business time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive from serving on business, civic or charitable boards or committees, as long as such activities do not materially interfere with the performance of Executive's duties hereunder. 3. Base Salary. Company shall pay Executive an annual base salary (the `Base Salary') at the initial annual rate of $230,000, payable in equal monthly installments or otherwise in accordance with the payroll and personnel practices of the Company from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the `Committee') for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. 4. Bonus. With respect to each fiscal year all or part of which is contained in the Employment Term, Executive shall be eligible to participate in the Company's Annual Incentive Plan or any successor plan thereto, with a target bonus opportunity of 60% of Base Salary and a maximum bonus opportunity not less than that for which he is eligible on the date hereof (the `Bonus'). 5. Additional Compensation. As further compensation, Executive will be eligible for participation in all bonuses, long-term incentive compensation and stock options and other equity participation arrangements (at the same opportunity as that applicable in the ordinary course on the Effective Date) made available generally to senior executives of the Company. 6. Employee Benefits. During the Employment Term, Executive shall be eligible, on the same basis as he is currently eligible, for employee benefits (including fringe benefits, vacation, pension and profit sharing plan participation and life, health, accident and disability insurance) no less favorable than those benefits for which he is eligible immediately prior to the Commencement Date. 7. Business Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies from time to time. 8. Termination of Employment. Each of Executive and the Company may terminate the employment of Executive hereunder at any time in accordance with this Section 8. Executive's entitlements hereunder in the event of any such termination shall be as set forth in this Section 8. The provisions of this Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant to Section 1. (a) For Cause by the Company. If Executive's employment is terminated by the company for Cause, he shall be entitled to receive his Base Salary through the Date of Termination, as hereinafter defined. All other benefits due Executive following Executive's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the plans, policies and practices of the Company. (b) Death or Disability. Executive's employment hereunder shall terminate upon his death and may be terminated by the Company upon his Disability during the Employment Term. Upon termination of Executive's employment hereunder upon the Executive's Disability or death, Executive or his estate (as the case may be) shall be entitled to receive Base Salary through the date of such termination, plus a pro-rata portion of target Bonus, based on the number of whole or partial months from the beginning of the bonus period to the Date of Termination. In addition, if Executive's employment is terminated as a result of Disability, Executive shall continue to be eligible to participate in all health, medical and dental benefit plans of the Company, until age 65 in accordance with the terms, conditions and elections, if any, applicable to or in effect with respect to Executive at the time of termination of employment. (c) Without Cause by the Company Not Following a Change in Control. If, during the Employment Term and prior to a Change in Control, as hereinafter defined, or more than two years after a Change in Control, Executive's employment is terminated by the Company without Cause, Executive shall be entitled to the following benefits: (i) Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination, as defined in Section 8(g) herein, is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus all other amounts to which Executive is entitled under any compensation or benefit plan of the Company. (ii) In lieu of any further salary payments to Executive for periods subsequent to the date of termination, the Company shall pay as severance pay, not later than the fifth day following the Date of Termination, a severance payment (the `Severance Payment') equal to two times the sum of (A) Base Salary at the rate in effect on the date Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus (B) target Bonus, paid in lump sum without reduction for time value of money. (iii) Continued eligibility to participate in all health, medical and dental benefit plans of the Company for which Executive was eligible immediately prior to the time of the Notice of Termination, or comparable coverage, for two years, or, if sooner, until comparable health insurance coverage is available to Executive in connection with subsequent employment or self-employment. The coverage for which Executive shall continue to be eligible under this Section shall be made available at no greater cost or tax cost to Executive than that applicable to Executive at the time of termination of employment. (iv) Term life insurance equivalent in coverage, and at no greater cost or tax cost to Executive, to that elected by Executive at the time of the Notice of Termination, until the last day of the second calendar year beginning after termination of employment, or, if sooner, until comparable life insurance coverage is available to Executive in connection with subsequent employment or self-employment. (d) Termination Within Two Years Following a Change in Control. If, during the Employment Term and within two years following a Change in Control, Executive's employment is terminated by the Company without Cause, or by the Executive for Good Reason, as hereinafter defined, Executive shall be entitled to the payments and benefits set forth in Section 8(c), except that for purposes of this Section 8(d), references in such Section to `two' times or `two' years shall be changed to `three' times and `three' years. In addition, Executive shall be entitled to receive, for the three years following termination of employment or, if sooner, until subsequently employed or self-employed, (i) all perquisites and similar benefits he was receiving immediately prior to the time of Notice of Termination, (ii) reimbursement of expenses relating to financial planning services, up to a maximum amount per year equal to the average of such amounts paid to Executive for the two calendar years preceding the Date of Termination and (iii) reimbursement of expenses relating to outplacement services, subject to a maximum reimbursement under this clause (iii) of $25,000. For purposes of this Agreement, termination of employment after the commencement of negotiations with a potential acquiror or business combination partner shall be deemed to be a termination of employment within two years following a Change in Control if such negotiations result in a transaction with such acquiror or business combination partner which constitutes a Change in Control. (e) Retirement. If during the Employment Term, Executive retires at normal retirement age under the Company's qualified pension plan or any successor plan, Executive shall be entitled to the payments and benefits specified in Section 8(b) as if his employment had terminated as a result of Disability. (f) Voluntary Termination of Employment. If during the Employment Term, Executive terminates his employment under circumstances other than those specified in this Section 8, Executive shall be entitled to the payments and benefits specified in Section 8(a). (g) Notice and Date of Termination. (i) Any purported termination of employment by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 17(i) hereof. For purposes of this Agreement, a `Notice of Termination' shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is based is susceptible of cure, the Notice of Termination shall not be delivered until Executive or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. (ii) `Date of Termination' shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period), (B) if employment is terminated by reason of death, the date of death, and (C) if employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause shall not be less than ten (10) days after the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. (h) Any provision of this Agreement to the contrary notwithstanding, Executive shall be obligated to execute a general release of claims in favor of the Company, in the form used generally by the Company in connection with termination of employment from time to time, as a condition to receiving benefits and payments under this Agreement. 9. Definitions. (a) `Cause' shall mean (i) Executive's willful and continued failure substantially to perform the duties of his position (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by Executive for Good Reason, as hereinafter defined), (ii) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably injurious to the financial condition or business reputation of the Company or any of its affiliates, or (iii) the Executive's conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company or any of its subsidiaries conducts business which materially impairs the value of Executive's services to the Company or any of its subsidiaries. For purposes of this definition, no act or failure to act shall be deemed `willful' unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. (b) `Change in Control' shall mean the occurrence of any of the following events after July 14, 1998: (i) Any `person,' as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the `Exchange Act') (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the `beneficial owner' (as defined in rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years commencing on July 14, 1998, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. (c) `Disability' shall mean the Executive's inability, as a result of physical or mental incapacity, to perform the duties of his position for a period of six (6) consecutive months or for an aggregate of six (6) months in any twelve (12) consecutive month period. Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (d) `Good Reason' means: (i) Removal from, or failure to be reappointed or reelected to, Executive's position as specified in Section 2 (other than as a result of a promotion). (ii) Material diminution in Executive's title, position, duties or responsibilities, or the assignment to Executive of duties that are inconsistent, in a material respect, with the scope of duties and responsibilities associated with Executive's position as specified in Section 2. (iii) Reduction in Base Salary or target or maximum Bonus opportunity, reduction in level of participation in long term incentive, stock option and other equity award, benefit and other plans for senior executives or other material breach of this Agreement by the Company. (iv) Relocation of the executive's principal workplace without his consent to a location outside the New York metropolitan area. 10. Certain Payments. (a) If any of the payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment, whether or not pursuant to this Agreement (such payments or benefits, excluding the Gross-Up Payment, as hereinafter defined, shall hereinafter be referred to as the `Total Payments') will be subject to an excise tax as provided for in Section 4999 of the Internal Revenue Code (the `Code') (the `Excise Tax'), the Company shall pay to Executive an additional amount (the `Gross-Up Payment') such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments; provided, however, that if the Total Payments are less than 360% of the Executive's Base Amount, as defined in section 280G(b)(3) of the Code, the Executive shall not be entitled to the Gross-Up Payment, and the Total Payments shall be reduced as provided for in Section 10(d) below. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as `parachute payments' (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (`Tax Counsel') reasonably acceptable to Executive and selected by the accounting firm acting as the `Auditor', as defined below, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all `Excess parachute payments' within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence or, if higher, in the state and locality of Executive's principal place of employment, on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 10), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (including that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (d) If the Total Payments would constitute an Excess parachute payment, but are less than 360% of the Base Amount, such payments shall be reduced to the largest amount that may be paid to the Executive without the imposition of the Excise Tax or the disallowance as deductions to the Company under Section 280G of the Code of any such payments. (e) All determinations under this Section 10 shall be made by a nationally recognized accounting firm selected by the Executive (the `Auditor'). The Company shall cooperate in good faith in making such determinations and in providing the necessary information for this purpose. 11. Indemnification. The Company will indemnify Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) by applicable law, as in effect at the time of the subject act or omission, or by the Certificate of Incorporation and By-Laws of the Company, as in effect at such time or on the Commencement Date, or by the terms of any indemnification agreement between the Company and Executive, whichever affords or afforded greatest protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage available for any Company officer or director), against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives (including but not limited to any judgment entered by a court of law) at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which Executive (or his legal representatives or other successors) may be made a party by reason of his having accepted employment with the Company or by reason of his being or having been a director, officer or employee of the Company, or any subsidiary of the Company, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. Executive's rights under this Section 11 shall continue without time limit for so long as he may be subject to any such liability, whether or not the Employment Term may have ended. 12. Non-Competition. (a) Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that during the Employment Term and for a period of one year after the termination thereof; (i) The Executive will not directly or indirectly engage in any business which is in competition with any line of business conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for any person who is a customer or client of the Company or any of its affiliates) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates conducted any such competing line of business. (ii) Executive will not directly or indirectly assist others in engaging in any of the activities in which Executive is prohibited from engaging in by clause (i) above. (iii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months. (iv) Executive will not directly or indirectly solicit subscribers or suppliers of the Company or telephone companies for which the Company serves as sales agent or induce any such person to terminate its relationships with the Company. (b) It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 12 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 13. Confidentiality; Nondisparagement. (a) Executive will not at any time (whether during or after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this covenant. Executive agrees that upon termination of his employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that he may retain personal notes, notebooks and diaries. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. (b) Executive will not at any time (whether during or after his employment with the Company) knowingly make any statement, written or oral, or take any other action relating to the Company or its officers or directors that would disparage or otherwise harm the Company, its business or its reputation or those of any of its officers and directors. 14. Material Inducement; Specific Performance. Executive acknowledges and agrees that the covenants entered into by Executive in Section 12 and 13 are essential elements of the parties' agreement as expressed herein, are a material inducement for the Company to enter into this Agreement and the breach thereof would be a material breach of this Agreement. Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 12 or Section 13 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 15. Litigation Support. Executive agrees that he will assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by Executive, pertinent knowledge possessed by Executive, or any act or omission by Executive. Executive further agrees to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section. 16. Legal Fees. The Company will pay or reimburse Executive, as incurred, all legal fees and costs incurred by Executive in enforcing his rights under the Agreement, if Executive's position substantially prevails. Following a Change in Control, the Company will pay or reimburse Executive, as incurred, for all such fees and costs unless Executive's claim was frivolous or was brought or pursued by Executive in bad faith. 17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and in the incentive compensation and other employee benefit plans and arrangements of the Company referenced herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. (e) Assignment. This Agreement shall not be assignable by Executive and shall be assignable by the Company only with the consent of Executive except as set forth in Section 17(h); provided that no such assignment by the Company shall relieve the Company of any liability hereunder, whether accrued before or after such assignment. (f) No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such employment, if obtained, or compensation or benefits payable in connection therewith, shall reduce any amounts or benefits to which Executive is entitled hereunder except as provided for in Sections 8(c) and (d). (g) Arbitration. Any dispute between the parties to this Agreement arising from or relating to the terms of this Agreement or the employment of Executive by the Company shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. (h) Successors; Binding Agreement (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Such assumption and agreement shall be obtained prior to the effectiveness of any such succession. As used in this Agreement, `Company' shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term `Company' shall also mean any affiliate of the Company to which Executive may be transferred and the Company shall cause such successor employer to be considered the `Company' bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term `Company' shall not mean any affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the `Company' bound by the terms of this Agreement and this Agreement shall be amended to so provide. (ii) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributers, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the devisee, legatee or other designee of Executive or, if there is no such designee, to the estate of Executive. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at the address appearing from time to time in the personnel records of the Company and to the Company at the address of its corporate headquarters, directed to the attention of the Board with a copy to the Secretary of the Company, or in either case to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (j) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (k) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Alexander R. Marasco ___________________________ R.H. DONNELLEY CORPORATION By:_______________________ Title: EX-10.4 7 EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H. Donnelley Corporation, a Delaware corporation, (the `Company') and David C. Swanson (the `Executive'). WHEREAS, the transaction pursuant to which the Company has been separated from its former parent company (the `Spinoff') has been consummated as of July 1, 1998, and WHEREAS, Executive is currently serving as an executive of the Company or of its subsidiary, R.H. Donnelley, Inc.; and WHEREAS, Executive is willing so to continue his employment on the terms hereinafter set forth in this agreement (the `Agreement'); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc. for a period (the `Employment Term') commencing on the date hereof (the `Commencement Date') and ending on the third anniversary of the Spinoff. On the third and each succeeding anniversary of the Spinoff, the Employment Term shall automatically be extended for one additional year unless, not later than ninety days prior to such anniversary, the Company or the Executive shall have given notice of its or his intention not to extend the Employment Term. 2. Position. (a) Executive shall serve as a senior executive officer of the Company or of R.H. Donnelley, Inc. In such position, Executive shall have such duties and authority as shall be determined from time to time by the Board of Directors of the Company (the `Board') or its designee. (b) During the Employment Term, Executive will devote substantially all of his business time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive from serving on business, civic or charitable boards or committees, as long as such activities do not materially interfere with the performance of Executive's duties hereunder. 3. Base Salary. Company shall pay Executive an annual base salary (the `Base Salary') at the initial annual rate of $215,000, payable in equal monthly installments or otherwise in accordance with the payroll and personnel practices of the Company from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the `Committee') for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. 4. Bonus. With respect to each fiscal year all or part of which is contained in the Employment Term, Executive shall be eligible to participate in the Company's Annual Incentive Plan or any successor plan thereto, with a target bonus opportunity of 60% of Base Salary and a maximum bonus opportunity not less than that for which he is eligible on the date hereof (the `Bonus'). 5. Additional Compensation. As further compensation, Executive will be eligible for participation in all bonuses, long-term incentive compensation and stock options and other equity participation arrangements (at the same opportunity as that applicable in the ordinary course on the Effective Date) made available generally to senior executives of the Company. 6. Employee Benefits. During the Employment Term, Executive shall be eligible, on the same basis as he is currently eligible, for employee benefits (including fringe benefits, vacation, pension and profit sharing plan participation and life, health, accident and disability insurance) no less favorable than those benefits for which he is eligible immediately prior to the Commencement Date. 7. Business Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies from time to time. 8. Termination of Employment. Each of Executive and the Company may terminate the employment of Executive hereunder at any time in accordance with this Section 8. Executive's entitlements hereunder in the event of any such termination shall be as set forth in this Section 8. The provisions of this Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant to Section 1. (a) For Cause by the Company. If Executive's employment is terminated by the company for Cause, he shall be entitled to receive his Base Salary through the Date of Termination, as hereinafter defined. All other benefits due Executive following Executive's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the plans, policies and practices of the Company. (b) Death or Disability. Executive's employment hereunder shall terminate upon his death and may be terminated by the Company upon his Disability during the Employment Term. Upon termination of Executive's employment hereunder upon the Executive's Disability or death, Executive or his estate (as the case may be) shall be entitled to receive Base Salary through the date of such termination, plus a pro-rata portion of target Bonus, based on the number of whole or partial months from the beginning of the bonus period to the Date of Termination. In addition, if Executive's employment is terminated as a result of Disability, Executive shall continue to be eligible to participate in all health, medical and dental benefit plans of the Company, until age 65 in accordance with the terms, conditions and elections, if any, applicable to or in effect with respect to Executive at the time of termination of employment. (c) Without Cause by the Company Not Following a Change in Control. If, during the Employment Term and prior to a Change in Control, as hereinafter defined, or more than two years after a Change in Control, Executive's employment is terminated by the Company without Cause, Executive shall be entitled to the following benefits: (i) Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination, as defined in Section 8(g) herein, is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus all other amounts to which Executive is entitled under any compensation or benefit plan of the Company. (ii) In lieu of any further salary payments to Executive for periods subsequent to the date of termination, the Company shall pay as severance pay, not later than the fifth day following the Date of Termination, a severance payment (the `Severance Payment') equal to two times the sum of (A) Base Salary at the rate in effect on the date Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus (B) target Bonus, paid in lump sum without reduction for time value of money. (iii) Continued eligibility to participate in all health, medical and dental benefit plans of the Company for which Executive was eligible immediately prior to the time of the Notice of Termination, or comparable coverage, for two years, or, if sooner, until comparable health insurance coverage is available to Executive in connection with subsequent employment or self-employment. The coverage for which Executive shall continue to be eligible under this Section shall be made available at no greater cost or tax cost to Executive than that applicable to Executive at the time of termination of employment. (iv) Term life insurance equivalent in coverage, and at no greater cost or tax cost to Executive, to that elected by Executive at the time of the Notice of Termination, until the last day of the second calendar year beginning after termination of employment, or, if sooner, until comparable life insurance coverage is available to Executive in connection with subsequent employment or self-employment. (d) Termination Within Two Years Following a Change in Control. If, during the Employment Term and within two years following a Change in Control, Executive's employment is terminated by the Company without Cause, or by the Executive for Good Reason, as hereinafter defined, Executive shall be entitled to the payments and benefits set forth in Section 8(c), except that for purposes of this Section 8(d), references in such Section to `two' times or `two' years shall be changed to `three' times and `three' years. In addition, Executive shall be entitled to receive, for the three years following termination of employment or, if sooner, until subsequently employed or self-employed, (i) all perquisites and similar benefits he was receiving immediately prior to the time of Notice of Termination, (ii) reimbursement of expenses relating to financial planning services, up to a maximum amount per year equal to the average of such amounts paid to Executive for the two calendar years preceding the Date of Termination and (iii) reimbursement of expenses relating to outplacement services, subject to a maximum reimbursement under this clause (iii) of $25,000. For purposes of this Agreement, termination of employment after the commencement of negotiations with a potential acquiror or business combination partner shall be deemed to be a termination of employment within two years following a Change in Control if such negotiations result in a transaction with such acquiror or business combination partner which constitutes a Change in Control. (e) Retirement. If during the Employment Term, Executive retires at normal retirement age under the Company's qualified pension plan or any successor plan, Executive shall be entitled to the payments and benefits specified in Section 8(b) as if his employment had terminated as a result of Disability. (f) Voluntary Termination of Employment. If during the Employment Term, Executive terminates his employment under circumstances other than those specified in this Section 8, Executive shall be entitled to the payments and benefits specified in Section 8(a). (g) Notice and Date of Termination. (i) Any purported termination of employment by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 17(i) hereof. For purposes of this Agreement, a `Notice of Termination' shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is based is susceptible of cure, the Notice of Termination shall not be delivered until Executive or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. (ii) `Date of Termination' shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period), (B) if employment is terminated by reason of death, the date of death, and (C) if employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause shall not be less than ten (10) days after the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. (h) Any provision of this Agreement to the contrary notwithstanding, Executive shall be obligated to execute a general release of claims in favor of the Company, in the form used generally by the Company in connection with termination of employment from time to time, as a condition to receiving benefits and payments under this Agreement. 9. Definitions. (a) `Cause' shall mean (i) Executive's willful and continued failure substantially to perform the duties of his position (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by Executive for Good Reason, as hereinafter defined), (ii) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably injurious to the financial condition or business reputation of the Company or any of its affiliates, or (iii) the Executive's conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company or any of its subsidiaries conducts business which materially impairs the value of Executive's services to the Company or any of its subsidiaries. For purposes of this definition, no act or failure to act shall be deemed `willful' unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. (b) `Change in Control' shall mean the occurrence of any of the following events after July 14, 1998: (i) Any `person,' as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the `Exchange Act') (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the `beneficial owner' (as defined in rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years commencing on July 14, 1998, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. (c) `Disability' shall mean the Executive's inability, as a result of physical or mental incapacity, to perform the duties of his position for a period of six (6) consecutive months or for an aggregate of six (6) months in any twelve (12) consecutive month period. Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (d) `Good Reason' means: (i) Removal from, or failure to be reappointed or reelected to, Executive's position as specified in Section 2 (other than as a result of a promotion). (ii) Material diminution in Executive's title, position, duties or responsibilities, or the assignment to Executive of duties that are inconsistent, in a material respect, with the scope of duties and responsibilities associated with Executive's position as specified in Section 2. (iii) Reduction in Base Salary or target or maximum Bonus opportunity, reduction in level of participation in long term incentive, stock option and other equity award, benefit and other plans for senior executives or other material breach of this Agreement by the Company. (iv) Relocation of the executive's principal workplace without his consent to a location outside the New York metropolitan area. 10. Certain Payments. (a) If any of the payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment, whether or not pursuant to this Agreement (such payments or benefits, excluding the Gross-Up Payment, as hereinafter defined, shall hereinafter be referred to as the `Total Payments') will be subject to an excise tax as provided for in Section 4999 of the Internal Revenue Code (the `Code') (the `Excise Tax'), the Company shall pay to Executive an additional amount (the `Gross-Up Payment') such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments; provided, however, that if the Total Payments are less than 360% of the Executive's Base Amount, as defined in section 280G(b)(3) of the Code, the Executive shall not be entitled to the Gross-Up Payment, and the Total Payments shall be reduced as provided for in Section 10(d) below. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as `parachute payments' (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (`Tax Counsel') reasonably acceptable to Executive and selected by the accounting firm acting as the `Auditor', as defined below, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all `Excess parachute payments' within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence or, if higher, in the state and locality of Executive's principal place of employment, on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 10), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (including that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (d) If the Total Payments would constitute an Excess parachute payment, but are less than 360% of the Base Amount, such payments shall be reduced to the largest amount that may be paid to the Executive without the imposition of the Excise Tax or the disallowance as deductions to the Company under Section 280G of the Code of any such payments. (e) All determinations under this Section 10 shall be made by a nationally recognized accounting firm selected by the Executive (the `Auditor'). The Company shall cooperate in good faith in making such determinations and in providing the necessary information for this purpose. 11. Indemnification. The Company will indemnify Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) by applicable law, as in effect at the time of the subject act or omission, or by the Certificate of Incorporation and By-Laws of the Company, as in effect at such time or on the Commencement Date, or by the terms of any indemnification agreement between the Company and Executive, whichever affords or afforded greatest protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage available for any Company officer or director), against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives (including but not limited to any judgment entered by a court of law) at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which Executive (or his legal representatives or other successors) may be made a party by reason of his having accepted employment with the Company or by reason of his being or having been a director, officer or employee of the Company, or any subsidiary of the Company, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. Executive's rights under this Section 11 shall continue without time limit for so long as he may be subject to any such liability, whether or not the Employment Term may have ended. 12. Non-Competition. (a) Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that during the Employment Term and for a period of one year after the termination thereof; (i) The Executive will not directly or indirectly engage in any business which is in competition with any line of business conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for any person who is a customer or client of the Company or any of its affiliates) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates conducted any such competing line of business. (ii) Executive will not directly or indirectly assist others in engaging in any of the activities in which Executive is prohibited from engaging in by clause (i) above. (iii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months. (iv) Executive will not directly or indirectly solicit subscribers or suppliers of the Company or telephone companies for which the Company serves as sales agent or induce any such person to terminate its relationships with the Company. (b) It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 12 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 13. Confidentiality; Nondisparagement. (a) Executive will not at any time (whether during or after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this covenant. Executive agrees that upon termination of his employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that he may retain personal notes, notebooks and diaries. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. (b) Executive will not at any time (whether during or after his employment with the Company) knowingly make any statement, written or oral, or take any other action relating to the Company or its officers or directors that would disparage or otherwise harm the Company, its business or its reputation or those of any of its officers and directors. 14. Material Inducement; Specific Performance. Executive acknowledges and agrees that the covenants entered into by Executive in Section 12 and 13 are essential elements of the parties' agreement as expressed herein, are a material inducement for the Company to enter into this Agreement and the breach thereof would be a material breach of this Agreement. Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 12 or Section 13 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 15. Litigation Support. Executive agrees that he will assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by Executive, pertinent knowledge possessed by Executive, or any act or omission by Executive. Executive further agrees to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section. 16. Legal Fees. The Company will pay or reimburse Executive, as incurred, all legal fees and costs incurred by Executive in enforcing his rights under the Agreement, if Executive's position substantially prevails. Following a Change in Control, the Company will pay or reimburse Executive, as incurred, for all such fees and costs unless Executive's claim was frivolous or was brought or pursued by Executive in bad faith. 17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and in the incentive compensation and other employee benefit plans and arrangements of the Company referenced herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. (e) Assignment. This Agreement shall not be assignable by Executive and shall be assignable by the Company only with the consent of Executive except as set forth in Section 17(h); provided that no such assignment by the Company shall relieve the Company of any liability hereunder, whether accrued before or after such assignment. (f) No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such employment, if obtained, or compensation or benefits payable in connection therewith, shall reduce any amounts or benefits to which Executive is entitled hereunder except as provided for in Sections 8(c) and (d). (g) Arbitration. Any dispute between the parties to this Agreement arising from or relating to the terms of this Agreement or the employment of Executive by the Company shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. (h) Successors; Binding Agreement (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Such assumption and agreement shall be obtained prior to the effectiveness of any such succession. As used in this Agreement, `Company' shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term `Company' shall also mean any affiliate of the Company to which Executive may be transferred and the Company shall cause such successor employer to be considered the `Company' bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term `Company' shall not mean any affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the `Company' bound by the terms of this Agreement and this Agreement shall be amended to so provide. (ii) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributers, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the devisee, legatee or other designee of Executive or, if there is no such designee, to the estate of Executive. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at the address appearing from time to time in the personnel records of the Company and to the Company at the address of its corporate headquarters, directed to the attention of the Board with a copy to the Secretary of the Company, or in either case to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (j) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (k) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. David C. Swanson __________________________ R.H. DONNELLEY CORPORATION By: ______________________ Title: EX-10.5 8 EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H. Donnelley Corporation, a Delaware corporation, (the `Company') and Frederick J. Groser (the `Executive'). WHEREAS, the transaction pursuant to which the Company has been separated from its former parent company (the `Spinoff') has been consummated as of July 1, 1998, and WHEREAS, Executive is currently serving as an executive of the Company or of its subsidiary, R.H. Donnelley, Inc.; and WHEREAS, Executive is willing so to continue his employment on the terms hereinafter set forth in this agreement (the `Agreement'); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc. for a period (the `Employment Term') commencing on the date hereof (the `Commencement Date') and ending on the third anniversary of the Spinoff. On the third and each succeeding anniversary of the Spinoff, the Employment Term shall automatically be extended for one additional year unless, not later than ninety days prior to such anniversary, the Company or the Executive shall have given notice of its or his intention not to extend the Employment Term. 2. Position. (a) Executive shall serve as a senior executive officer of the Company or of R.H. Donnelley, Inc. In such position, Executive shall have such duties and authority as shall be determined from time to time by the Board of Directors of the Company (the `Board') or its designee. (b) During the Employment Term, Executive will devote substantially all of his business time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive from serving on business, civic or charitable boards or committees, as long as such activities do not materially interfere with the performance of Executive's duties hereunder. 3. Base Salary. Company shall pay Executive an annual base salary (the `Base Salary') at the initial annual rate of $230,000, payable in equal monthly installments or otherwise in accordance with the payroll and personnel practices of the Company from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the `Committee') for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. 4. Bonus. With respect to each fiscal year all or part of which is contained in the Employment Term, Executive shall be eligible to participate in the Company's Annual Incentive Plan or any successor plan thereto, with a target bonus opportunity of 60% of Base Salary and a maximum bonus opportunity not less than that for which he is eligible on the date hereof (the `Bonus'). 5. Additional Compensation. As further compensation, Executive will be eligible for participation in all bonuses, long-term incentive compensation and stock options and other equity participation arrangements (at the same opportunity as that applicable in the ordinary course on the Effective Date) made available generally to senior executives of the Company. 6. Employee Benefits. During the Employment Term, Executive shall be eligible, on the same basis as he is currently eligible, for employee benefits (including fringe benefits, vacation, pension and profit sharing plan participation and life, health, accident and disability insurance) no less favorable than those benefits for which he is eligible immediately prior to the Commencement Date. 7. Business Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies from time to time. 8. Termination of Employment. Each of Executive and the Company may terminate the employment of Executive hereunder at any time in accordance with this Section 8. Executive's entitlements hereunder in the event of any such termination shall be as set forth in this Section 8. The provisions of this Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant to Section 1. (a) For Cause by the Company. If Executive's employment is terminated by the company for Cause, he shall be entitled to receive his Base Salary through the Date of Termination, as hereinafter defined. All other benefits due Executive following Executive's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the plans, policies and practices of the Company. (b) Death or Disability. Executive's employment hereunder shall terminate upon his death and may be terminated by the Company upon his Disability during the Employment Term. Upon termination of Executive's employment hereunder upon the Executive's Disability or death, Executive or his estate (as the case may be) shall be entitled to receive Base Salary through the date of such termination, plus a pro-rata portion of target Bonus, based on the number of whole or partial months from the beginning of the bonus period to the Date of Termination. In addition, if Executive's employment is terminated as a result of Disability, Executive shall continue to be eligible to participate in all health, medical and dental benefit plans of the Company, until age 65 in accordance with the terms, conditions and elections, if any, applicable to or in effect with respect to Executive at the time of termination of employment. (c) Without Cause by the Company Not Following a Change in Control. If, during the Employment Term and prior to a Change in Control, as hereinafter defined, or more than two years after a Change in Control, Executive's employment is terminated by the Company without Cause, Executive shall be entitled to the following benefits: (i) Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination, as defined in Section 8(g) herein, is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus all other amounts to which Executive is entitled under any compensation or benefit plan of the Company. (ii) In lieu of any further salary payments to Executive for periods subsequent to the date of termination, the Company shall pay as severance pay, not later than the fifth day following the Date of Termination, a severance payment (the `Severance Payment') equal to two times the sum of (A) Base Salary at the rate in effect on the date Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus (B) target Bonus, paid in lump sum without reduction for time value of money. (iii) Continued eligibility to participate in all health, medical and dental benefit plans of the Company for which Executive was eligible immediately prior to the time of the Notice of Termination, or comparable coverage, for two years, or, if sooner, until comparable health insurance coverage is available to Executive in connection with subsequent employment or self-employment. The coverage for which Executive shall continue to be eligible under this Section shall be made available at no greater cost or tax cost to Executive than that applicable to Executive at the time of termination of employment. (iv) Term life insurance equivalent in coverage, and at no greater cost or tax cost to Executive, to that elected by Executive at the time of the Notice of Termination, until the last day of the second calendar year beginning after termination of employment, or, if sooner, until comparable life insurance coverage is available to Executive in connection with subsequent employment or self-employment. (d) Termination Within Two Years Following a Change in Control. If, during the Employment Term and within two years following a Change in Control, Executive's employment is terminated by the Company without Cause, or by the Executive for Good Reason, as hereinafter defined, Executive shall be entitled to the payments and benefits set forth in Section 8(c), except that for purposes of this Section 8(d), references in such Section to `two' times or `two' years shall be changed to `three' times and `three' years. In addition, Executive shall be entitled to receive, for the three years following termination of employment or, if sooner, until subsequently employed or self-employed, (i) all perquisites and similar benefits he was receiving immediately prior to the time of Notice of Termination, (ii) reimbursement of expenses relating to financial planning services, up to a maximum amount per year equal to the average of such amounts paid to Executive for the two calendar years preceding the Date of Termination and (iii) reimbursement of expenses relating to outplacement services, subject to a maximum reimbursement under this clause (iii) of $25,000. For purposes of this Agreement, termination of employment after the commencement of negotiations with a potential acquiror or business combination partner shall be deemed to be a termination of employment within two years following a Change in Control if such negotiations result in a transaction with such acquiror or business combination partner which constitutes a Change in Control. (e) Retirement. If during the Employment Term, Executive retires at normal retirement age under the Company's qualified pension plan or any successor plan, Executive shall be entitled to the payments and benefits specified in Section 8(b) as if his employment had terminated as a result of Disability. (f) Voluntary Termination of Employment. If during the Employment Term, Executive terminates his employment under circumstances other than those specified in this Section 8, Executive shall be entitled to the payments and benefits specified in Section 8(a). (g) Notice and Date of Termination. (i) Any purported termination of employment by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 17(i) hereof. For purposes of this Agreement, a `Notice of Termination' shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is based is susceptible of cure, the Notice of Termination shall not be delivered until Executive or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. (ii) `Date of Termination' shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period), (B) if employment is terminated by reason of death, the date of death, and (C) if employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause shall not be less than ten (10) days after the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. (h) Any provision of this Agreement to the contrary notwithstanding, Executive shall be obligated to execute a general release of claims in favor of the Company, in the form used generally by the Company in connection with termination of employment from time to time, as a condition to receiving benefits and payments under this Agreement. 9. Definitions. (a) `Cause' shall mean (i) Executive's willful and continued failure substantially to perform the duties of his position (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by Executive for Good Reason, as hereinafter defined), (ii) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably injurious to the financial condition or business reputation of the Company or any of its affiliates, or (iii) the Executive's conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company or any of its subsidiaries conducts business which materially impairs the value of Executive's services to the Company or any of its subsidiaries. For purposes of this definition, no act or failure to act shall be deemed `willful' unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. (b) `Change in Control' shall mean the occurrence of any of the following events after July 14, 1998: (i) Any `person,' as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the `Exchange Act') (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the `beneficial owner' (as defined in rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years commencing on July 14, 1998, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. (c) `Disability' shall mean the Executive's inability, as a result of physical or mental incapacity, to perform the duties of his position for a period of six (6) consecutive months or for an aggregate of six (6) months in any twelve (12) consecutive month period. Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (d) `Good Reason' means: (i) Removal from, or failure to be reappointed or reelected to, Executive's position as specified in Section 2 (other than as a result of a promotion). (ii) Material diminution in Executive's title, position, duties or responsibilities, or the assignment to Executive of duties that are inconsistent, in a material respect, with the scope of duties and responsibilities associated with Executive's position as specified in Section 2. (iii) Reduction in Base Salary or target or maximum Bonus opportunity, reduction in level of participation in long term incentive, stock option and other equity award, benefit and other plans for senior executives or other material breach of this Agreement by the Company. (iv) Relocation of the executive's principal workplace without his consent to a location outside the New York metropolitan area. 10. Certain Payments. (a) If any of the payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment, whether or not pursuant to this Agreement (such payments or benefits, excluding the Gross-Up Payment, as hereinafter defined, shall hereinafter be referred to as the `Total Payments') will be subject to an excise tax as provided for in Section 4999 of the Internal Revenue Code (the `Code') (the `Excise Tax'), the Company shall pay to Executive an additional amount (the `Gross-Up Payment') such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments; provided, however, that if the Total Payments are less than 360% of the Executive's Base Amount, as defined in section 280G(b)(3) of the Code, the Executive shall not be entitled to the Gross-Up Payment, and the Total Payments shall be reduced as provided for in Section 10(d) below. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as `parachute payments' (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (`Tax Counsel') reasonably acceptable to Executive and selected by the accounting firm acting as the `Auditor', as defined below, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all `Excess parachute payments' within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence or, if higher, in the state and locality of Executive's principal place of employment, on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 10), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (including that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (d) If the Total Payments would constitute an Excess parachute payment, but are less than 360% of the Base Amount, such payments shall be reduced to the largest amount that may be paid to the Executive without the imposition of the Excise Tax or the disallowance as deductions to the Company under Section 280G of the Code of any such payments. (e) All determinations under this Section 10 shall be made by a nationally recognized accounting firm selected by the Executive (the `Auditor'). The Company shall cooperate in good faith in making such determinations and in providing the necessary information for this purpose. 11. Indemnification. The Company will indemnify Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) by applicable law, as in effect at the time of the subject act or omission, or by the Certificate of Incorporation and By-Laws of the Company, as in effect at such time or on the Commencement Date, or by the terms of any indemnification agreement between the Company and Executive, whichever affords or afforded greatest protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage available for any Company officer or director), against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives (including but not limited to any judgment entered by a court of law) at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which Executive (or his legal representatives or other successors) may be made a party by reason of his having accepted employment with the Company or by reason of his being or having been a director, officer or employee of the Company, or any subsidiary of the Company, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. Executive's rights under this Section 11 shall continue without time limit for so long as he may be subject to any such liability, whether or not the Employment Term may have ended. 12. Non-Competition. (a) Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that during the Employment Term and for a period of one year after the termination thereof; (i) The Executive will not directly or indirectly engage in any business which is in competition with any line of business conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for any person who is a customer or client of the Company or any of its affiliates) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates conducted any such competing line of business. (ii) Executive will not directly or indirectly assist others in engaging in any of the activities in which Executive is prohibited from engaging in by clause (i) above. (iii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months. (iv) Executive will not directly or indirectly solicit subscribers or suppliers of the Company or telephone companies for which the Company serves as sales agent or induce any such person to terminate its relationships with the Company. (b) It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 12 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 13. Confidentiality; Nondisparagement. (a) Executive will not at any time (whether during or after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this covenant. Executive agrees that upon termination of his employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that he may retain personal notes, notebooks and diaries. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. (b) Executive will not at any time (whether during or after his employment with the Company) knowingly make any statement, written or oral, or take any other action relating to the Company or its officers or directors that would disparage or otherwise harm the Company, its business or its reputation or those of any of its officers and directors. 14. Material Inducement; Specific Performance. Executive acknowledges and agrees that the covenants entered into by Executive in Section 12 and 13 are essential elements of the parties' agreement as expressed herein, are a material inducement for the Company to enter into this Agreement and the breach thereof would be a material breach of this Agreement. Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 12 or Section 13 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 15. Litigation Support. Executive agrees that he will assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by Executive, pertinent knowledge possessed by Executive, or any act or omission by Executive. Executive further agrees to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section. 16. Legal Fees. The Company will pay or reimburse Executive, as incurred, all legal fees and costs incurred by Executive in enforcing his rights under the Agreement, if Executive's position substantially prevails. Following a Change in Control, the Company will pay or reimburse Executive, as incurred, for all such fees and costs unless Executive's claim was frivolous or was brought or pursued by Executive in bad faith. 17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and in the incentive compensation and other employee benefit plans and arrangements of the Company referenced herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. (e) Assignment. This Agreement shall not be assignable by Executive and shall be assignable by the Company only with the consent of Executive except as set forth in Section 17(h); provided that no such assignment by the Company shall relieve the Company of any liability hereunder, whether accrued before or after such assignment. (f) No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such employment, if obtained, or compensation or benefits payable in connection therewith, shall reduce any amounts or benefits to which Executive is entitled hereunder except as provided for in Sections 8(c) and (d). (g) Arbitration. Any dispute between the parties to this Agreement arising from or relating to the terms of this Agreement or the employment of Executive by the Company shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. (h) Successors; Binding Agreement (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Such assumption and agreement shall be obtained prior to the effectiveness of any such succession. As used in this Agreement, `Company' shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term `Company' shall also mean any affiliate of the Company to which Executive may be transferred and the Company shall cause such successor employer to be considered the `Company' bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term `Company' shall not mean any affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the `Company' bound by the terms of this Agreement and this Agreement shall be amended to so provide. (ii) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributers, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the devisee, legatee or other designee of Executive or, if there is no such designee, to the estate of Executive. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at the address appearing from time to time in the personnel records of the Company and to the Company at the address of its corporate headquarters, directed to the attention of the Board with a copy to the Secretary of the Company, or in either case to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (j) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (k) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Frederick J. Groser __________________________ R.H. DONNELLEY CORPORATION By:_______________________ Title: -----END PRIVACY-ENHANCED MESSAGE-----