-----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, Ag0DQ+Zddjv7p7dZFaNUU2rKOwfZINiQc5Ug1rSwG4eRr8GQeW2Gtfp1ebhWzely /tYS4U5Dl2UA2ar/rdcvJQ== 0000950123-98-006718.txt : 19980720 0000950123-98-006718.hdr.sgml : 19980720 ACCESSION NUMBER: 0000950123-98-006718 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19980717 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNELLEY R H INC CENTRAL INDEX KEY: 0001065310 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59287 FILM NUMBER: 98667866 BUSINESS ADDRESS: STREET 1: 1 MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 MAIL ADDRESS: STREET 1: 1 MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 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: S-4 SEC ACT: SEC FILE NUMBER: 333-59287-01 FILM NUMBER: 98667867 BUSINESS ADDRESS: STREET 1: ONE DIAMOND HILL ROAD CITY: MURRAY HILL STATE: NJ ZIP: 07974 BUSINESS PHONE: 9086655000 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 S-4 1 R.H. DONNELLEY INC. / R.H. DONNELLEY CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ R.H. DONNELLEY INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2741 36-2467635 (STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
R.H. DONNELLEY CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2741 13-270040 (STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ONE MANHATTANVILLE ROAD PURCHASE, NEW YORK 10577 (914) 933-6400 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) STEPHEN B. WIZNITZER R.H. DONNELLEY INC. ONE MANHATTANVILLE ROAD PURCHASE, NEW YORK 10577 (914) 933-6400 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: JULIA K. COWLES DAVIS POLK & WARDWELL 450 LEXINGTON AVENUE NEW YORK, NEW YORK 10017 (212) 450-4000 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ] ------------------------ CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- AMOUNT PROPOSED PROPOSED AMOUNT OF TITLE OF EACH CLASS OF TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED(1) REGISTERED(1) PRICE PER UNIT OFFERING PRICE(2) FEE - --------------------------------------------------------------------------------------------------------------------------------- 9 1/8% Senior Subordinated Notes due 2008 of R.H. Donnelley Inc. ("Notes")...................... $150,000,000 100% $150,000,000 $44,250 Guarantee of the Notes by R.H. Donnelley Corporation ("Guarantee")(3)............... - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee. (2) Calculated pursuant to Rule 457(f). (3) No separate consideration will be received for the Guarantee. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION STATEMENT OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS JULY [ ], 1998 OFFER TO EXCHANGE 9 1/8% SENIOR SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OUTSTANDING 9 1/8% SENIOR SUBORDINATED NOTES DUE 2008 OF R.H. DONNELLEY INC. FULLY AND UNCONDITIONALLY GUARANTEED AS SET FORTH HEREIN BY R.H. DONNELLEY CORPORATION THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], 1998, UNLESS EXTENDED ------------------------ R.H. Donnelley Inc. ("Donnelley") hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange $1,000 principal amount of 9 1/8% Senior Subordinated Notes due 2008 (the "Exchange Notes") of Donnelley for each $1,000 principal amount of the issued and outstanding 9 1/8% Senior Subordinated Notes due 2008 (the "Old Notes," and together with the Exchange Notes, the "Notes") of Donnelley. As of the date of this Prospectus there were outstanding $150,000,000 principal amount of Old Notes. The terms of the Exchange Notes are identical in all material respects to the Old Notes except that the offer of the Exchange Notes will have been registered under the Securities Act of 1933, as amended (the "Securities Act") and, therefore, the Exchange Notes will not be subject to certain transfer restrictions, registration rights and related liquidated damage provisions applicable to the Old Notes. Cash interest will be payable semi-annually on June 1 and December 1 of each year, commencing December 1, 1998. See "Description of Notes." No interest will have accrued on the Old Notes on the date of exchange for the Exchange Notes and therefore no interest will be paid thereon. In addition, at any time prior to June 1, 2001, up to 35% of the original aggregate principal amount of the Notes will be redeemable at the option of Donnelley at a redemption price equal to 109.125% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, out of the proceeds of Equity Offerings (as defined) of Donnelley or of R.H. Donnelley Corporation ("Donnelley Corp"). In addition, upon a Change of Control (as defined), Donnelley will be required to offer to repurchase the Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. The Notes will be general unsecured obligations of Donnelley and will be subordinated in right of payment to all existing and future Senior Debt (as defined), will rank pari passu with all future senior subordinated debt of Donnelley and will rank senior in right of payment to all of Donnelley's future subordinated debt. The Notes will be guaranteed on a senior subordinated basis by Donnelley Corp. and any future Restricted Subsidiaries (as defined) of Donnelley. Donnelley has an aggregate of approximately $350 million of Senior Debt represented by borrowings under the New Credit Facility (as defined). In addition, Donnelley has an additional $50 million of unused capacity available under the revolving credit portion of the New Credit Facility. The New Credit Facility will be secured by substantially all the assets and the capital stock of Donnelley and will be guaranteed by Donnelley Corp. See "Capitalization", "Description of New Credit Facility" and "Description of Notes". (continued on next page) SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ 3 (continued from cover) The Exchange Notes are being offered hereunder in order to satisfy certain obligations of Donnelley under the Exchange and Registration Rights Agreement, dated as of June 5, 1998, among Donnelley and the other signatories thereto (the "Registration Rights Agreement"). Based upon interpretations contained in letters issued to third parties by the staff of the Securities and Exchange Commission (the "Commission"), Donnelley believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by each holder thereof (other than a broker-dealer, as set forth below, and any such holder which is an "affiliate" of Donnelley within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act; provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. Each holder wishing to accept the Exchange Offer must represent to Donnelley in the Letter of Transmittal that such conditions have been met. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. Donnelley has agreed that, for a period of 180 days after the Expiration Date (as defined herein) or such time as such broker-dealers no longer own any Registrable Notes (as defined in the Registration Rights Agreement), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Donnelley will not receive any proceeds from the Exchange Offer. All of the Company's expenses incident to the Exchange Offer will be reimbursed by New D&B (as defined). Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. In the event Donnelley terminates the Exchange Offer and does not accept for exchange any Old Notes, Donnelley will promptly return all previously tendered Old Notes to the holders thereof. See "The Exchange Offer." Prior to this Exchange Offer, there has been no public market for the Exchange Notes. Donnelley does not currently intend to list the Exchange Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active public market for the Exchange Notes will develop. ii 4 MARKET DATA Market data and competitive position data used throughout this Prospectus are approximations based on internal research of the Company or surveys or studies conducted by National Yellow Pages Monitor, Simba Information Inc. (appearing in its Yellow Pages Market Forecast, 1998) and other third parties. Donnelley has not independently verified market data and competitive position data provided by third parties or industry or general publications, and, accordingly, no assurance can be given that any of such data is accurate. Similarly, internal research of the Company, while believed by Donnelley to be accurate and reliable, has not been verified by any independent sources. No person has been authorized to give any information or to make any representations other than those contained or incorporated by reference in this Prospectus in connection with the offer made hereby and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any other person. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained or incorporated by reference herein is correct as of any time subsequent to it date. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the securities offered hereby by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. FORWARD LOOKING STATEMENTS The statements contained in this Prospectus that are not historical facts are "forward-looking" statements, which can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "should" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. In addition, from time to time Donnelley Corp., the Company or the representatives of either have made or may make forward-looking statements, orally or in writing. Management wishes to caution the reader that these forward-looking statements, such as the statements regarding the Company's ability to grow its business in the markets in which it currently operates, the opportunities for expansion in new markets from outsourcing by local telephone companies and from cross-selling other advertising media, Donnelley's ability to capitalize on its new publishing center in Raleigh, North Carolina, its relationship with Donnelley Corp. following the Distribution (as defined), the Company's anticipated future operating performance, capital expenditures and financing sources, litigation and other statements contained in this Prospectus regarding matters that are not historical facts, involve predictions. No assurance can be given that the future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Company. Such risks and uncertainties include, but are not limited to, the extent to which local telephone companies will outsource their yellow pages sales and publishing, Donnelley's ability to service the indebtedness it will incur in connection with the Distribution and comply with the covenants contained in the Indenture (as defined) and the New Credit Facility, Donnelley's maintenance of its relationships with local telephone companies with which it has entered into partnership, sales agency agreements and other contracts, Donnelley's exposure to potential contingent liabilities, the outcome of pending litigation, increased competition from competitors or other advertising media, changing technology, changes in the yellow pages industry and the Company's markets, Donnelley's ability to timely and cost-effectively resolve issues associated with the year 2000, Donnelley's ability to obtain future financing on satisfactory terms, the final allocation of assets and liabilities in connection with the Distribution as well as regulatory, legislative and judicial developments that could cause actual results to vary materially from future results indicated, expressed or implied, in such forward-looking statements. See "Risk Factors." iii 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the financial statements and notes thereto, appearing elsewhere in this Prospectus. Unless otherwise stated in this Prospectus, references to (i) "Donnelley" shall mean R.H. Donnelley Inc., (ii) the "Company" shall mean Donnelley, together with the partnerships in which it holds an equity interest, (iii) the "Parent Company" shall mean, prior to the Distribution Date (as defined), The Dun & Bradstreet Corporation, (iv) "Donnelley Corp." shall mean, as of and after the Distribution Date and a name change of such entity, R.H. Donnelley Corporation and (v) "New D&B" shall mean, prior to the Distribution Date, The New Dun & Bradstreet Corporation and as of and after the Distribution Date and a name change of such entity, The Dun & Bradstreet Corporation. On July 14, 1998, Donnelley Corp.'s Board of Directors approved a reverse one-for-five stock split of its common stock subject to approval by its shareholders to be sought at a special meeting of shareholders. The share and per share information provided herein has not been adjusted to reflect such reverse stock split. THE COMPANY The Company is the largest independent marketer of yellow pages advertising in the United States. The Company sold over $1 billion of advertising in 1997 and is the leader in all of its major markets. Donnelley is also a leading provider of pre-press publishing services for yellow pages directories (including a majority of the directories for which it sells advertising). In operation since 1886, the Company provides services for over 300 directories, including providing advertising sales for over 270 directories in 13 states which collectively had a total circulation of approximately 30 million in 1997. The Company has a diversified customer base of approximately 500,000 businesses, many of which rely on yellow pages directories as their principal or sole form of advertising. Over the past three years, the Company achieved average advertising sales renewal rates ranging from 100% to 90% in its major markets. Donnelley is strategically aligned on a long-term basis with the established, leading telephone service provider (the incumbent telephone company) in each of its major markets, which include Illinois (including Chicago), New York State (including New York City), Nevada (primarily Las Vegas) and Florida (including Tallahassee and Orlando). The Company provides yellow pages advertising marketing and sales in these markets through long-term contractual agreements with subsidiaries of these incumbent telephone companies, which are Ameritech Corporation ("Ameritech"), Bell Atlantic Corporation ("Bell Atlantic") and Sprint Corporation ("Sprint"). Donnelley has a partnership ("DonTech") with no expiration date with a subsidiary of Ameritech and long-term contracts with subsidiaries of Sprint and Bell Atlantic which extend through 2004 and 2005, respectively. These relationships allow the incumbent telephone companies to gain the benefits of Donnelley's long-term presence in its markets, yellow pages marketing and publishing expertise, established infrastructure and performance-focused, non-union sales force. The Company benefits from its relationship with the incumbent telephone company's yellow pages directories, which are the leading directories in terms of numbers of advertisers, utilization and distribution in the majority of the Company's markets. Management believes that Donnelley's competitive strengths and business strategy position it to take advantage of significant business opportunities and anticipated industry trends, including (i) opportunities for yellow pages advertising sales growth within the Company's existing markets, (ii) the potential outsourcing of yellow pages operations by local telephone companies (including those companies with which Donnelley is currently affiliated) in new markets and (iii) the increasing use of the yellow pages sales channel across other advertising media (such as yellow pages advertising on cable television and the Internet). Management has completed several actions that it believes will position the Company for these future growth opportunities and improve earnings stability, including the completion of the new publishing center in Raleigh, North Carolina, the 1 6 restructuring of the DonTech relationship with Ameritech and the rescheduling of related directories, and the sale of the majority of Donnelley's proprietary yellow pages operations. COMPETITIVE STRENGTHS Donnelley believes that it has been able to maintain long-term telephone company relationships through the quality of its sales force and marketing techniques and its advanced technology and product innovation. Based on these attributes and its extensive yellow pages expertise, Donnelley has been able to successfully manage significant strategic relationships with incumbent telephone companies and complex systems integration issues inherent in its business. Donnelley believes that it has a strong competitive advantage in each of its markets primarily due to the following: Largest Independent Marketer of Yellow Pages Advertising. In 1997, the Company sold over $1 billion of yellow pages advertising, accounting for approximately 9% of the $11.4 billion of yellow pages advertising sold in the U.S. All other independent marketers of yellow pages advertising combined accounted for only 7% of total U.S. yellow pages advertising sales. Donnelley's market leadership position, scale of operations and long-standing relationships with incumbent telephone companies uniquely position it to capitalize on future growth opportunities by expanding its current relationships into new markets, developing new relationships and capturing potential yellow pages outsourcing opportunities. High Rates of Advertising Sales Renewal. The Company has achieved high and stable advertising sales renewal rates, with three-year averages of approximately 91% overall, including 92% in Chicago, 90% in New York City, 100% in Las Vegas and 90% in Orlando. For many businesses, yellow pages directory advertising is their principal or sole form of advertising due to its relatively low cost, widespread distribution, lasting presence and high consumer usage. These positive features are especially present in an incumbent telephone company's directories, which are frequently a company's first choice for advertising. Donnelley is affiliated with the incumbent local telephone company in each of its major markets. Leading Directory Market Shares. In each of the Company's major markets, the directory with which the Company is affiliated has a commanding market share, based on directory usage. These markets include Chicago (with a 98% market share in 1996, the latest date for which data is available), New York City (97% in 1997) and Las Vegas (95%), as well as Donnelley's markets in New York State (90%) and other regions. Management believes that these directories will continue to enjoy a leading market share because of their affiliation with incumbent telephone companies and high-quality, and the Company's established relationships with advertisers and economies of scale. Management also believes that these directories are utilized more than any other directories by both residential and business consumers in its major markets. Stable Underlying Business Fundamentals. Donnelley's advertising sales and profitability are derived primarily from yellow pages advertising sales pursuant to long-term contractual relationships with subsidiaries of several of the country's largest local telephone service providers. Its relationships with Ameritech, Bell Atlantic and Sprint began in 1908, 1909 and 1980, respectively. Furthermore, the Company's business is characterized by a high level of recurring advertising sales, leading market share positions and the geographic and industry diversification of its over 500,000 advertisers. Management believes that these underlying business fundamentals, in combination with Donnelley's predictable cost structure and capital expenditure requirements, provide Donnelley with a solid base from which to grow. Experienced Management Team. Donnelley has assembled a strong and experienced management team at both the corporate and operating levels. Donnelley's management is responsible for the Company's long-term relationships with incumbent telephone companies and its market leadership position. In addition, Donnelley's account managers average over 12 years of experience in the yellow pages industry. 2 7 BUSINESS STRATEGY The Company has identified its major sources of potential growth and has developed a business strategy to capitalize on these opportunities. Principal elements of the Company's business strategy include: Grow the Core Business in Existing Markets. The Company has developed specialized sales and marketing techniques and infrastructure in order to increase advertising sales. The Company leverages sophisticated information systems, access to the local telephone company's extensive telephone subscriber databases and its experienced sales management team in order to (i) better identify, segment and prioritize profitable sales opportunities, (ii) ensure continuity with existing customers, (iii) identify the most cost-effective customer contact method (e.g., mail, telephone or on-site visits) and (iv) assign industry specialists, who offer customized products and services, to certain high-potential accounts. Furthermore, the Company attempts to increase advertisements and revenue per customer by (i) encouraging the use of larger advertisements, specialized type face and other graphic features, including color, (ii) increasing the number of headings in directories and (iii) providing advertising sales for regional, neighborhood, bilingual and foreign language directories that complement directories with greater geographic coverage. Capture Potential Outsourcing Opportunities in New Markets. Management anticipates that local telephone service providers, which accounted for 84% of total U.S. yellow pages advertising sales in 1997, will outsource an increasing amount of their non-core business, including yellow pages advertising sales and publishing. Management believes that Donnelley is well positioned to leverage certain of its existing strategic relationships into new markets and to capture other potential outsourcing opportunities due to (i) Donnelley's extensive experience and proven track record of success, (ii) its ability to provide a cost-effective, integrated yellow pages advertising and publishing solution and (iii) its neutral position as a non-competitor to local telephone service providers. In addition, in May 1998 Donnelley became the exclusive advertising sales agent beginning with directories published in 1999, for Bell Atlantic's 26 yellow pages directories in the greater Buffalo area, which were previously outsourced by Bell Atlantic to another third-party marketer. Leverage Existing Account Relationships to New Advertising Media. The Company's strategy is to provide its small to medium-sized advertisers with an integrated solution to their advertising needs. For many of these businesses, printed yellow pages advertising historically has been their principal form of advertising, and in recent years an increasing number have been seeking to expand their advertising programs. Donnelley began selling yellow pages-style advertising for airing on cable television stations in 1995 and for placement on the Internet in late 1996, and management believes that it has the opportunity to expand its core business and cross-sell these growing advertising media to its current customer base. In addition, certain local telephone companies have expressed an interest in using Donnelley's established yellow pages sales channels to market their telecommunications products and services in the current, more competitive local telephone market. Capitalize on New Technology and Established Infrastructure. In mid-1997, Donnelley completed its $40 million publishing center in Raleigh, North Carolina. Donnelley believes that this investment and its established infrastructure are critical to marketing its yellow pages advertising sales and publishing services to potential outsourcers. The new publishing center has enabled Donnelley to reduce publishing costs by approximately 30% and publishing cycle times by approximately 50%. The publishing center utilizes state-of-the-art digital technology to support the entire yellow pages advertising sales and publishing process on an integrated basis. Other significant yellow pages publishers (primarily telephone service providers) are making similar investments, but management believes that these publishers are at varying stages in the conversion process which Donnelley has already completed. Management also believes that smaller yellow pages publishers may decide not to undertake such a significant investment program. 3 8 THE DISTRIBUTION AND THE FINANCINGS On December 17, 1997, the Parent Company announced its intention to separate itself into two independent, publicly-traded companies by means of a pro rata tax-free distribution (the "Distribution") of all of the outstanding common shares of New D&B to holders of the common shares of the Parent Company. On June 3, 1998, the Board of Directors of the Parent Company declared the Distribution and announced that the Distribution will be effected on June 30, 1998 (such date, or such other date on which the Distribution is effected, the "Distribution Date"). Following the Distribution, Donnelley Corp.'s only remaining subsidiary is Donnelley, and each of Donnelley Corp. and New D&B are independent, publicly-traded companies. Prior to the Distribution, Donnelley entered into a $400 million senior secured credit facility, consisting of a revolving credit facility of $100 million (the "Revolving Facility") and term loan facilities of $300 million (the "Term Facilities" and, together with the Revolving Facility, the "New Credit Facility"), and borrowed $350 million thereunder. The New Credit Facility is secured by substantially all the assets and the capital stock of Donnelley and is guaranteed by Donnelley Corp. Net proceeds from the New Credit Facility and the Notes were dividended to the Parent Company to be used (i) to repay indebtedness of the Parent Company, primarily commercial paper, (ii) to pay costs and expenses related to the Distribution and (iii) to repay indebtedness of the Parent Company to subsidiaries which, following the Distribution, are subsidiaries of New D&B. Donnelley has $50 million of unused capacity available under the Revolving Facility. In connection with the Distribution, the Parent Company was renamed R.H. Donnelley Corporation and New D&B was renamed The Dun & Bradstreet Corporation. See "Description of New Credit Facility" and "Use of Proceeds". In connection with the Distribution, Donnelley Corp. and New D&B entered into certain agreements governing their relationship following the Distribution and providing for the allocation of tax, employee benefits and certain other liabilities and obligations arising from periods prior to the Distribution. See "Relationship Between Donnelley Corp. and The New Dun & Bradstreet Corporation After the Distribution". 4 9 THE EXCHANGE OFFER Securities Offered............ $150,000,000 principal amount at maturity of 9 1/8% Senior Subordinated Notes due 2008. The terms of the Exchange Notes and the Old Notes are identical in all material respects, except that the offer of the Exchange Notes will have been registered under the Securities Act and, therefore, the Exchange Notes will not be subject to certain transfer restrictions, registration rights and related special interest provisions applicable to the Old Notes. The Exchange Offer............ Donnelley is offering, upon the terms and subject to the conditions of the Exchange Offer, to exchange $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Old Notes. See "The Exchange Offer" for a description of the procedures for tendering Old Notes. The Exchange Offer is intended to satisfy obligations of the Company under the Exchange and Registration Rights Agreement, dated as of June 5, 1998, among Donnelley, the Parent Company and Goldman, Sachs & Co. and Chase Securities Inc. (collectively, the "Initial Purchasers"). Tenders, Expiration Date; Withdrawal.................. The Exchange Offer will expire at 5:00 p.m., New York City time, on [ ], 1998, or such later date and time to which it is extended. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Certain Federal Income Tax Considerations.............. The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer will not result in any income, gain or loss to the holders or the Company for federal income tax purposes. See "Certain U.S. Federal Income Tax Considerations." Use of Proceeds............... There will be no proceeds to the Company from the issuance of the Exchange Notes pursuant to the Exchange Offer. Exchange Agent................ The Bank of New York is serving as Exchange Agent in connection with the Exchange Offer. CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER Based upon interpretations contained in letters issued to third parties by the staff of the Commission, the Company believes that, generally, any holder of Old Notes (other than a broker-dealer, as set forth below, and any holder who is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who exchanges its Old Notes for Exchange Notes pursuant to the Exchange Offer may offer such Exchange Notes for resale, resell such Exchange Notes, or otherwise transfer such Exchange Notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided such Exchange Notes are acquired in the ordinary course of the holder's business and such holder has no arrangement or understanding with any 5 10 person to participate in a distribution of such Exchange Notes. Each holder wishing to accept the Exchange Offer must represent to the Company in the Letter of Transmittal that such conditions have been met. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." To comply with the securities laws of certain jurisdictions, it may be necessary to qualify for sale or register the Exchange Notes prior to offering or selling such Exchange Notes. The Company does not currently intend to take any action to register or qualify the Exchange Notes for resale in any such jurisdictions. If a holder of Old Notes does not exchange such Old Notes for Exchange Notes pursuant to the Exchange Offer, such Old Notes will continue to be subject to the restrictions on transfer contained in the legend thereon. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of Exchange Notes could not rely on the position of the staff of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) or similar no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Failure to comply with such requirements in such instance may result in such holder incurring liability under the Securities Act for which the holder is not indemnified by the Company. See "The Exchange Offer -- Consequences of Failure to Exchange." SUMMARY DESCRIPTION OF THE EXCHANGE NOTES Notes Offered................. $150,000,000 aggregate principal amount at maturity of 9 1/8% of Senior Subordinated Notes due 2008. Maturity Date................. June 1, 2008. Donnelley Corp. Guarantee..... Donnelley's payment obligations under the Notes will be guaranteed on a senior subordinated basis by Donnelley Corp. (the "Donnelley Corp. Guarantee"). The Donnelley Corp. Guarantee will be subordinated to all Donnelley Corp. Senior Debt (as defined). See "Description of Notes -- General". Interest Payment Dates........ June 1 and December 1 of each year, commencing December 1, 1998. Optional Redemption........... The Notes will be redeemable, in whole or in part, at the option of Donnelley at any time on or after June 1, 2003, at the redemption prices set forth herein plus accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to June 1, 2001, Donnelley may, at its option and subject to certain requirements, use all or a portion of the net proceeds from one or more Equity Offerings (as defined) of Donnelley or of Donnelley Corp. to redeem, from time to time, in the aggregate up to 35% of the original aggregate principal amount of the Notes at a redemption price equal to 109.125% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date, provided that at least 65% of the original aggregate principal amount of the Notes remains outstanding after any such redemption. 6 11 Ranking....................... The Notes will constitute general unsecured indebtedness of Donnelley, subordinated in right of payment to all existing and future Senior Debt of Donnelley. Donnelley has an aggregate of approximately $350 million principal amount of Senior Debt represented by borrowings under the New Credit Facility. In addition, Donnelley has $50 million of unused capacity available under the Revolving Facility portion of the New Credit Facility. See "Capitalization" and "Description of Notes -- Subordination". Change of Control............. In the event of a Change of Control (as defined), Donnelley will be required to offer to repurchase the Notes at a purchase price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. See "Description of Notes Covenants -- Change of Control". Sinking Fund.................. None. Asset Sale Proceeds........... Donnelley may not make any Asset Disposition (as defined) in one or more related transactions unless (i) Donnelley receives fair market value, as determined by the Board of Directors, (ii) at least 75% of the consideration consists of cash, readily marketable cash equivalents or the assumption of debt and (iii) all Net Available Proceeds (as defined), less any amounts invested within 360 days of such disposition in assets related to the business of Donnelley, are applied to (a) the permanent repayment or reduction of Senior Debt then outstanding, (b) an offer to purchase any outstanding Notes at 100% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase and, to the extent required by their terms, any other pari passu obligations and (c) any other use not otherwise prohibited by the Indenture. Certain Covenants............. The Indenture will contain certain covenants which, among other things, will restrict the ability of Donnelley and its Restricted Subsidiaries, if any, to: (i) incur additional Debt (as defined), (ii) pay dividends or make distributions in respect of Donnelley's capital stock or make other restricted payments, (iii) incur certain liens, (iv) enter into transactions with affiliates or (v) merge or consolidate Donnelley. RISK FACTORS Holders of Old Notes should carefully consider all of the information set forth in this Prospectus and, in particular, should evaluate the specific risk factors set forth under "Risk Factors," beginning on page 11, for a discussion of certain risks involved with an investment in the Exchange Notes before accepting the Exchange Offer. 7 12 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA Donnelley is a wholly-owned subsidiary of Donnelley Corp. Donnelley Corp. has no other operations other than through the Donnelley subsidiary. Therefore, on a consolidated basis, the financial statements of Donnelley Corp. and Donnelley are substantially identical. The historical summary consolidated financial data of Donnelley Corp. as of December 31, 1996 and 1997, and for each of the years in the three-year period ended December 31, 1997, are derived from the audited consolidated financial statements of Donnelley Corp. included elsewhere herein. Donnelley Corp's audited consolidated financial statements included elsewhere herein are presented as if Donnelley Corp. were a stand-alone entity for all periods presented. The historical summary consolidated financial data of Donnelley Corp. as of December 31, 1995, March 31, 1998 and for the three months ended March 31, 1997 and 1998 are derived from the unaudited consolidated financial statements of Donnelley Corp., and, in the opinion of management, include all necessary adjustments for a fair presentation of such data in conformity with generally accepted accounting principles. The financial data included herein may not necessarily reflect the results of operations and financial position of Donnelley Corp. in the future. The information set forth below should be read in conjunction with, and is qualified in its entirety by, the information under "Capitalization", "Selected Financial Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Prospectus.
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, --------------------------------------------------- ---------------------------------- HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1) ------------------------------------ ------------ ------------------- ------------ 1995 1996 1997 1997 1997 1998 1998 ---------- ---------- ---------- ------------ -------- -------- ------------ (IN THOUSANDS, EXCEPT RATIOS) CONSOLIDATED STATEMENT OF OPERATIONS DATA(2): Revenues........................... $ 312,940 $ 270,029 $ 239,865 $ 239,865 $ 20,200 $ 24,344 $ 24,344 Expenses: Operating Expenses (3)........... 157,559 135,500 132,278 132,278 5,553 7,093 7,093 General and Administrative(3).... 75,754 83,803 81,089 81,089(4) 16,963 17,695 17,695(4) Depreciation and Amortization.... 16,322 16,229 21,930 21,930 5,416 4,952 4,952 Restructuring Charges............ 17,690 -- -- -- -- -- -- ---------- ---------- ---------- ---------- -------- -------- -------- Total Expenses................. 267,325 235,532 235,297 235,297 27,932 29,740 29,740 Income from Partnerships and Related Fees..................... 137,180 132,945 130,171 130,171 5,442 25,642 25,642 Operating Income................... 182,795 167,442 134,739 134,739 (2,290) 20,246 20,246 Gain(Loss) on Dispositions......... -- (28,500) 9,412 9,412 -- -- -- Interest Expense................... -- -- -- 40,955(5) -- -- 10,239(5) ---------- ---------- ---------- ---------- -------- -------- -------- Income Before Provision for Income Taxes................... 182,795 138,942 144,151 103,196 (2,290) 20,246 10,007 Provision for Income Taxes......... 74,398 60,857 59,246 42,864 (916) 8,098 4,002 ---------- ---------- ---------- ---------- -------- -------- -------- Net Income(2)(4)................. $ 108,397 $ 78,085 $ 84,905 $ 60,332 $ (1,374) $ 12,148 $ 6,005 ========== ========== ========== ========== ======== ======== ======== EARNINGS PER SHARE DATA(6): Basic............................ $ 0.64 $ 0.46 $ 0.50 $ 0.35 $ (0.01) $ 0.07 $ 0.04 Diluted.......................... $ 0.64 $ 0.46 $ 0.50 $ 0.35 $ (0.01) $ 0.07 $ 0.03 SHARES USED IN COMPUTING EARNINGS PER SHARE(6): Basic............................ 169,522 170,017 170,765 170,765 171,189 171,153 171,153 Diluted.......................... 169,883 170,289 171,065 171,065 171,189 172,396 172,396 OTHER FINANCIAL DATA: EBITDA(2)(3)(7).................... $ 199,117 $ 183,671 $ 156,669 $ 156,669(4) $ 3,126 $ 25,198 $ 25,198 Cash Flows from Operating Activities(8).................... $ 136,602 $ 100,538 $ 99,654 $ 75,081(5) $ 57,704 $ 27,405 $ 21,263(5) Cash Flows from Investing Activities(8).................... $ (43,012) $ (16,456) $ 105,732 $ 105,732 $ (8,690) $ (2,485) $ (2,485) Cash Flows from Financing Activities(8).................... $ (92,146) $ (85,466) $ (205,414) $ (180,841)(5) $(49,010) $(24,935) $(18,792)(5) Capital Expenditures(9)............ $ 43,012 $ 37,824 $ 16,268 $ 16,268 $ 8,690 $ 2,485 $ 2,485 Gross Advertising Sales(10)........ $1,145,944 $1,115,560 $1,067,242 $1,067,242 $ 68,136 $147,226 $147,226
8 13
AS OF DECEMBER 31, AS OF MARCH 31, -------------------------------- ----------------------- HISTORICAL HISTORICAL PRO FORMA -------------------------------- ---------- --------- 1995 1996 1997 1998 1998 -------- -------- -------- ---------- --------- (IN THOUSANDS) (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Total Assets(2).................... $520,214 $502,193 $382,286 $359,174 $ 369,674 (11) Long Term Debt..................... -- -- -- -- $ 500,000 (12) Shareholders' Equity (Deficit)..... $386,565 $379,184 $258,675 $245,887 $(243,613) (13)
- --------------- (1) See "Pro Forma Condensed Consolidated Financial Statements". (2) The summary financial data above include amounts related to businesses that have been sold and will not be included in Donnelley's results in future periods. Donnelley's West Coast proprietary yellow pages business was sold in May 1996 and Donnelley's East Coast proprietary yellow pages business was sold in December 1997. The above summary financial data contain the following amounts applicable to those businesses:
THREE MONTHS ENDED 1995 1996 1997 MARCH 31, 1997 -------- ------- ------- ------------------ Revenues......................... $140,104 $97,263 $77,979 $ 635 Operating Income................. $ 22,250 $18,587 $10,969 $ (914) Depreciation and Amortization.... $ 2,944 $ 1,323 $ 848 $ 213 Total Assets..................... $131,751 $80,962 -- $68,660 Gross Advertising Sales.......... $133,389 $89,939 $73,753 $ 1,513
(3) Allocations of historical corporate expenses of the Parent Company are included in operating expenses and general and administrative expenses. Donnelley's management believes these allocations are reasonable. However, the costs of these services and benefits allocated to Donnelley are not necessarily indicative of the costs that would have been incurred if Donnelley had performed or provided these services as a separate entity. These allocations were $24.1 million, $18.6 million and $21.5 million in 1995, 1996 and 1997, respectively, and were $5.9 million and $5.3 million for the three months ended March 31, 1997 and the three months ended March 31, 1998, respectively. (4) Donnelley estimates a net increase in general and administrative expenses associated with operating as an independent, publicly-traded company which may be as much as approximately $8.6 million annually above the amount which was allocated in 1997 from the Parent Company. This amount is not reflected in the applicable pro forma figures. (5) Adjusted to reflect the Offering and borrowings under the New Credit Facility, as if each were effected on January 1, 1997. In connection with the Distribution, Donnelley borrowed $350 million under the New Credit Facility and issued $150 million of Notes in the Offering of the Old Notes (the "Offering"). The net proceeds of the Notes, along with Donnelley's borrowings under the New Credit Facility, will be used (i) to repay indebtedness of the Parent Company, primarily commercial paper, (ii) to pay costs and expenses related to the Distribution and (iii) to repay indebtedness of the Parent Company to subsidiaries which, following the Distribution, are subsidiaries of New D&B. This $500 million of debt is an obligation of Donnelley after the Distribution. The debt is currently estimated to be comprised of:
BANK FINANCING ------------------------------------------------------------------------------- REVOLVER A LOAN B LOAN C LOAN TOTAL NOTES ---------- ---------- ----------- ----------- ----------- ----------- Amount..................... 50 million 75 million 125 million 100 million 350 million 150 million Estimated Interest......... 7.19% 7.19% 7.44% 7.69% 9.13% Estimated Financing Costs.................... 5.8 million 4.7 million Estimated Financing Term... 6 years 6 years 7.5 years 8.5 years 6-8.5 years 10 years
9 14 As of June 30, 1998, the weighted average interest rate under the New Credit Facility was 7.422%. Subsequent to borrowings under the New Credit Facility, Donnelley entered into 3 interest rate swap transactions with respect to the LIBOR component of the loans which converted part of its floating rates interest obligations to fixed rates. The swap transactions total in aggregate $175 million of the $350 million of loans under the New Credit Facility. As a result of the foregoing swaps, the weighted average interest rate is 7.517%. The swap agreements have terms of 3, 4 and 5 years. Therefore, at the end of the first 3 year period, the weighted average interest rate will change. Interest expense also includes the amortization of estimated financing costs. (6) On July 14, 1998, Donnelley Corp.'s Board of Directors approved a reverse one-for-five stock split of its common stock subject to approval by its shareholders to be sought at a special meeting of shareholders. The share and per share information provided herein has not been adjusted to reflect such reverse stock split. (7) EBITDA represents earnings before interest, taxes, depreciation, amortization and gains and losses on dispositions of businesses. EBITDA is a widely recognized financial indicator of a company's ability to service or incur debt. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. In addition, EBITDA may not be comparable to similarly titled measures of other companies. EBITDA may not be indicative of the historical operating results of Donnelley, nor is it meant to be predictive of future results of operations or cash flows. EBITDA as presented does not give effect to the sale of businesses described in note 2 above or the increase in expenses described in note 4 above. The Company estimates that after giving effect to such items, its EBITDA for 1997 would have been approximately $136,923. (8) No data is available prior to the year ended December 31, 1995. (9) Capital expenditures include Donnelley's investment in its new publishing center in Raleigh, North Carolina, which totaled approximately $23 million and $18 million in 1995 and 1996, respectively. (10) The unaudited gross advertising sales figures represent the billing value of advertisements sold by Donnelley and DonTech. (11) Adjusted to reflect $10.5 million of deferred financing costs related to the Offering and to Donnelley's anticipated borrowings under the New Credit Facility as if each were effected on March 31, 1998. (12) Adjusted to reflect the Offering and borrowings under the New Credit Facility. (13) Adjusted to reflect the use of proceeds of the Offering and borrowings under the New Credit Facility, after $10.5 million of deferred financing costs. 10 15 RISK FACTORS In addition to the other information set forth herein, prospective investors should carefully consider the following information in evaluating the Company and its business prior to accepting the Exchange Offer. LEVERAGE AND ABILITY TO SERVICE DEBT; NEGATIVE SHAREHOLDERS' EQUITY As of March 31, 1998, after giving pro forma effect to borrowings under the New Credit Facility, Donnelley will have approximately $500 million of indebtedness (of which $150 million consists of the Notes and the balance consists of $350 million of borrowings under the New Credit Facility) and a shareholder's deficit of approximately $244 million. Donnelley had $50 million of unused capacity available under the Revolving Facility following the Offering. See "Capitalization". In addition, the Indenture and the New Credit Facility will allow Donnelley to incur additional indebtedness under certain circumstances. The ability of Donnelley to make payments with respect to the Notes and to satisfy its other debt obligations will depend on the Company's future operating performance, which will be affected by prevailing economic conditions and financial, business, competitive and other factors, many of which are beyond the Company's control. Donnelley believes, based on current circumstances, that Donnelley's cash flow, together with available credit capacity under the New Credit Facility, will be sufficient to permit Donnelley to meet its operating expenses and capital expenditures and to service its debt requirements as they become due for the foreseeable future. Donnelley may, however, need to refinance all or a portion of the Notes on or prior to maturity, and there can be no assurance that Donnelley will generate sufficient cash flow or that future borrowings will be available under the New Credit Facility in an amount sufficient to enable Donnelley to service its indebtedness, including the Notes, or to fund its other liquidity needs. If Donnelley is unable to service its indebtedness, it will be required to adopt alternative strategies, which may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness or seeking additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms. The degree to which Donnelley is leveraged could have important consequences to holders of the Notes, including (i) Donnelley's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired; (ii) a substantial portion of Donnelley's cash flows from operations may be dedicated to the payment of debt service on its indebtedness, thereby reducing the funds available to Donnelley for its operations; (iii) Donnelley may be more leveraged than certain of its competitors, which may place Donnelley at a relative competitive disadvantage; (iv) Donnelley's flexibility in planning for, or reacting to, changes in its business and industry may be limited; and (v) Donnelley's level of indebtedness could make it more vulnerable in the event of a downturn in its business or industry or the economy in general. In addition, the Indenture and the New Credit Facility contain financial and other restrictive covenants that will limit the ability of Donnelley to, among other things, borrow additional funds. Failure by Donnelley to comply with such covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on Donnelley. In addition, the degree to which Donnelley is leveraged could prevent it from repurchasing all of the Notes tendered to it upon the occurrence of a Change of Control. See "Description of Notes -- Covenants -- Change of Control" and "Description of New Credit Facility". SUBORDINATION OF THE NOTES; DONNELLEY CORP. GUARANTEE The Notes and the Donnelley Corp. Guarantee will be subordinated in right of payment to all current and future Senior Debt and Donnelley Corp. Senior Debt. Upon any distribution to creditors of Donnelley or Donnelley Corp. in a liquidation or dissolution of Donnelley or Donnelley Corp. or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to Donnelley or Donnelley Corp. or its property, the holders of Senior Debt and Donnelley Corp. Senior Debt will be 11 16 entitled to be paid in full before any payment may be made with respect to the Notes. In addition, the subordination provisions of the Indenture provide that payments with respect to the Notes will be blocked in the event of a payment default on Senior Debt and may be blocked for up to 179 of each 360 days in the event of certain non-payment defaults on Senior Debt. In the event of a bankruptcy, liquidation or reorganization of Donnelley or Donnelley Corp., holders of the Notes will participate ratably with all holders of subordinated indebtedness of Donnelley or Donnelley Corp. that is deemed to be of the same class as the Notes, and potentially with all other general creditors of Donnelley, based upon the respective amounts owed to each holder or creditor, in the remaining assets of Donnelley. In any of the foregoing events, there can be no assurance that there would be sufficient assets to pay amounts due on the Notes. As a result, holders of Notes may receive less, ratably, than the holders of Senior Debt and other general creditors of Donnelley. As of March 31, 1998, on a pro forma basis after giving effect to borrowings under the New Credit Facility, approximately $350 million of Senior Debt is outstanding under the New Credit Facility. Donnelley had $50 million of unused capacity under the Revolving Facility following the Offering. The Indenture and the New Credit Facility permit the incurrence of additional indebtedness, including Senior Debt, by Donnelley under certain circumstances. See "Description of New Credit Facility" and "Description of Notes". RESTRICTIONS IMPOSED BY THE NEW CREDIT FACILITY AND THE INDENTURE The New Credit Facility and the Indenture contain a number of significant covenants that, among other things, limit or restrict the ability of Donnelley to dispose of assets, incur additional indebtedness, repay other indebtedness, pay dividends, enter into certain investments or acquisitions, repurchase or redeem capital stock, engage in mergers or consolidations, or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities. There can be no assurance that such limitations and restrictions will not adversely affect Donnelley's ability to finance its future operations or capital needs or engage in other business activities that may be in the interest of Donnelley. In addition, the New Credit Facility also requires Donnelley to maintain compliance with certain financial ratios. The ability of Donnelley to comply with such ratios may be affected by events beyond Donnelley's control. A breach of any of these covenants or the inability of Donnelley to comply with the required financial ratios could result in a default under the Indenture and the New Credit Facility, as applicable. In the event of any such default, (i) the indebtedness under the Notes could be accelerated and (ii) the lenders under the New Credit Facility could elect to declare all borrowings outstanding under the New Credit Facility, together with accrued interest and other fees, to be due and payable, to require Donnelley to apply all of its available cash to repay such borrowings or to prevent Donnelley from making debt service payments on the Notes. If Donnelley were unable to repay any such borrowings when due, the lenders could proceed against their collateral, which consists of substantially all of Donnelley's assets. If the indebtedness under the New Credit Facility or the Notes were to be accelerated, there can be no assurance that the assets of Donnelley would be sufficient to repay such indebtedness in full. See "Description of the Notes" and "Description of New Credit Facility". DEPENDENCE ON KEY CONTRACTS Donnelley's business is dependent upon several significant partnership and sales agency agreements. These agreements include the DonTech partnership, a partnership with a subsidiary of Ameritech, and the CenDon partnership ("CenDon"), a partnership with a subsidiary of Sprint, as well as sales agency agreements with subsidiaries of Bell Atlantic and Sprint. The equity income from the DonTech partnership and the fees from other arrangements with an affiliate of Ameritech, as well as the equity income from the CenDon partnership, are included in Donnelley's (and Donnelley Corp.'s) income statement as income from partnerships and related fees. The DonTech partnership and other arrangements with an affiliate of Ameritech represented approximately 64%, and the CenDon partnership and other arrangements with a subsidiary of Sprint represented approximately 15%, of Donnelley's (and Donnelley Corp.'s) operating income before corporate 12 17 overhead and depreciation and amortization expense in 1997. The Bell Atlantic sales agency agreement represented approximately 18% of Donnelley's (and Donnelley Corp.'s) operating income before corporate overhead and depreciation and amortization expense in 1997. Under their existing terms, the DonTech partnership has no expiration date, and the CenDon partnership and sales agency agreement and the Sprint sales agency agreement continue through 2004 (subject to, in the case of the Sprint sales agency agreement, a five year performance review no later than March 2000 and agreement on a new price schedule for publishing services by that date) and the Bell Atlantic sales agency agreement continues through 2005. While these partnerships and sales agency agreements currently extend for significant periods, no assurance can be given that Donnelley will be able to maintain these agreements and relationships after expiration of the current terms, and a termination, expiration or modification of these arrangements could have a material adverse effect on Donnelley's business, financial condition and results of operations. In addition, although profits from the DonTech and CenDon partnerships have historically been distributed to Donnelley on a monthly basis, Donnelley does not control either partnership and its failure to receive distributions from either for any reason would have a material adverse effect on Donnelley's (and Donnelley Corp.'s) business, financial condition and results of operations. Certain of these agreements are also subject to termination upon a change of control (as defined therein) of Donnelley and Donnelley Corp., including the DonTech partnership. The Distribution does not constitute a change of control under these agreements. From these relationships, Donnelley maintains significant account receivable balances with an Ameritech affiliate, a Bell Atlantic affiliate and the CenDon partnership. The failure of any of these parties to fulfill its obligations to Donnelley with respect to these account receivable balances could have a material adverse effect on Donnelley's business, operating results and financial condition. OUTSOURCING -- RELATED RISKS Local telephone companies currently conduct their yellow pages advertising sales and publishing operations either internally, through independent providers of such services or through some combination of both. Donnelley provides yellow pages advertising sales and publishing services to local telephone companies pursuant to long-standing partnership and other agreements with subsidiaries of Ameritech, Bell Atlantic and Sprint. Donnelley recently expanded its relationship with Bell Atlantic to provide, beginning with directories published in 1999, advertising sales for yellow pages directories in a new market, the greater Buffalo area, which Bell Atlantic had previously outsourced to another third-party marketer of yellow pages advertising. Ameritech, Bell Atlantic and Sprint currently market yellow pages advertising with internal sales forces in many of their other markets. In addition, each of them, along with other significant yellow pages publishers, are making investments to acquire publishing services technology similar to the technology used at Donnelley's new Raleigh publishing center. There can be no assurance that Ameritech, Bell Atlantic, Sprint or any other local telephone company will decide to outsource yellow pages advertising sales or publishing services in any of the markets which they currently cover internally or with independent providers of such services. Donnelley's ability to capitalize on any outsourced yellow pages advertising sales and publishing opportunities from local telephone companies will depend on a variety of factors, some of which are beyond Donnelley's control, These factors include, among others, Donnelley's ability to: attract, train, retain and manage qualified personnel for advertising sales or for its new publishing center in Raleigh, North Carolina and its graphics center in Dunmore, Pennsylvania (to the extent that the size or scheduling of the related directories would require Donnelley to increase its publishing services capacity); and integrate the information systems, software and other technology used by Donnelley's personnel in new markets with Donnelley's other information systems, software and technology. There can be no assurance that Donnelley will be able to effectively operate and manage any yellow pages advertising sales and publishing business outsourced to it by local telephone companies. 13 18 COMPETITION There is competition for yellow pages advertising sales to varying degrees in the Company's markets from the sales forces of yellow pages publishers with which the Company is not affiliated. These yellow pages publishers include local telephone companies with which the Company does not maintain a contractual relationship, independent publishers (publishers that are not affiliated with any telephone company), which have slightly increased their share of the total market for yellow pages advertising sales in the U.S. in recent years, and national yellow pages sales agents. In the majority of its markets, Donnelley benefits from its long-term contractual relationships with affiliates of the largest potential competitor in a directory market, the incumbent local telephone company. While Donnelley's operating results to date have not been adversely impacted, the Telecommunications Act of 1996 effectively opened local telephone markets to increased competition, and there can be no assurance that these incumbent local telephone companies will remain the dominant telephone service providers in the Company's markets. There is also competition for advertising sales from other media, including newspapers, magazines, radio, direct mail, on-line information services, television and cable television, and advances in technology have brought to the industry new participants, new products and new channels. The increasing use of the Internet by consumers and businesses as a means to transact business may result in new technologies being developed and services provided that could compete with the Company's products and services. There can be no assurance that the Company will be able to successfully compete in responding to any such developments. TECHNOLOGICAL ADAPTATION AND COMPETITION The Company competes in a business which requires sophisticated information systems, software and other technology, as well as for its systems to be able to interface with those of the local telephone companies with which it has strategic relationships. Donnelley's technology and databases at its publishing center in Raleigh, North Carolina also must interface with the systems of yellow pages publishers for which it provides publishing services and the systems of printers to which it delivers electronic output. The yellow pages directory advertising market is subject to changes arising from developments in technology (including methods used to distribute yellow pages-style information) and yellow pages users' technological preferences. As a result of these factors, the Company's growth and future financial performance may depend upon its ability to develop and market new products and services and to create new distribution channels, while enhancing existing products, services and distribution channels, in order to accommodate the latest technological advances and user preferences, including use of the Internet. A failure by the Company to anticipate or respond adequately to changes in technology and user preferences, or an inability to finance any related capital expenditures (including, if necessary, adaptation or replacement of its information systems, software, databases or other technology), could have a material adverse effect on Donnelley's business, operating results and financial condition. POTENTIAL CONTINGENT LIABILITIES In connection with the Distribution, Donnelley Corp. and New D&B have entered into an agreement (the "Distribution Agreement"), which, in part, provides that New D&B has assumed substantially all liabilities of the Parent Company and any subsidiaries of the Parent Company immediately prior to the Distribution (except for certain liabilities which relate primarily to Donnelley's business, the Offering and the borrowings under the New Credit Facility) and that New D&B will indemnify Donnelley Corp. and Donnelley for all such liabilities. The liabilities assumed by New D&B include contingent liabilities that could be very substantial and, if such contingent liabilities were to become payable and New D&B were unable to meet its obligations with respect to such liabilities, could have a material adverse effect on the financial position of Donnelley Corp. and Donnelley. 14 19 The Distribution Agreement provides that Donnelley Corp. and New D&B will comply, and otherwise not take action inconsistent, with each representation and statement made to the Internal Revenue Service ("IRS") in connection with the Parent Company's request for a ruling as to certain tax aspects of the Distribution. Although the Parent Company has received a ruling from the IRS to the effect that the Distribution qualifies as a tax-free distribution, the ruling is based on these representations and statements, and there can be no assurance that events occurring subsequent to the Distribution, or events not disclosed in the Parent Company's request for the ruling (of which Donnelley Corp. believes there to be none), will not cause the Distribution to be deemed a taxable distribution. In the event that the Distribution fails to constitute a tax-free distribution, a corporate tax (which would be in the range of approximately $1.5 to $2.0 billion) would be payable by the consolidated group, of which Donnelley Corp. is the common parent, and each member of the consolidated group, including Donnelley, would be jointly and severally liable for any such tax. Among the contingent liabilities which New D&B's indemnity would cover is any judgment against Donnelley Corp. or Donnelley in a law suit brought by Information Resources, Inc. See "-- Litigation" below. 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 the Parent Company, A.C. Nielsen Company and IMS International Inc. (former subsidiaries of the Parent Company) (the "IRI Action"). The complaint alleges, among other things, various violations of the antitrust laws and damages in excess of $350 million, which IRI is seeking to have trebled under the antitrust laws. IRI also seeks punitive damages in an unspecified amount. Pursuant to the Distribution Agreement, New D&B will assume and indemnify Donnelley Corp. and Donnelley against any payments to be made by Donnelley Corp. or Donnelley in respect of the IRI Action under the Distribution Agreement, under the Indemnity and Joint Defense Agreement (as described below) or otherwise, including any ongoing legal fees and expenses related thereto. In addition to the indemnity within the Distribution Agreement generally covering the IRI Action, the Parent Company, ACNielsen Corporation ("ACNielsen") and Cognizant Corporation ("Cognizant") have entered into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense Agreement") pursuant to which ACNielsen has agreed to be responsible for any potential liabilities which may ultimately be incurred by the Parent Company or Cognizant as a result of such action, up to a maximum amount to be determined by an independent investment bank if and when any such liabilities are incurred. The determination of such maximum amount will be based on ACNielsen's ability to satisfy such liabilities and remain financially viable, subject to certain assumptions and limitations. However, the Parent Company and Cognizant have agreed that to the extent that ACNielsen is unable to satisfy any such liabilities in full and remain financially viable, the Parent Company and Cognizant will each be responsible for 50% of the difference between the amount, if any, which may be payable as a result of such litigation and the maximum amount which ACNielsen is then able to pay as determined by such investment bank. Under the terms of a distribution agreement, dated as of October 28, 1996, among the Parent Company, Cognizant and ACNielsen, as a condition to the Distribution, New D&B is required to undertake to be jointly and severally liable with Donnelley Corp. to Cognizant and ACNielsen. TRANSITION TO AN INDEPENDENT PUBLIC COMPANY Donnelley does not have an operating history as an independent company. Accordingly, the financial statements included herein may not necessarily reflect the results of operations, financial condition and cash flows that would have been achieved had Donnelley been operated independently during the periods presented. Historically, the Parent Company has provided substantially all of Donnelley's corporate services and employee benefits. While Donnelley's management believes the costs of these services and benefits charged to Donnelley have been reasonably equivalent to 15 20 terms which could have been obtained through arm's-length negotiations with the Parent Company, these costs may not be indicative of the costs that would have been incurred if Donnelley had performed or provided these services as an independent company. In addition, following the Distribution, Donnelley will also be responsible for the additional costs associated with being an independent public company, including costs associated with corporate governance, listed and registered securities and investor relations. SENSITIVITY OF FINANCIAL RESULTS TO ECONOMIC CONDITIONS The Company derives its sales commissions and partnership income and related fees from the sale of advertising in yellow pages directories. Advertising sales by the Company, as well as those of yellow pages publishers in general, generally do not fluctuate widely with economic cycles. However, a prolonged national or regional economic recession could have a material adverse effect on Donnelley's business, operating results and financial condition. POTENTIAL CONFLICTS OF INTEREST In connection with the Distribution, Donnelley Corp. has determined certain contractual and other relationships between itself (which currently holds Donnelley as its only subsidiary), and New D&B (which currently holds Dun & Bradstreet, Inc. and Moody's Investors Service, Inc. as subsidiaries). These determinations will survive the Distribution and provide for the allocation between those entities of tax, employee benefits and certain other liabilities and obligations arising from periods prior to the Distribution, as well as for the use of the net proceeds of the Offering by Donnelley and the borrowings under the New Credit Facility. While Donnelley considers these contractual and other relationships among Donnelley Corp. and New D&B to be equivalent to terms which could have been obtained through arm's-length negotiations, these contractual and other relationships generally were not the result of arm's-length negotiations. POTENTIAL INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL Upon the occurrence of a Change of Control, Donnelley will be required to offer to repurchase the Notes at 101% of the principal amount of the Notes, together with accrued and unpaid interest, if any, to the date of purchase. The New Credit Facility contains, and future Senior Debt of Donnelley may also contain, prohibitions on the purchase by Donnelley of any Notes prior to their stated maturity, and provisions which require obligations thereunder to be repurchased upon a Change of Control. In such circumstances, Donnelley will be required to (i) repay all or a portion of the outstanding principal of, and pay any accrued interest on, its Senior Debt, including indebtedness under the New Credit Facility or (ii) obtain any requisite consent from its lenders (including under the New Credit Facility) to permit the purchase of the Notes. If Donnelley is unable to repay all of such indebtedness or is unable to obtain the necessary consents, Donnelley may be unable to offer to repurchase the Notes, which would constitute an Event of Default under the Indenture. There can be no assurance that Donnelley will have sufficient funds available at the time of any Change of Control to make any debt payment (including repurchases of the Notes) as described above or that Donnelley would be able to refinance its outstanding indebtedness in order to permit it to repurchase the Notes or, if such refinancing were to occur, that such financing would be on terms favorable to Donnelley. See "Description of Notes -- Covenants -- Change of Control". The events that constitute a Change of Control under the Indenture may also be events of default under the New Credit Facility or other Senior Debt of Donnelley. Such events may permit the holders under such debt instruments to accelerate the payment of such debt and, if the debt is not paid, to proceed against their collateral (which, in the case of the New Credit Facility, will consist of substantially all of the assets and the capital stock of Donnelley), if any, or to commence litigation that could ultimately result in a sale of substantially all of the assets of Donnelley, thereby limiting Donnelley's ability to raise cash to repurchase the Notes. 16 21 ABSENCE OF A PUBLIC MARKET FOR THE NOTES The Exchange Notes are being offered to holders of Old Notes. The Exchange Notes are new securities for which there currently is no established trading market. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the Notes, they are not obligated to do so, and any such market-making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes, including the Exchange Notes. The Company does not intend to apply for listing of the Notes on any securities exchange or for quotation through NASDAQ. If a trading market develops for the Exchange Notes, future trading prices of such securities will depend on many factors, including prevailing interest rates, the Company's results of operations and financial condition and the market for similar securities. RISK OF FRAUDULENT TRANSFER The net proceeds of the Offering and borrowings under the New Credit Facility were dividended to the Parent Company to be used (i) to repay indebtedness of the Parent Company, primarily commercial paper, (ii) to pay costs and expenses related to the Distribution and (iii) to repay indebtedness of the Parent Company to subsidiaries of New D&B. Under applicable provisions of the U.S. Bankruptcy Code or comparable provisions of state fraudulent transfer or conveyance laws, if Donnelley or Donnelley Corp., at the time it issued the Notes or Donnelley Corp. Guarantee, as the case may be, (i) incurred such indebtedness with the intent to hinder, delay or defraud creditors, or (ii) (a) received less than reasonably equivalent value or fair consideration for incurring such indebtedness and (b) (1) was insolvent at the time of incurrence, (2) was rendered insolvent by reason of such incurrence (and the application of the proceeds thereof), (3) was engaged or was about to engage in a business or transaction for which the assets remaining with Donnelley or Donnelley Corp. constituted unreasonably small capital to carry on its businesses, or (4) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature, then, in each case, a court of competent jurisdiction could void, in whole or in part, the Notes or the Donnelley Corp. Guarantee, or, in the alternative, subordinate the Notes or Donnelley Corp. Guarantee to existing and future indebtedness of Donnelley or Donnelley Corp. In addition, the payment of interest and principal by Donnelley or Donnelley Corp. pursuant to the Notes could be voided and required to be returned to the person making such payment, or to a fund for the benefit of the creditors of Donnelley or Donnelley Corp. The measure of insolvency for purposes of the foregoing will vary depending upon the law applied in such case. Generally, however, Donnelley or Donnelley Corp. would be considered insolvent if the sum of its debts, including contingent liabilities, was greater than all of its assets at fair valuation or if the present fair saleable value of its assets was less than the amount that would be required to pay the probable liability on its existing debts, including contingent liabilities, as they become absolute and mature, or if it could not pay its debts as they become due. On the basis of historical financial information, recent operating history and other factors, Donnelley and Donnelley Corp. believe that, for purposes of all such insolvency, bankruptcy and fraudulent transfer or conveyance laws, the Notes and Donnelley Corp. Guarantee were (and in the case of the Exchange Notes, are being) issued without the intent to hinder, delay or defraud creditors and for proper purposes and in good faith and that Donnelley and Donnelley Corp., after the issuance of the Notes and the Donnelley Corp. Guarantee and the application of the proceeds thereof, will be solvent, will have sufficient capital for carrying on their business and will be able to pay their debts as they mature. There can be no assurance, however, that a court passing on such questions would agree with Donnelley's and Donnelley Corp.'s view. POTENTIAL YEAR 2000 PROBLEMS The Year 2000 problem 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 17 22 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 Year 2000 compliance program, many of Donnelley's currently installed computer systems and software products have been tested for Year 2000 problems and Donnelley anticipates that these computer systems and software products will be fully Year 2000 compliant. Also, Donnelley is requesting assurances from all software vendors from which it has purchased or licensed 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 conversions to new software, Donnelley believes that it will be able to mitigate its exposure to the Year 2000 problem before 2000. However, if continued modifications and conversions are not made, or are not timely completed, the Year 2000 problem could have a material adverse effect on Donnelley's operating results and financial condition. Donnelley plans to have its Year 2000 compliance program substantially completed by the end of 1998. In 1997, Donnelley spent approximately $0.5 million addressing the Year 2000 problem and has budgeted expenditures of approximately $3.5 million for 1998 and approximately $1.1 million for 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 Donnelley's computer systems, software, databases or other technology interface or are integrated or those of third parties with which Donnelley maintains business relationships may not accept input of, store, manipulate and output dates in the year 2000 or thereafter without error or interruption. Donnelley 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 or third party problems in correctly processing date information. Donnelley is also querying applicable third parties with which it maintains business relationships as to their progress in identifying and addressing their Year 2000 problems. However, there can be no assurance that Donnelley will identify all interface- or integration-related or third party date-handling problems in advance of their occurrence, or that Donnelley will be able to successfully remedy problems that are discovered. The expenses of Donnelley's efforts to identify and address such problems, or the expenses or liabilities to which Donnelley may become subject as a result of such problems, could have a material adverse effect on its operating results and financial condition. USE OF PROCEEDS There will be no proceeds to the Company from the issuance of the Exchange Notes pursuant to the Exchange Offer. In consideration for issuing the Exchange Notes in exchange for the Old Notes as described in this Prospectus, the Company will receive Old Notes in like principal amount. The Old Notes surrendered in exchange for the Exchange Notes will be retired and canceled. Accordingly, the issuance of the Exchange Notes will not result in any change in the indebtedness of the Company. The net proceeds to Donnelley from the sale of the Old Notes was approximately $145.3 million after deducting the Initial Purchasers' discount and estimated expenses payable by Donnelley. The net proceeds, along with Donnelley's borrowings under the New Credit Facility of $350 million (approximately $344.2 million after deducting estimated fees and expenses), were dividended to the Parent Company to be used (i) to repay indebtedness of the Parent Company, primarily commercial paper, (ii) to pay costs and expenses related to the Distribution and (iii) to repay indebtedness of the Parent Company to subsidiaries of New D&B. Donnelley has $50 million of unused capacity available under the Revolving Facility. 18 23 CAPITALIZATION The following table sets forth the capitalization of Donnelley Corp. (i) as of March 31, 1998 and (ii) as adjusted for the Offering and borrowings under the New Credit Facility and the application of the net proceeds therefrom. This table should be read in conjunction with "Selected Financial Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Use of Proceeds" and the financial statements and related notes appearing elsewhere in this Prospectus. On July 14, 1998, Donnelley Corp.'s Board of Directors approved a reverse one-for-five stock split of its common stock subject to approval by its shareholders to be sought at a special meeting of shareholders. The share and per share information provided herein has not been adjusted to reflect such reverse stock split.
AS OF MARCH 31, 1998 ------------------------- HISTORICAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) Cash and cash equivalents................................... $ 17 $ 17(2) Debt: New Credit Facility(2).................................... -- $350,000 Notes..................................................... -- 150,000 -------- -------- Total debt............................................. -- 500,000 -------- -------- Preferred Stock, par value $1.00 per share, authorized -- 10,000,000 shares......................................... -- -- -------- -------- Common Stock, par value $1.00 per share, authorized -- 400,000,000 shares, issued and outstanding -- 188,420,996 shares, less treasury shares of 16,850,856................ 171,570 171,570 Retained Earnings (Deficit)................................. 74,317 (415,183) -------- -------- Total Equity (Deficit)................................. 245,887 (243,613) -------- -------- Total capitalization........................................ $245,887 $256,387 ======== ========
- --------------- (1) In connection with the Distribution, Donnelley dividended substantially all of its cash to the Parent Company for transfer to New D&B. (2) The New Credit Facility provides for up to $100 million of revolving credit borrowings under the Revolving Facility and up to $300 million of term loans under the Term Facilities. Loans obtained under the Revolving Facility mature in 2004, and loans obtained under the Term Facilities mature in varying amounts from 1998 through 2006. Donnelley borrowed $50 million and $300 million under the Revolving Facility and Term Facilities, respectively, concurrently with the closing of the Offering. Donnelley has $50 million of unused capacity available under the Revolving Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Description of New Credit Facility". 19 24 SELECTED FINANCIAL DATA Donnelley is a wholly-owned subsidiary of Donnelley Corp. Donnelley Corp. has no other operations other than through the Donnelley subsidiary. Therefore, on a consolidated basis, the financial statements of Donnelley Corp. and Donnelley are substantially identical. The historical selected consolidated financial data of Donnelley Corp. as of December 31, 1996 and 1997, and for each of the years in the three-year period ended December 31, 1997, are derived from the audited consolidated financial statements of the Donnelley Corp. included elsewhere herein. Donnelley Corp.'s audited consolidated financial statements included elsewhere herein are presented as if Donnelley Corp. were a stand-alone entity for all periods presented. The historical selected consolidated financial data of Donnelley Corp. as of December 31, 1993, 1994 and 1995, and for the years ended December 31, 1993 and 1994, are derived from the unaudited consolidated financial statements of Donnelley Corp., and, in the opinion of management, include all necessary adjustments for a fair presentation of such data in conformity with generally accepted accounting principles. The historical selected consolidated financial data as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 have been derived from the unaudited interim consolidated financial statements of Donnelley Corp., and, in the opinion of management, include all necessary adjustments for a fair presentation of such data in conformity with generally accepted accounting principles. The financial data included herein may not necessarily reflect the results of operations and financial position of Donnelley Corp. in the future. The information set forth below should be read in conjunction with the information under "Capitalization", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Prospectus. 20 25
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------- PRO HISTORICAL FORMA(1) -------------------------------------------------------------- ---------- 1993 1994 1995 1996 1997 1997 ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT RATIOS) CONSOLIDATED STATEMENT OF OPERATIONS DATA(2): Revenues........................ $ 333,047 $ 310,313 $ 312,940 $ 270,029 $ 239,865 $ 239,865 Expenses: Operating Expenses(3).......... 157,546 139,022 157,559 135,500 132,278 132,278 General and Administrative(3).. 124,992 91,368 75,754 83,803 81,089 81,089(4) Depreciation and Amortization.. 15,694 15,444 16,322 16,229 21,930 21,930 Restructuring Charges.......... -- -- 17,690 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............... 298,232 245,834 267,325 235,532 235,297 235,297 Income from Partnerships and Related Fees................... 129,873 148,770 137,180 132,945 130,171 130,171 Operating Income................ 164,688 213,249 182,795 167,442 134,739 134,739 Gain(Loss) on Dispositions...... -- -- -- (28,500) 9,412 9,412 Interest Expense................ -- -- -- -- -- 40,955(5) ---------- ---------- ---------- ---------- ---------- ---------- Income Before Provision for Income Taxes................. 164,688 213,249 182,795 138,942 144,151 103,196 Provision for Income Taxes...... 65,875 85,300 74,398 60,857 59,246 42,864 ---------- ---------- ---------- ---------- ---------- ---------- Net Income(2)(4)............. $ 98,813 $ 127,949 $ 108,397 $ 78,085 $ 84,905 $ 60,332 ========== ========== ========== ========== ========== ========== EARNINGS PER SHARE(6): Basic.......................... $0.56...... $ 0.75 $ 0.64 $ 0.46 $ 0.50 $ 0.35 Diluted........................ $0.56...... $ 0.75 $ 0.64 $ 0.46 $ 0.50 $ 0.35 SHARES USED IN COMPUTING EARNINGS PER SHARE(6): Basic.......................... 177,200... 169,946 169,522 170,017 170,765 170,765 Diluted........................ 177,200... 169,946 169,883 170,289 171,065 171,065 OTHER FINANCIAL DATA: EBITDA(2)(3)(7)................. $180,382... $ 228,693 $ 199,117 $ 183,671 $ 156,669 $ 156,669(4) Cash Flow from Operating Activities(8).................. --........ -- $ 136,602 $ 100,538 $ 99,654 $ 75,081(5) Cash Flows from Investing Activities(8).................. --........ -- $ (43,012) $ (16,456) $ 105,732 $ 105,732 Cash Flows from Financing Activities(8).................. --........ -- $ (92,146) $ (85,466) $ (205,414) $(180,841)(5) Capital Expenditures(9)......... --........ -- $ 43,012 $ 37,824 $ 16,268 $ 16,268 Ratio of Earnings to Fixed Charges(10).................... --........ -- -- -- -- 3.3x Gross Advertising Sales(11)..... $1,151,700.. $1,108,705 $1,145,944 $1,115,560 $1,067,242 $1,067,242 THREE MONTHS ENDED MARCH 31, ------------------------------ PRO HISTORICAL FORMA(1) ------------------- -------- 1997 1998 1998 -------- -------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA(2): Revenues........................ $ 20,200 $ 24,344 $ 24,344 Expenses: Operating Expenses(3).......... 5,553 7,093 7,093 General and Administrative(3).. 16,963 17,695 17,695(4) Depreciation and Amortization.. 5,416 4,952 4,952 Restructuring Charges.......... -- -- -- -------- -------- -------- Total Expenses............... 27,932 29,740 29,740 Income from Partnerships and Related Fees................... 5,442 25,642 25,642 Operating Income................ (2,290) 20,246 20,246 Gain(Loss) on Dispositions...... -- -- -- Interest Expense................ -- -- 10,239(5) -------- -------- -------- Income Before Provision for Income Taxes................. (2,290) 20,246 10,007 Provision for Income Taxes...... (916) 8,098 4,002 -------- -------- -------- Net Income(2)(4)............. $ (1,374) $ 12,148 $ 6,005 ======== ======== ======== EARNINGS PER SHARE(6): Basic.......................... $ (0.01) $ 0.07 $ 0.04 Diluted........................ $ (0.01) $ 0.07 $ 0.03 SHARES USED IN COMPUTING EARNINGS PER SHARE(6): Basic.......................... 171,189 171,153 171,153 Diluted........................ 171,189 172,396 172,396 OTHER FINANCIAL DATA: EBITDA(2)(3)(7)................. $ 3,126 $ 25,198 $ 25,198 Cash Flow from Operating Activities(8).................. $ 57,704 $ 27,406 $ 21,263(5) Cash Flows from Investing Activities(8).................. $ (8,690) $ (2,485) $ (2,485) Cash Flows from Financing Activities(8).................. $(49,010) $(24,935) $(18,792)(5) Capital Expenditures(9)......... $ 8,690 $ 2,485 $ 2,485 Ratio of Earnings to Fixed Charges(10).................... -- -- 2.8x Gross Advertising Sales(11)..... $ 68,136 $147,226 $147,226
21 26
AS OF DECEMBER 31, AS OF MARCH 31, ------------------------------------------------------ ---------------------- HISTORICAL HISTORICAL PRO FORMA ------------------------------------------------------ ---------- --------- 1993 1994 1995 1996 1997 1998 1998 -------- -------- ---------- -------- -------- ---------- --------- (IN THOUSANDS) (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Total Assets(l)............. $512,165 $526,168 $520,214 $502,193 $382,286 $359,174 $ 369,674(12) Long Term Debt.............. -- -- -- -- -- -- $ 500,000(13) Shareholders' Equity (Deficit)................. $350,942 $370,314 $386,565 $379,184 $258,675 $245,887 $(243,613)(14)
- --------------- (1) See "Pro Forma Condensed Consolidated Financial Statements". (2) The selected financial data above include amounts related to businesses that have been sold and will not be included in Donnelley's results in future periods. Donnelley's West Coast proprietary yellow pages business was sold in May 1996 and Donnelley's East Coast proprietary yellow pages business was sold in December 1997. The above selected financial data contain the following amounts applicable to those businesses:
THREE MONTHS ENDED 1993 1994 1995 1996 1997 MARCH 31, 1997 -------- -------- -------- ------- ------- -------------- Revenues........................ $166,176 $148,785 $140,104 $97,263 $77,979 $ 635 Operating Income................ $ 13,199 $ 27,926 $ 22,250 $18,587 $10,969 $ (914) Depreciation and Amortization... $ 4,095 $ 2,842 $ 2,944 $ 1,323 $ 848 $ 213 Total Assets.................... $163,440 $138,345 $131,751 $80,962 -- $68,660 Gross Advertising Sales......... $156,631 $139,060 $133,389 $89,939 $73,753 $ 1,513
(3) Allocations of historical corporate expense of the Parent Company are included in operating expenses and general and administrative expenses. Donnelley's management believes these allocations are reasonable. However, the costs of these services and benefits allocated to Donnelley are not necessarily indicative of the costs that would have been incurred if Donnelley had performed or provided these services as a separate entity. These allocations were $24.1 million, $18.6 million and $21.5 million in 1995, 1996 and 1997, respectively, and were $5.9 million and $5.3 million for the three months ended March 31, 1997 and the three months ended March 31, 1998, respectively. No data is available prior to the year ended December 31, 1995. (4) Donnelley estimates a net increase in general and administrative expenses associated with operating as an independent, publicly-traded company which may be as much as $8.6 million annually above the amount which was allocated in 1997 from the Parent Company. This amount is not reflected in the applicable pro forma figures. (5) Adjusted to reflect the Offering and borrowings under the New Credit Facility, as if each were effected on January 1, 1997. In connection with the Distribution, Donnelley borrowed $350 million under the New Credit Facility and issued $150 million of Notes in the Offering. The net proceeds of the Notes, along with Donnelley's anticipated borrowings under the New Credit Facility, will be used (i) to repay indebtedness of the Parent Company, primarily commercial paper, (ii) to pay costs and expenses related to the Distribution and (iii) to repay indebtedness of the Parent Company to subsidiaries which, following the Distribution, are subsidiaries of New D&B. This $500 million of debt is an obligation of Donnelley. The debt is currently estimated to be comprised of:
BANK FINANCING ------------------------------------------------------------------------------------- REVOLVER A LOAN B LOAN C LOAN TOTAL NOTES ----------- ----------- ------------ ------------ ------------ ------------ Amount............... $50 million $75 million $125 million $100 million $350 million $150 million Estimated Interest... 7.19% 7.19% 7.44% 7.69% 9.13% Estimated Financing Costs.............. $5.8 million $4.7 million Estimated Financing Term............... 6 years 6 years 7.5 years 8.5 years 6-8.5 years 10 years
22 27 As of June 30, 1998, the weighted average interest rate under the New Credit Facility was 7.422%. Subsequent to borrowings under the New Credit Facility, Donnelley entered into 3 interest rate swap transactions with respect to the LIBOR component of the loans which converted part of its floating rates interest obligations to fixed rates. The swap transactions total in aggregate $175 million of the $350 million of loans under the New Credit Facility. As a result of the foregoing swaps, the weighted average interest rate is 7.517%. The swap agreements have terms of 3, 4 and 5 years. Therefore, at the end of the first 3 year period, the weighted average interest rate will change. Interest expense also includes the amortization of estimated financing costs. (6) On July 14, 1998, Donnelley Corp.'s Board of Directors approved a reverse one-for-five stock split of its common stock subject to approval by its shareholders to be sought at a special meeting of shareholders. The share and per share information provided herein has not been adjusted to reflect such reverse stock split. (7) EBITDA represents earnings before interest, taxes, depreciation, amortization and gains and losses on dispositions of businesses. EBITDA is a widely recognized financial indicator of a company's ability to service or incur debt. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. In addition, EBITDA may not be comparable to similarly titled measures of other companies. EBITDA may not be indicative of the historical operating results of Donnelley, nor is it meant to be predictive of future results of operations or cash flows. EBITDA as presented does not give effect to the sale of businesses described in note 2 above or the increase in expenses described in note 4 above. The Company estimates that after giving effect to such items, its EBITDA for 1997 would have been approximately $136,923. (8) No data is available prior to the year ended December 31, 1995. (9) Capital expenditures include Donnelley's investment in its new publishing center in Raleigh, North Carolina, which totaled approximately $23 million and $18 million in 1995 and 1996, respectively. (10) The ratio of earnings to fixed charges has been calculated by dividing income before income taxes and fixed charges by fixed charges. Fixed charges consists of interest expense and one-third of operating rental expense, which management believes is representative of the interest component of rent expense. (11) The unaudited gross advertising sales figures represent the billing value of advertisements sold by Donnelley and DonTech. (12) Adjusted to reflect $10.5 million of deferred financing costs related to the Offering and to Donnelley's anticipated borrowings under the New Credit Facility as if each were effected on March 31, 1998. (13) Adjusted to reflect the Offering and borrowings under the New Credit Facility. (14) Adjusted to reflect the use of proceeds of the Offering and borrowings under the New Credit Facility, after $10.5 million of deferred financing costs. 23 28 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated financial statements have been prepared giving effect to the Distribution as if it occurred on March 31, 1998 for the pro forma condensed consolidated balance sheet and January 1, 1997 for the pro forma condensed consolidated statements of operations. The pro forma condensed consolidated balance sheet and statements of operations set forth below do not purport to represent what Donnelley Corp.'s financial position and results of operations actually would have been had the Distribution occurred on the date indicated or to project Donnelley Corp.'s operating results for any future period. The pro forma adjustments are based upon available information and certain assumptions that Donnelley Corp.'s management believes are reasonable. The pro forma condensed consolidated financial statements set forth should be read in conjunction with, and are qualified in their entirety by, the information under "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the Consolidated Financial Statements and Notes thereto included elsewhere in this Registration Statement. 24 29 R.H. DONNELLEY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 ---------------------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA ----------- ------------ ---------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues.......................................... $239,865 $239,865(A) Expenses: Operating Expenses.............................. 132,278 132,278 General and Administrative...................... 81,089 81,089(B) Depreciation and Amortization................... 21,930 21,930 -------- -------- Total Expenses............................... 235,297 235,297 Income from Partnerships and Other Related Fees... 130,171 130,171 -------- -------- Operating Income.................................. 134,739 134,739(A) Gain on Disposition............................... 9,412 9,412 Interest Expense.................................. -- (39,656)(C)(D) (40,955) -------- -------- (1,299)(E) -------- -------- -------- Income before Provision for Income Taxes.......... 144,151 (40,955) 103,196 -------- -------- Provision for Income Taxes........................ 59,246 (16,382)(F) 42,864 -------- -------- -------- Net Income........................................ $ 84,905 $(24,573) $ 60,332 ======== ======== ======== Earnings Per Share: Basic........................................... $ 0.50 $ 0.35 ======== ======== Diluted......................................... $ 0.50 $ 0.35 ======== ======== Shares Used in Computing Earnings Per Share: Basic........................................... 170,765 170,765 ======== ======== Diluted......................................... 171,065 171,065 ======== ========
See notes to pro forma condensed consolidated financial statements 25 30 R.H. DONNELLEY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 --------------------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA ----------- ------------ ---------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues............................................ $ 24,344 $ 24,344 Expenses: Operating Expenses................................ 7,093 7,093 General and Administrative........................ 17,695 17,695(B) Depreciation and Amortization..................... 4,952 4,952 -------- -------- Total Expenses................................. 29,740 29,740 Income from Partnerships and Other Related Fees..... 25,642 25,642 -------- -------- Operating Income.................................... 20,246 20,246 Interest Expense.................................... -- $ (9,914)(C)(D) (10,239) -------- -------- (325)(E) -------- -------- -------- Income before Provision for Income Taxes............ 20,246 (10,239) 10,007 -------- -------- Provision for Income Taxes.......................... 8,098 (4,096)(F) 4,002 -------- -------- -------- Net Income.......................................... $ 12,148 $ (6,143) $ 6,005 ======== ======== ======== Earnings Per Share: Basic............................................. $ 0.07 $ 0.04 ======== ======== Diluted........................................... $ 0.07 $ 0.03 ======== ======== Shares Used in Computing Earnings Per Share: Basic............................................. 171,153 171,153 ======== ======== Diluted........................................... 172,396 172,396 ======== ========
See notes to pro forma condensed consolidated financial statements 26 31 R.H. DONNELLEY CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998 --------------------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA ------------ ------------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA ASSETS: Cash and Cash Equivalents............................ $ 17 $ 17 Other Current Assets................................. 136,703 136,703 -------- --------- Total Current Assets....................... 136,720 136,720 Non-Current Assets................................... 222,454 $ 10,500(G) 232,954 -------- --------- --------- Total Assets............................... $359,174 $ 10,500 $ 369,674 ======== ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities.................................. $ 50,527 $ 50,527 Long Term Debt....................................... -- $ 500,000(C) 500,000 Other Liabilities.................................... 62,760 62,760 -------- --------- --------- Total Liabilities.......................... 113,287 500,000 613,287 Shareholders' Equity: Preferred Stock, par value $1.00 per share, Authorized -- 10,000,000 shares Common Stock, par value $1.00 per share, Authorized -- 400,000,000 shares; Issued -- 188,420,996 shares, less treasury shares of 16,850,856......................................... 171,570 -- 171,570 Retained Earnings (Deficit).......................... 74,317 (489,500) (415,183) -------- --------- --------- Total Shareholders' Equity................. 245,887 (489,500) (243,613) -------- --------- --------- Total Liabilities and Shareholders' Equity................................... $359,174 $ 10,500 $ 369,674 ======== ========= =========
See notes to pro forma condensed consolidated financial statements 27 32 R.H. DONNELLEY CORPORATION NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS A. The pro forma condensed consolidated statement of operations for the year ended December 31, 1997 includes amounts related to the P-East business that was sold in December 1997 and will not be included in the results going forward. The following amounts were related to this business.
(IN THOUSANDS) Revenues.................................................... $77,979 Operating Income............................................ 10,969
B. Donnelley estimates a net increase in operating expense of as much as approximately $8.6 million annually associated with operating as a publicly owned company which is not reflected in the pro form condensed consolidated financial statements. C. In connection with the Distribution, Donnelley borrowed $350 million under the New Credit Facility and issued $150 million of senior subordinated notes. The net proceeds of the Offering, along with Donnelley's borrowings under the New Credit Facility, were used (i) to repay indebtedness of D&B, primarily commercial paper, (ii) to pay costs and expenses related to the Distribution and (iii) to repay indebtedness of D&B to subsidiaries which are subsidiaries of New D&B. This $500 million of debt is an obligation of Donnelley. The debt is comprised of:
BANK FINANCING SENIOR ------------------------------------------------------------------ SUBORDINATED REVOLVER A LOAN B LOAN C LOAN TOTAL NOTES ----------- ----------- ------------ ------------ ------------ ------------ Amount...................... $50 million $75 million $125 million $100 million $350 million $150 million Estimated Interest.......... 7.19% 7.19% 7.44% 7.69% 9.13% Estimated Financing Costs... $5.8 million $4.7 million Estimated Financing Term.... 6 years 6 years 7.5 years 8.5 years 6-8.5 years 10 years
As of June 30, 1998, the weighted average interest rate under the New Credit Facility was 7.422%. Subsequent to borrowings under the New Credit Facility, Donnelley entered into 3 interest rate swap transactions with respect to the LIBOR component of the loans which converted part of its floating rates interest obligations to fixed rates. The swap transactions total in aggregate $175 million of the $350 million of loans under the New Credit Facility. As a result of the foregoing swaps, the weighted average interest rate is 7.517%. The swap agreements have terms of 3, 4 and 5 years. Therefore, at the end of the first 3 year period, the weighted average interest rate will change. D. Gives effect to the interest expense on $500 million of debt based on a weighted average interest rate of 7.93% per annum. E. Gives effect to the amortization of $10.5 million of estimated deferred financing costs related to the $500 million of debt. The deferred financing costs will be amortized over the life of the debt. F. To reflect the tax effect of the pro forma adjustments at the statutory tax rate. G. To reflect the $10.5 million of deferred financing costs related to the $500 million of debt. 28 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis of financial condition and results of operations is prepared as if Donnelley Corp. was a stand-alone entity for all periods discussed. This discussion should be read in conjunction with the financial statements and notes thereto included elsewhere in this Prospectus. OVERVIEW On June 3, 1998, the Board of Directors of the Parent Company declared the Distribution and announced that the Distribution would be effected on June 30, 1998. Following the Distribution, Donnelley Corp.'s only remaining subsidiary is Donnelley, and each of Donnelley Corp. and New D&B are independent, publicly-traded companies. In connection with the Distribution, the Parent Company has been renamed R.H. Donnelley Corporation and New D&B has been renamed The Dun & Bradstreet Corporation. Donnelley provides sales, marketing and publishing services for yellow pages directories and is the largest independent marketer of yellow pages advertising in the United States. Donnelley is also a leading provider of pre-press publishing services for yellow pages directories (including a majority of the directories for which it sells advertising). Donnelley has retained all the assets and liabilities related to yellow pages sales, marketing and publishing services after the Distribution. Donnelley is a wholly-owned subsidiary of Donnelley Corp. Donnelley Corp. has no other operations other than through the Donnelley subsidiary. Therefore, on a consolidated basis, the financial statements of Donnelley Corp. and Donnelley are substantially identical. The financial statements generally reflect the financial position, results of operations and cash flows of Donnelley Corp. as if it were a stand-alone entity for all periods presented. The financial statements include allocations of certain Parent Company corporate headquarters assets (including prepaid pension assets) and liabilities (including postretirement benefits) and expenses (including cash management, legal, accounting, tax, employee benefits, insurance services, data services and other Parent Company corporate overhead) relating to Donnelley's business which Donnelley's management believes to be reasonable. However, the costs of these services and benefits charged to Donnelley are not necessarily indicative of the costs that would have been incurred if Donnelley had performed or provided these functions as a separate entity. Donnelley estimates a net increase in general and administrative expenses associated with operating as an independent, publicly-traded company, which may be as much as approximately $8.6 million annually above the amount which was allocated in 1997 from the Parent Company. The financial information included herein may not necessarily reflect the results of operations, financial position, changes in shareholder's equity and cash flows of Donnelley Corp. in the future or what they would have been had it been a separate entity during the periods presented. The financial statements reflect effective tax rates of the Parent Company on a separate company basis. These rates do not reflect the historical benefit of the Parent Company's global tax planning actions which have resulted in lower consolidated tax rates. Historically, the Parent Company used a centralized cash management system to finance Donnelley's operations. Cash deposits from Donnelley's business were transferred to the Parent Company on a daily basis and the Parent Company funded Donnelley's disbursement bank accounts as required. No interest was charged on these transactions with the Parent Company. Donnelley will not continue to participate in New D&B's cash management system after the Distribution. Donnelley will have its own bank accounts and control the use of its cash. For purposes of governing certain of the ongoing relationships between New D&B, Donnelley Corp. and Donnelley after the Distribution and to provide for an orderly transition, Donnelley Corp. and New D&B entered into various agreements including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits Agreement, Intellectual Property Agreement, Shared Transaction Services Agreement, Data Services Agreement and Transition Services Agreements. For further 29 34 descriptions of these agreements see "Relationship Between Donnelley Corp. And The New Dun & Bradstreet Corporation After The Distribution". Donnelley earns income from three primary sources: sales commission revenues, publishing services revenues and partnership income and related fees. Sales commission revenues from Donnelley's Bell Atlantic operations and its Sprint sales agency operations are recognized by Donnelley when an advertising contract is signed with a customer. Sales commission revenues for advertising sales for the CenDon partnership, for which CenDon is the publisher, are recognized by Donnelley when a directory is published. Publishing services revenues are recognized by Donnelley on a straight-line basis as services are provided to a customer. Donnelley does not recognize the revenues of the DonTech or CenDon partnerships. Donnelley recognizes income from the DonTech partnership when an advertising contract is signed with a customer. Donnelley also receives direct fees ("Revenue Participation") from an affiliate of Ameritech, which are tied to advertising sales generated by the DonTech partnership. Donnelley recognizes income from the CenDon partnership when a directory is published. These items are included in income from partnerships and related fees. RESULTS OF OPERATIONS Three Months ended March 31, 1998 Compared with Three Months ended March 31, 1997 Gross advertising sales is the billing value of advertisements sold by the Company and DonTech. Gross advertising sales in the first quarter of 1998 increased by 116.2% over the corresponding period in the prior year, from $68.1 million in the first quarter of 1997 to $147.2 million in the first quarter of 1998. This increase is primarily due to a restructuring of the DonTech partnership and a corresponding change in the timing of the DonTech partnership's recognition of gross advertising sales. In the first quarter of 1997, DonTech recognized gross advertising sales when the related directories were published. As restructured, in the first quarter of 1998 and thereafter, DonTech recognizes gross advertising sales when a customer signs an advertising contract. As a result of the restructured DonTech partnership arrangement, gross advertising sales are recognized more evenly throughout the year and on an annual basis should not be materially different than during 1997. Also, in December 1997, Donnelley sold its East Coast proprietary yellow pages business ("P-East"). Excluding DonTech's gross advertising sales of $10.0 million in the first quarter of 1997 and $75.6 million in the first quarter of 1998 and P-East's gross advertising sales of $1.5 million in the first quarter of 1997, gross advertising sales increased 26.3%, from $56.6 million in 1997 to $71.6 million in 1998. The increase is primarily due to a shift in advertising sales in Donnelley's Bell Atlantic markets from 1997 to 1998 due to the rescheduling of certain directories in these markets; gross advertising sales in these markets increased by $15.1 million in the first quarter of 1998 compared to the first quarter of 1997, from $53.4 million in 1997 to $68.5 million in 1998. Revenues are derived from commissions related to advertising sales and do not include revenues generated by sales of advertising by the DonTech partnership. Revenues increased from $20.2 million in the first quarter of 1997 to $24.3 million in the first quarter of 1998. Excluding P-East revenues of $0.6 million in the first quarter of 1997, revenues increased by 24.4%, from $19.6 million in the first quarter of 1997 to $24.3 million in the first quarter of 1998. This increase was primarily due to the timing shift in Donnelley's Bell Atlantic markets discussed above, which resulted in a $3.1 million increase in revenues in those markets, from $12.9 million in the first quarter of 1997 to $16.0 million in the first quarter of 1998. In 1997, scheduling shifts for certain directories in the Bell Atlantic region affected the timing of Donnelley servicing those directories' customers and recording revenues, which resulted in a shift of revenue into the first quarter of 1998. Publishing revenues increased by $1.8 million, from $5.8 million in the first quarter of 1997 to $7.6 million in the first quarter of 1998 due to revenues for publishing services which Donnelley began providing to Yellow Book USA, L.P. in 1998. 30 35 Partnership income and related fees increased by $20.2 million in the first quarter of 1998, from $5.4 million in the first quarter of 1997 to $25.6 million in the first quarter of 1998. Donnelley receives partnership income and related fees primarily from two sources, the CenDon partnership and the DonTech partnership. Donnelley receives 50% of the profits generated by the CenDon partnership. Donnelley receives a percentage share of the profits generated by the DonTech partnership (which percentage share is 50% under the restructured DonTech partnership arrangement) and, beginning in the third quarter of 1997, also receives direct fees (Revenue Participation) from an affiliate of Ameritech which are tied to advertising sales generated by the DonTech partnership. These items are included in income from partnerships and related fees. Due to the DonTech restructuring discussed above, Donnelley recorded $20.0 million of partnership income and related fees from DonTech's operations in the first quarter of 1998, compared to $1.0 million in the first quarter of 1997, an increase of $19.0 million. Donnelley's partnership income from CenDon increased 27.3% in the first quarter of 1998, from $4.4 million in the first quarter of 1997 to $5.6 million in the first quarter of 1998 due to sales performance in the Company's markets that was well above industry averages. Donnelley's operating and general and administrative expenses increased from $22.5 million in the first quarter of 1997 to $24.8 million in the first quarter of 1998. Excluding P-East operating expenses of $1.4 million in the first quarter of 1997, these costs increased by $3.7 million, from $21.1 million in the first quarter of 1997 to $24.8 million in the first quarter of 1998. For interim reporting purposes, Donnelley recognizes certain expenses on a percentage-of-advertising-sales basis. Consequently, since gross advertising sales in Donnelley's Bell Atlantic markets increased in the first quarter of 1998 as compared to the first quarter of 1997 as discussed above, operating and general and administrative expenses in these markets increased from $6.5 million in the first quarter of 1997 to $10.5 million in the first quarter of 1998. Donnelley's net income before taxes in the first quarter of 1998 was $20.2 million compared to a loss of $2.3 million in the first quarter of 1997. Excluding P-East operating results in the first quarter of 1997, net income before taxes was a loss of $1.4 million. Prior to the DonTech restructuring discussed above, Donnelley's operating results in the first quarter were significantly below its operating results in other quarters due to the relatively few directories that were published in the first quarter as compared to other quarters. The net income increase in the first quarter of 1998 is primarily due to the DonTech restructuring, which resulted in the significant increase in partnership income and related fees, also discussed above. In addition, Donnelley recorded equity earnings from the CenDon partnership of $5.6 million in the first quarter of 1998 as compared to $4.4 million in the first quarter of 1997. Year ended December 31, 1997 Compared with Year ended December 31, 1996 Gross advertising sales is the billing value of advertisements sold by the Company. Gross advertising sales in 1997 decreased 4.3%, from $1,115.6 million in 1996 to $1,067.2 million in 1997. In December 1997, Donnelley sold its East Coast proprietary yellow pages business (P-East) and in May 1996, Donnelley sold its West Coast proprietary yellow pages business ("P-West"). The decline in gross advertising sales in 1997 was primarily due to the sale of P-East, which accounted for gross advertising sales of $87.8 million in 1996 and $73.8 million in 1997, and the expiration of Donnelley's contract with Cincinnati Bell during August 1997, which led to a reduction in the related gross advertising sales from that contract from $65.0 million in 1996 to $50.1 million in 1997. Gross advertising sales in the Company's other markets, after adjusting for P-West's gross advertising sales of $2.1 million in 1996, decreased by 1.8%, from $960.6 million in 1996 to $943.4 million in 1997 due to lower sales for Bell Atlantic directories because of the rescheduling of certain directories in those markets, which created a shift in sales from 1997 to 1998. This decline was partially offset by gross advertising sales growth in Donnelley's Sprint markets (primarily Las Vegas), which was well above industry average levels. DonTech's gross advertising sales also increased by 1.3%, from $403.5 million in 1996 to $408.6 million in 1997. 31 36 Revenues are derived from commissions related to advertising sales and do not include revenues generated by sales of advertising by the DonTech partnership. Revenues decreased from $270.0 million in 1996 to $239.9 million in 1997, primarily reflecting the sale of P-East and the expiration of Donnelley's contract with Cincinnati Bell. Adjusted for P-East revenues of $95.1 million in 1996 and $78.0 million in 1997, P-West revenues of $2.2 million in 1996 and Cincinnati Bell revenues of $17.1 million in 1996 and $13.1 million in 1997, the Company's revenues declined 4.4% from $155.6 million in 1996 to $148.8 million in 1997. Revenues were adversely affected by scheduling shifts in the publication schedules for certain Bell Atlantic directories, which resulted in a 9.9% decrease in revenues for Donnelley in its Bell Atlantic markets, from $95.9 million in 1996 to $86.4 million in 1997. This decrease was partially offset by a 7.7% increase in revenues in Donnelley's Sprint markets, from $37.0 million in 1996 to $39.9 million in 1997; revenue growth was especially strong in Las Vegas, where directories are published semi-annually due to the strong economic growth in the Las Vegas market and resulting above-average growth in yellow pages advertising. Partnership income and related fees decreased in 1997 by 2.1%, from $132.9 million in 1996 to $130.2 million in 1997. Donnelley receives partnership income primarily from two sources, the CenDon partnership and the DonTech partnership. Donnelley receives 50% of the profits generated by the CenDon partnership. Donnelley receives a percentage share of the profits generated by the DonTech partnership (which percentage share is 50% under the restructured DonTech partnership arrangement) and, beginning in the third quarter of 1997, also receives direct fees (Revenue Participation) from an affiliate of Ameritech which are tied to advertising sales generated by the DonTech partnership. These items are included in income from partnerships and related fees. Donnelley's income related to DonTech declined 4.3% in 1997, from $121.4 million in 1996 to $116.2 million in 1997, primarily due to a contractual reduction in Donnelley's share of DonTech's profits. In 1990, Donnelley accepted such contractual reductions in its share of DonTech's profits in return for amending the DonTech partnership agreement so that it would have no termination date, and these contractual reductions ended in 1997. A portion of the decline was also due to sales and production inefficiencies that arose from an unbalanced production schedule in which the majority of the directories with which DonTech is affiliated were published in the fourth quarter. In 1997, a two-year program was instituted that is intended to correct the imbalance and increase the effectiveness of DonTech's sales force and support operations. Donnelley's partnership income from CenDon increased 25.8% in 1997 from $9.7 million in 1996 to $12.2 million in 1997 due to sales growth in CenDon's Las Vegas markets that was well above industry averages. Donnelley's 1997 operating and general and administrative expenses decreased by 2.7%, from $219.3 million in 1996 to $213.4 million in 1997. Excluding operating and general and administrative expenses related to P-East ($75.1 million in 1996 and $66.2 million in 1997) and P-West ($1.9 million in 1996), these costs increased by 3.4%, from $142.3 million in 1996 to $147.2 million in 1997. The increase is primarily due to $4 million in start-up costs that were expensed in 1997 for Donnelley's new proprietary Cincinnati directories, which are scheduled to be published in the third quarter of 1998. Depreciation and amortization increased from $16.2 million in 1996 to $21.9 million in 1997, principally due to the first full year of depreciation and amortization costs related to the $40 million investment made in 1995 and 1996 for the software, equipment and start-up costs of Donnelley's new publishing center in Raleigh, North Carolina. The depreciation and amortization costs on this investment were approximately $4 million in 1996 and approximately $9 million in 1997. Donnelley's net income before taxes for 1997 was $144.2 million compared to $138.9 million for 1996. Excluding the gain on the sale of P-East of $9.4 million and the operating results of P-East of $11.0 million in 1997, net income before taxes was $123.8 million in 1997. Excluding the loss on the sale of P-West of $28.5 million and the operating results of P-East ($19.2 million) and P-West ($0.6 million loss) in 1996, net income before taxes was $148.8 million in 1996. The net income decline was primarily due to several factors discussed above, including (i) the rescheduling of certain 32 37 directories in Donnelley's Bell Atlantic markets, (ii) a decrease in Donnelley's share of partnership income from DonTech, (iii) the first full year of amortization costs related to Donnelley's new publishing facility and (iv) expensed start-up costs for the new proprietary Cincinnati directories. Year ended December 31, 1996 Compared with Year ended December 31, 1995 Gross advertising sales in 1996 decreased 2.7% compared to the prior year, from $1,145.9 million in 1995 to $1,115.6 million in 1996. Excluding gross advertising sales from P-East and P-West, which declined from $133.4 million in 1995 to $89.9 million in 1996 due to the mid-year sale of P-West in 1996 and the resulting recognition of less than a full year of advertising sales from P-West, gross advertising sales increased 1.3% from $1,012.6 million in 1995 to $1,025.6 million in 1996. This increase was primarily due to a 9.2% increase in gross advertising sales in Sprint markets, which was primarily driven by the high level of economic growth in the Las Vegas market. DonTech's gross advertising sales decreased by 1.9%, from $411.3 million in 1995 to $403.5 million in 1996, primarily because DonTech's gross advertising sales in 1995 were benefitted by extensions in the publishing cycles for certain of its directories. Revenues decreased from $312.9 million in 1995 to $270.0 million in 1996, primarily due to the sale of Donnelley's P-West operations in May 1996; P-West accounted for revenues of $45.0 million in 1995 and $2.2 million in 1996. Excluding the revenues of P-West and P-East (which was sold in December 1997), which were $140.1 million in 1995 and $97.3 million in 1996, Donnelley's revenues were essentially flat with $172.8 million of revenues in 1995 and $172.7 million in 1996. Revenue growth in Donnelley's Sprint markets was 7.2%, from $34.5 million in 1995 to $37.0 million in 1996. This growth was partially offset by a revenue decline of 4.2% in Donnelley's Bell Atlantic markets from $100.1 million in 1995 to $95.9 million in 1996, which was due to the scheduling shift, discussed above, in the publication dates of certain Bell Atlantic directories, and a one-time contractual decrease in Donnelley's sales commission. Partnership income decreased in 1996 by 3.1%, from $137.2 million in 1995 to $132.9 million in 1996. Donnelley's partnership income from DonTech declined 3.3% in 1996, from $125.6 million in 1995 to $121.4 million in 1996, primarily due to the contractual decrease, discussed above, in Donnelley's share of DonTech's profits and the benefit in 1995 from extending the publishing cycles for certain directories. Donnelley's partnership income from CenDon was essentially flat in 1996 compared to 1995 with $9.5 million in 1995 and $9.7 million in 1996. Donnelley's 1995 partnership income from CenDon included a reversal of prior year excess provision accruals of $1.5 million. Donnelley's 1996 operating costs and general and administrative expenses decreased by 6.0%, from $233.3 million in 1995 to $219.3 million in 1996. Excluding operating and general and administrative expenses related to P-East ($73.1 million in 1995 and $75.1 million in 1996) and P-West ($43.2 million in 1995 and $1.9 million in 1996), and a one-time reversal of prior year excess provision accruals of $19.9 million in 1995, these expenses increased from $136.9 million in 1995 to $142.3 million in 1996 primarily due to costs associated with shifting operations to the new Raleigh publishing center and legal fees incurred in litigation (which has since been concluded) involving its Illinois markets. Depreciation and amortization was essentially flat in 1996 compared to 1995 with $16.3 million in 1995 and $16.2 million in 1996. Donnelley's net income before taxes for 1996 was $138.9 million compared to $182.8 million for 1995. Excluding the loss on the sale of P-West of $28.5 million in 1996 and the operating results of both P-East ($21.3 million in 1995 and $19.2 million in 1996) and P-West ($1.0 million in 1995 and a $0.6 million loss in 1996), net income before taxes was $148.8 million in 1996 compared to $160.5 million in 1995. A non-recurring charge of $17.7 million was also recorded in 1995 related to the closing of the Terre Haute publishing facility. After adjusting for this non-recurring charge and the $19.9 million reversal of bad debt reserves in 1995 discussed above, net income before taxes for 1996 compared to 1995 was $148.8 million and $158.3 million, respectively. This variance was 33 38 primarily caused by Donnelley's lower sales commission rate, discussed above, on sales in its Bell Atlantic markets in 1996, costs associated with shifting operations to the new Raleigh publishing center and legal fees, and the benefit to 1995 results from extending the publishing cycles for certain DonTech directories. Restructuring Charge In 1995, Donnelley recorded a restructuring charge of $17.7 million for the closing of the Terre Haute publishing facility. The charge included fixed asset write-offs, as well as severance (cash outlays were made primarily in 1996 and 1997), legal costs (cash outlays were made in 1996) and a reserve for additional advertising claims expected to result from the conversion to the Raleigh publishing center. Donnelley moved its publishing operations from Terre Haute, Indiana to Raleigh, North Carolina to enhance its integrated, cost-effective advertising sales and publishing services. It is expected that this investment will result in improved productivity, quality and cycle times. To date, Donnelley has been able to reduce publishing costs by approximately 30% and publishing cycle times by approximately 50%. Income Taxes The financial statements reflect effective tax rates of Donnelley on a separate company basis. Donnelley's effective tax rates were 40.7%, 43.8% and 41.1% in 1995, 1996 and 1997, respectively. The increase in the rate in 1996 is related to non-deductible capital losses related to the sale of P-West which increased the rate by 2.8%. CHANGES IN FINANCIAL POSITION AT MARCH 31, 1998 COMPARED WITH DECEMBER 31, 1997 Donnelley's accounts receivable, net, decreased by $12.3 million in the first quarter of 1998, primarily due to the collection of Bell Atlantic and CenDon year-end receivables, which was partially offset by an increase in receivables related to the DonTech partnership. This decrease is consistent with prior years. Donnelley's total liabilities decreased by $10.3 million in the first quarter of 1998, primarily due to the payment of year-end accrued liabilities such as bonuses. This decrease is consistent with prior years. CHANGES IN FINANCIAL POSITION AT DECEMBER 31, 1997 COMPARED WITH DECEMBER 31, 1996 Donnelley's accounts receivable, net, decreased $22.3 million in 1997 primarily due to the sale of P-East assets, including receivables of $61.9 million at December 31, 1996. This was off set by the recording of a receivable for the Revenue Participation portion of the DonTech agreement ($51.6 million), which arose due to the DonTech restructuring discussed above. In addition, receivables also decreased due to delays in publication of certain directories in the markets served by Bell Atlantic, which created lower revenues and lower year-end receivables in 1997. Donnelley's total liabilities remained essentially flat at $123.6 million in 1997 as compared to $123.0 million in 1996. A decrease of $19.5 million in the deferred income tax liability and a decrease in liabilities as a result of the sale of P-East were offset by a related increase in reserves in connection with the sale. LIQUIDITY AND CAPITAL RESOURCES Three Months ended March 31, 1998 Compared with Three Months ended March 31, 1997 Cash and cash equivalents for the quarters ending March 31, 1998 and March 31, 1997 were $17,000 and $64,000, respectively. These balances reflect the Parent Company's centralized cash management system, where historically cash deposits were transferred to the Parent Company on a daily basis and the Parent Company funded Donnelley's disbursement bank accounts as required. 34 39 Net cash provided by operations was $27.4 million in the first quarter of 1998 and $57.7 million in the first quarter of 1997, a decrease of $30.3 million. Excluding cash provided by P-East in the first quarter of 1997 of $7.4 million, cash provided by operations in the first quarter of 1998 decreased by $22.9 million. The decrease in 1998 is primarily due to a change in the timing of cash receipts from DonTech related to the DonTech restructuring discussed above. Net cash used in investing activities was $2.5 million in the first quarter of 1998, compared to $8.7 million in the first quarter of 1997. This decrease is a result of an increased amount of capital spending, primarily on computer equipment and furniture and fixtures, in 1997 in connection with office moves made in late 1996. Net cash used in financing activities represents cash transferred to the Parent Company throughout the quarter. As stated above, historically all cash deposits have been transferred to the Parent Company on a daily basis and the Parent Company has funded Donnelley's disbursement bank accounts as required. The net amounts transferred to the Parent Company were $24.9 million in the first quarter of 1998 and $49.0 million in the first quarter of 1997. The increased transfer in 1997 is primarily due to higher amounts of cash received from the DonTech and CenDon partnerships and from P-East receivables. Years Ended December 31, 1997, 1996 and 1995 Cash and cash equivalents for the years ended 1995, 1996 and 1997 were $1.4 million, $60,000 and $32,000, respectively. These balances reflect the Parent Company's centralized cash management system, where historically cash deposits were transferred to the Parent Company on a daily basis and the Parent Company funded Donnelley's disbursement bank accounts as required. The 1995 balance reflects certain marketable securities held by Donnelley. Net cash provided by operations was $136.6 million, $100.5 million and $99.7 million in 1995, 1996 and 1997, respectively. In 1997, Donnelley received cash from its partnerships in excess of the related income that was recorded; consequently, investments in partnerships decreased in 1997. Investments in partnerships also declined in 1997 due to the DonTech restructuring discussed above, as the Revenue Participation portion of DonTech-related income is recorded in accounts receivable, as compared to 1996 and 1995 when all DonTech-related income was recorded as a component of investments in partnerships. The investment in partnerships account will increase or decrease in the future depending on the operating results of DonTech and CenDon and the related amounts of cash disbursements that Donnelley receives. After the Distribution, Donnelley has approximately $50 million of unused capacity available under the Revolving Facility, which will be used as necessary to off set any fluctuations in liquidity caused by the timing of cash receipts from DonTech and CenDon. The decrease from 1995 to 1996 was due to an increase of accounts payable in 1995. Net cash provided from investing activities in 1997 was $105.7 million, which was primarily derived from the sale of the P-East business for $122.0 million in cash. Net cash used in investing activities in 1995 and 1996 was $43.0 million and $16.5 million, respectively. In both years there was an increased amount of capital spending on property and equipment and computer software. The majority of capital spending for Donnelley is computer hardware, software and upgrades for its production and operating systems. Capital spending excluding computer software in 1995, 1996 and 1997 was $19.3 million, $16.0 million and $9.1 million, respectively. Computer software spending for those years was $23.7 million, $21.9 million and $7.2 million, respectively. The increased spending in 1995 and 1996 is due to the investment Donnelley has made in its new publishing facility in Raleigh, North Carolina, which totaled approximately $23 million in 1995 and approximately $18 million in 1996. Net of the Raleigh investment, capital and computer software spending in 1995, 1996 and 1997 was $20.0 million, $19.9 million and $16.3 million, respectively. Currently, Donnelley has no material commitments for capital expenditures. 35 40 Net cash used in financing activities represents cash transferred to the Parent Company throughout the year. As stated above, all cash deposits were transferred to the Parent Company on a daily basis and the Parent Company funded Donnelley's disbursement bank accounts as required. The net amounts transferred to the Parent Company were $92.1 million, $85.4 million and $205.4 million in 1995, 1996 and 1997, respectively. The 1997 transfer includes the proceeds received from the sale of P-East. In connection with the Distribution, Donnelley issued the Notes and borrowed approximately $350 million under the New Credit Facility. The net proceeds of the Offering and the borrowings under the New Credit Facility were dividended to the Parent Company to be used (i) to repay indebtedness of the Parent Company, primarily commercial paper, (ii) to pay costs and expenses related to the Distribution and (iii) to repay indebtedness of the Parent Company to subsidiaries of New D&B. This approximately $500 million of debt is an obligation of Donnelley after the Distribution. As of March 31, 1998, after giving pro forma effect to the indebtedness described above and the application of the estimated net proceeds therefrom, Donnelley has approximately $500 million of indebtedness and a shareholder's deficit of approximately $244 million. The projected future interest expense, after tax, on the $500 million of debt will result initially in a reduction to net income of approximately $25 million per year. Donnelley has $50 million of unused capacity available under the Revolving Facility portion of the New Credit Facility. Loans obtained under the New Credit Facility mature in the amounts of $2.25 million, $6.0 million, $13.5 million, $17.25 million, $21.0 million, $28.5 million, $38.5 million, $81.0 million and $92.0 million in the first through ninth years, respectively, of the New Credit Facility. See "Description of New Credit Facility". Donnelley believes, based on current circumstances, that Donnelley's cash flow, together with available credit capacity under the New Credit Facility, will be sufficient to permit Donnelley to meet its operating expenses and capital expenditures and to service its debt requirements as they become due for the foreseeable future. ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. Donnelley adopted the statement in 1998. The adoption of SFAS No. 130 will have no impact on Donnelley's results of operations, financial position and cash flows. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), which revises disclosure requirements about operating segments and establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 requires that public business enterprises report financial and descriptive information about their reportable operating segments. The statement will be adopted by Donnelley effective December 31, 1998 and will require restatement of prior years. Donnelley is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 131 will have no impact on Donnelley's results of operations, financial position or cash flows. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. Restatement of disclosures for earlier periods provided for comparative purposes is required unless the information is not readily available, in which case the notes to the financial statements should include all available information and a description of the information not available. Donnelley is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 132 will have no impact on Donnelley's results of operations, financial position or cash flows. 36 41 In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. Restatement of prior period financials are not required. Donnelley is in the process of evaluating the effect this statement will have on its financial statements and footnote disclosures. YEAR 2000 The Year 2000 problem 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 Year 2000 compliance program, many of Donnelley's currently installed computer systems and software products have been tested for Year 2000 problems and Donnelley anticipates that these computer systems and software products will be fully Year 2000 compliant. Also, Donnelley is requesting assurances from all software vendors from which it has purchased or licensed 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 conversions to new software, Donnelley believes that it will be able to mitigate its exposure to the Year 2000 problem before 2000. However, if continued modifications and conversions are not made, or are not timely completed, the Year 2000 problem could have a material adverse effect on Donnelley's operating results and financial condition. Donnelley plans to have its Year 2000 compliance program substantially completed by the end of 1998. In 1997, Donnelley spent approximately $0.5 million addressing the Year 2000 problem and has budgeted expenditures of approximately $4.4 million for 1998 and approximately $0.3 million for 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 Donnelley's computer systems, software, databases or other technology interface or are integrated or those of third parties with which Donnelley maintains business relationships may not accept input of, store, manipulate and output dates in the year 2000 or thereafter without error or interruption. Donnelley 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 or third-party problems in correctly processing date information. Donnelley is also querying applicable third parties with which it maintains business relationships as to their progress in identifying and addressing their Year 2000 problems. However, there can be no assurance that Donnelley will identify all interface- or integration-related or third-party date-handling problems in advance of their occurrence, or that Donnelley will be able to successfully remedy problems that are discovered. The expenses of Donnelley's efforts to identify and address such problems, or the expenses or liabilities to which Donnelley may become subject as a result of such problems, could have a material adverse effect on its operating results and financial condition. THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), the Company will accept for exchange Old Notes which are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on [ ], 1998; provided, however, that if the Company, in its sole discretion, 37 42 has extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, $150,000,000 aggregate principal amount at maturity of the Old Notes was outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about the date set forth on the cover page to all holders of Old Notes at the addresses set forth in the security register with respect to Old Notes maintained by the Trustee (as defined in "Description of the Notes"). The Company's obligations to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth under "Certain Conditions to the Exchange Offer" below. The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance of any Old Notes, by giving oral or written notice of such extension to the Exchange Agent and notice of such extension to the holders as described below. During any such extension, all Old Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by the Company. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified below under "Certain Conditions to the Exchange Offer." The Company will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the Old Notes as promptly as practicable, such notice in the case of any extension to be issued by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Holders of Old Notes do not have any appraisal or dissenters' rights under the General Corporation Law of the State of Delaware or under the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations of the Commission thereunder. PROCEDURES FOR TENDERING OLD NOTES The tender to the Company of Old Notes by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to The Bank of New York (the "Exchange Agent") at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition, (i) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, (ii) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal or (iii) the holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE 38 43 TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the Old Notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States (collectively, "Eligible Institutions"). If Old Notes are registered in the name of a person other than the person signing the Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or to not accept any particular Old Notes which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right in its sole discretion to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with the tenders of Old Notes for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal is signed by a person or persons other than the registered holder or holders of Old Notes, such Old Notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the Old Notes. If the Letter of Transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such person should so indicate when signing and, unless waived by the Company, proper evidence satisfactory to the Company of its authority to so act must be submitted. By tendering, each holder will represent to the Company that, among other things, (i) the Exchange Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, (ii) neither the holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes, (iii) if the holder is not a broker-dealer, or is a broker-dealer but will not receive Exchange Notes for its own account in exchange for Old Notes, neither the holder nor any such other person is engaged in or intends to participate in the distribution of such Exchange Notes and (iv) neither the holder nor any such other person is an "affiliate", as defined under Rule 405 of the Securities Act, of the Company. If the exchange offeree 39 44 is a broker-dealer holding Old Notes acquired for its own account as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of Exchange Notes received in exchange for such Old Notes. ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will accept, promptly after the Expiration Date, all Old Notes properly tendered and will issue the Exchange Notes promptly after acceptance of the Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the Company shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if the Company has given oral or written notice thereof to the Exchange Agent. In all cases, issuance of Exchange Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if certificates representing Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. INTEREST ON THE EXCHANGE NOTES Cash interest on the Notes will accrue at the rate of 9 1/8% per annum and will be payable in cash semi-annually on each June 1 and December 1, commencing on December 1, 1998. No interest will have accrued on the Old Notes on the date of the exchange for the Exchange Notes and therefore no interest will be paid thereon to the holders. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer promptly after the date of this Prospectus. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Notes by causing the Book-Entry Transfer Facility to transfer such Notes into the Exchange Agent's account in accordance with the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") procedures for transfer. However, the exchange for the Notes so tendered will only be made after timely confirmation of such book-entry transfer of Notes into the Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's Message (as such term is defined in the next sentence) and any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from a participant tendering Notes that are the subject of such Book-Entry Confirmation that such participant has received and agrees to be bound by the terms of the Letter of Transmittal, and that the Company may enforce such agreement against such participant. 40 45 GUARANTEED DELIVERY PROCEDURES If a registered holder of the Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates of all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any note of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "-- Procedures for Tendering Old Notes" above at any time on or prior to the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provisions of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue Exchange Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer if, at any time before the acceptance of such Old Notes for 41 46 exchange or the exchange of the Exchange Notes for such Old Notes, such acceptance or issuance would violate applicable law or any interpretation of the staff of the Commission. The foregoing condition is for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, the Company will not accept for exchange any Old Notes tendered, and no Exchange Notes will be issued in exchange for any such Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "TIA"). EXCHANGE AGENT The Bank of New York has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at one of the addresses set forth below. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent, addressed as follows: Deliver To: The Bank of New York, Exchange Agent By Mail or By Hand: Attention: By Facsimile: Confirm by Telephone: DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. FEES AND EXPENSES The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. No additional compensation will be paid to any such officers and employees who engage in soliciting tenders. The Company will not make any payment to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The estimated cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be $[ ]. TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register Exchange Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. 42 47 CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not intend to register the Old Notes under the Securities Act. The Company believes that, based upon interpretations contained in letters issued to third parties by the staff of the Commission, Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by each holder thereof (other than a broker-dealer, as set forth below, and any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. If any holder has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, the Exchange Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. The Company does not currently intend to take any action to register or qualify the Exchange Notes for resale in any such jurisdictions. 43 48 BUSINESS THE COMPANY The Company is the largest independent marketer of yellow pages advertising in the United States. The Company sold over $1 billion of advertising in 1997 and is the leader in all of its major markets. Donnelley is also a leading provider of pre-press publishing services for yellow pages directories (including a majority of the directories for which it sells advertising). In operation since 1886, the Company provides services to over 300 directories, including providing advertising sales for over 270 directories in 13 states which collectively had a total circulation of approximately 30 million in 1997. The Company has a diversified customer base of approximately 500,000 businesses, many of which rely on yellow pages directories as their principal or sole form of advertising. Over the past three years, the Company achieved average advertising sales renewal rates ranging from 100% to 90% in its major markets. Donnelley is strategically aligned on a long-term basis with the established, leading telephone service provider (the incumbent telephone company) in each of its major markets, which include Illinois (including Chicago), New York State (including New York City), Nevada (primarily Las Vegas) and Florida (including Tallahassee and Orlando). The Company provides yellow pages advertising marketing and sales in these markets through long-term contractual agreements with subsidiaries of these incumbent telephone companies, which are Ameritech, Bell Atlantic and Sprint. Donnelley has the DonTech partnership with no expiration date with a subsidiary of Ameritech and long-term contracts with subsidiaries of Sprint and Bell Atlantic which extend through 2004 and 2005, respectively. These relationships allow the incumbent telephone companies to gain the benefits of Donnelley's long-term presence in its markets, yellow pages marketing and publishing expertise, established infrastructure and performance-focused, non-union sales force. The Company benefits from its relationship with the incumbent telephone company's yellow pages directories, which are the leading directories in terms of numbers of advertisers, utilization and distribution in the majority of the Company's markets. Management believes that Donnelley's competitive strengths and business strategy position it to take advantage of significant business opportunities and anticipated industry trends, including (i) opportunities for yellow pages advertising sales growth within the Company's existing markets, (ii) the potential outsourcing of yellow pages operations by local telephone companies (including those companies with which Donnelley is currently affiliated) in new markets and (iii) the increasing use of the yellow pages sales channel across other advertising media (such as yellow pages advertising on cable television and the Internet). Management has completed several actions that it believes will position the Company for these future growth opportunities and improve earnings stability, including the completion of Donnelley's new publishing center in Raleigh, North Carolina and the restructuring of the DonTech relationship with Ameritech and the rescheduling of related directories. In addition, Donnelley sold the majority of its proprietary yellow pages operations as part of its primary objective of focusing on long-term alliances with major telephone service providers. In December 1997, Donnelley sold for $122 million its East Coast proprietary yellow pages operations, which included 34 directories in certain mid-Atlantic states. In May 1996, Donnelley sold for $22 million its West Coast proprietary yellow pages operations, which included 18 directories in southern California. Donnelley's principal executive offices are located at One Manhattanville Road, Purchase, NY 10577 and its telephone number is (914) 933-6400. COMPETITIVE STRENGTHS Donnelley believes that it has been able to maintain long-term telephone company relationships through the quality of its sales force and marketing techniques and its advanced technology and product innovation. Based on these attributes and its extensive yellow pages expertise, Donnelley 44 49 has been able to successfully manage significant strategic relationships with incumbent telephone companies and complex systems integration issues inherent in its business. Donnelley believes that it has a strong competitive advantage in each of its markets primarily due to the following: Largest Independent Marketer of Yellow Pages Advertising. In 1997, the Company sold over $1 billion of yellow pages advertising, accounting for approximately 9% of the $11.4 billion of yellow pages advertising sold in the U.S. All other independent marketers of yellow pages advertising combined accounted for only 7% of total U.S. yellow pages advertising sales. Donnelley's market leadership position, scale of operations and long-standing relationships with incumbent telephone companies uniquely position it to capitalize on future growth opportunities by expanding its current relationships into new markets, developing new relationships and capturing potential yellow pages outsourcing opportunities. High Rates of Advertising Sales Renewal. The Company has achieved high and stable advertising sales renewal rates, with three-year averages of approximately 91% overall, including 92% in Chicago, 90% in New York City, 100% in Las Vegas and 90% in Orlando. For many businesses, yellow pages directory advertising is their principal or sole form of advertising due to its relatively low cost, widespread distribution, lasting presence and high consumer usage. These positive features are especially present in an incumbent telephone company's directories, which are frequently a company's first choice for advertising. Donnelley is affiliated with the incumbent local telephone company in each of its major markets. Leading Directory Market Shares. In each of the Company's major markets, the directory with which the Company is affiliated has a commanding market share, based on directory usage. These markets include Chicago (with a 98% market share in 1996, the latest date for which data is available), New York City (97% in 1997) and Las Vegas (95%), as well as Donnelley's markets in New York State (90%) and other regions. Management believes that these directories will continue to enjoy a leading market share because of their affiliation with incumbent telephone companies and high-quality, and the Company's established relationships with advertisers and economies of scale. Management also believes that these directories are utilized more than any other directories by both residential and business consumers in its major markets. Stable Underlying Business Fundamentals. Donnelley's advertising sales and profitability are derived primarily from yellow pages advertising sales pursuant to long-term contractual relationships with subsidiaries of several of the country's largest local telephone service providers. Its relationships with Ameritech, Bell Atlantic and Sprint began in 1908, 1909 and 1980, respectively. Furthermore, the Company's business is characterized by a high level of recurring advertising sales, leading market share positions and the geographic and industry diversification of its over 500,000 advertisers. Management believes that these underlying business fundamentals, in combination with Donnelley's predictable cost structure and capital expenditure requirements, provide Donnelley with a solid base from which to grow. Experienced Management Team. Donnelley has assembled a strong and experienced management team at both the corporate and operating levels. Donnelley's management is responsible for the Company's long-term relationships with incumbent telephone companies and its market leadership position. In addition, Donnelley's account managers average over 12 years of experience in the yellow pages industry. BUSINESS STRATEGY The Company has identified its major sources of potential growth and has developed a business strategy to capitalize on these opportunities. Principal elements of the Company's business strategy include: Grow the Core Business in Existing Markets. The Company has developed specialized sales and marketing techniques and infrastructure in order to increase advertising sales. The Company 45 50 leverages sophisticated information systems, access to the local telephone company's extensive telephone subscriber databases and its experienced sales management team in order to (i) better identify, segment and prioritize profitable sales opportunities, (ii) ensure continuity with existing customers, (iii) identify the most cost-effective customer contact method (e.g., mail, telephone or on-site visits) and (iv) assign industry specialists, who offer customized products and services, to certain high-potential accounts. Furthermore, the Company attempts to increase advertisements and revenue per customer by (i) encouraging the use of larger advertisements, specialized type face and other graphic features, including color, (ii) increasing the number of headings in directories and (iii) providing advertising sales for regional, neighborhood, bilingual and foreign language directories that complement directories with greater geographic coverage. Capture Potential Outsourcing Opportunities in New Markets. Management anticipates that local telephone service providers, which accounted for 84% of total U.S. yellow pages advertising sales in 1997, will outsource an increasing amount of their non-core business, including yellow pages advertising sales and publishing. Management believes that Donnelley is well positioned to leverage certain of its existing strategic relationships into new markets and to capture other potential outsourcing opportunities due to (i) Donnelley's extensive experience and proven track record of success, (ii) its ability to provide a cost-effective, integrated yellow pages advertising and publishing solution and (iii) its neutral position as a non-competitor to local telephone service providers. In addition, in May 1998 Donnelley became the exclusive advertising sales agent, beginning with directories published in 1999, for Bell Atlantic's 26 yellow pages directories in the greater Buffalo area, which were previously outsourced by Bell Atlantic to another third-party marketer. Leverage Existing Account Relationships to New Advertising Media. The Company's strategy is to provide its small to medium-sized advertisers with an integrated solution to their advertising needs. For many of these businesses, printed yellow pages advertising historically has been their principal form of advertising, and in recent years an increasing number have been seeking to expand their advertising programs. Donnelley began selling yellow pages-style advertising for airing on cable television stations in 1995 and for placement on the Internet in late 1996, and management believes that it has the opportunity to expand its core business and cross-sell these growing advertising media to its current customer base. In addition, certain local telephone companies have expressed an interest in using Donnelley's established yellow pages sales channels to market their telecommunications products and services in the current, more competitive local telephone market. Capitalize on New Technology and Established Infrastructure. In mid-1997, Donnelley completed its $40 million publishing center in Raleigh, North Carolina. Donnelley believes that this investment and its established infrastructure are critical to marketing its yellow pages advertising sales and publishing services to potential outsourcers. The new publishing center has enabled Donnelley to reduce publishing costs by approximately 30% and publishing cycle times by approximately 50%. The publishing center utilizes state-of-the-art digital technology to support the entire yellow pages advertising sales and publishing process on an integrated basis. Other significant yellow pages publishers (primarily telephone service providers) are making similar investments, but management believes that these publishers are at varying stages in the conversion process which Donnelley has already completed. Management also believes that smaller yellow pages publishers may decide not to undertake such a significant investment program. INDUSTRY OVERVIEW The U.S. yellow pages advertising industry generated sales of approximately $11.4 billion in 1997, with a total circulation for all yellow pages directories of 489 million. Total advertising sales have increased steadily throughout the nineties. Over the past five calendar years, yellow pages advertising sales in the U.S. increased at a compound annual growth rate of 4.1%. Despite a decrease in the number of U.S. yellow pages publishers from 298 in 1996 to 275 in 1997 due to consolidation in the industry, the number of directories printed increased by 2.7%. 46 51 Yellow pages advertising is considered to be "directional" advertising, as it is frequently used by consumers who are ready to purchase a product or service. Industry sources estimate that over 80% of consumers who contact a merchant after referring to a yellow pages directory intend to make a purchase and approximately 60% actually do. These sources also estimate that a yellow pages directory is present in 97% of all U.S. households, and that adults refer to a yellow pages directory an average of 1.8 times weekly. Yellow pages directories are easily accessible to consumers, with directories distributed to every home and business that maintains a telephone. Yellow pages advertising is the preferred form of advertising for many businesses and service organizations due to its relatively low cost, broad demographic and geographic distribution, enduring presence and high consumer usage rates. While overall advertising tends to track an economy's business cycle, yellow pages advertising tends to be more stable and does not fluctuate widely with economic cycles due to its frequent use by small to medium-sized businesses, often as their principal or sole form of advertising. Yellow pages advertising also often comprises an integral part of the local advertising strategy for larger national companies operating at the local level. Yellow pages advertisers have a strong incentive to increase the size of and renew their advertisements because advertisements are placed within each heading of a directory based first on size and then on seniority. Yellow pages directory advertising competes with all other forms of media advertising, including television, radio, newspapers and direct mail. Sales from all forms of advertising in the U.S. rose 6.3% to $186.7 billion in 1997, and all categories of major media, including yellow pages, posted gains in advertising sales. The yellow pages' share of the overall U.S. advertising market remained steady at 6.1% in 1997 and its share of overall U.S. local advertising sales remained relatively constant at 12.6% in 1997 compared with 12.8% in 1996. The yellow pages directory business tends to be concentrated among a few directory publishers. The eight leading yellow pages publishers (all of which are telephone companies and with three of which Donnelley maintains strategic relationships) had total U.S. directory-related advertising sales of $10.4 billion in 1997 (including advertising sales attributable to the Company), up from $9.8 billion in 1996. The limited number of yellow pages publishers reflects the high start-up costs (e.g., marketing, sales, printing, distribution and database) associated with producing a new directory and the substantial infrastructure required to maintain a directory. The independent publisher segment of the yellow pages industry (publishers that are not affiliated with any telephone company) is highly fragmented and comprises only a small portion of the total market for yellow pages advertising sales in the U.S. Independent publishers' share of that market was 6.8% in 1997, compared to 6.4% in 1996. In 1997, yellow pages publishers continued to embrace the Internet as a publishing platform. Most yellow pages publishers, including those with which Donnelley maintains strategic relationships, have launched either a national or regional directory. DIRECTORY PRODUCTS Donnelley's yellow pages advertising sales and publishing activities principally relate to consumer, business-to-business, neighborhood, foreign language and bilingual directories. The directories with which the Company is affiliated are designed to meet the informational needs of consumers and the advertising needs of local, regional and national businesses. These directories typically consist of a listing of businesses by various headings along with advertisements, as well as sections providing community reference information, including a map of the local area, emergency and governmental telephone numbers and information regarding area activities and attractions. This additional information enhances the directory's value as a consumer resource. Although Donnelley's focus is primarily on printed directories, it has begun selling yellow pages-based advertising for new media, including cable television (in 1995) and the Internet (in 1996). While management believes that paper-based directory products will account for a significant 47 52 majority of Donnelley's revenues for the foreseeable future, Donnelley has made modest commitments related to the growing electronic commerce market. In addition, DonTech has an agreement to serve as Ameritech's exclusive local advertising sales agent if Ameritech begins a yellow pages Internet directory in Illinois or northwest Indiana. Advertising space is sold throughout a directory, including in column and display forms in the yellow pages, on color tab inserts, and via promotional coupons and image advertisements on the back and inside covers. The Company offers its customers a full range of customized artwork and enhanced features, including full-color advertisements, which allows the Company to create customized advertising programs that meet its customers' specific needs. The directories with which the Company is affiliated are an efficient source of information for consumers. With over 2,000 headings on average, these directories are both comprehensive and conveniently organized. Management believes that the completeness and accuracy of the data in these directories is essential to consumer acceptance. Management believes that these directories benefit in this regard from the Company's strategic relationships with incumbent telephone companies, since the Company is assured of receiving updated telephone account information from these telephone companies prior to the publication of directories. ADVERTISING SALES AND MARKETING Yellow pages advertising is a direct sales business which requires both servicing existing accounts and developing new customers. Donnelley has direct overall sales responsibility for directories in its Bell Atlantic and Sprint markets and participates in setting sales strategy for DonTech and evaluating its results. The incumbent telephone companies with which Donnelley maintains a strategic relationship typically include billing for yellow pages advertising as part of a customer's telephone bill, which management believes has historically benefitted the Company by resulting in lower bad debt expenses related to yellow pages advertising at these telephone companies than is experienced by independent yellow pages publishers. Donnelley's sophisticated information systems and access to the local telephone company's extensive telephone subscriber databases are critical to maintaining and expanding its advertising sales. New listing updates from these telephone subscriber databases are loaded into Donnelley's information systems in order to identify and segment potentially profitable new advertising sales opportunities, based on an analysis of these accounts' business and potential advertising programs. For existing accounts, the linkage of these telephone subscriber databases with Donnelley's information systems facilitates the development of customer-specific sales strategies in current and future sales campaigns as well as customer billing by the local telephone company. The Company's multi-tiered sales force and different customer contact methods reflect its focus on segmenting and prioritizing yellow pages advertising sales opportunities. The Company's advertising sales activities are comprised of the following four tiers: (i) direct mail and telemarketing for broad-based lead generation, coverage of small advertisers and order confirmation, (ii) telephone sales by commissioned representatives who contact small and medium-sized advertisers which require minimal ongoing account maintenance, (iii) on-site visits by sales personnel who cover medium and large existing and potential customers within specified geographic regions and (iv) extensive coverage of major accounts by senior account executives. Donnelley's sales force also includes industry specialists (who cover certain potentially high-return accounts and offer customized products and services for certain industries, such as health care) as well as bilingual sales representatives who cover Bell Atlantic's foreign language and bilingual directories in New York City. Generally, the Company's sales management emphasizes sales person continuity in the Company's account relationships. Donnelley employs approximately 500 sales representatives in its Bell Atlantic, Sprint and Cincinnati markets. Donnelley's approximately 80 account managers average over 12 years of 48 53 experience in the yellow pages industry. Donnelley's and DonTech's sales forces are entirely nonunion, which is a cost advantage when compared to the union sales forces that are typical of other marketers of yellow pages advertising, including major telephone service providers. The non-union status of Donnelley's and DonTech's sales forces also provides Donnelley and DonTech with greater latitude to redeploy sales personnel. In addition, Donnelley's and DonTech's sales forces are largely compensated based on performance, which aligns the sales forces' incentives with important success factors to the Company's business, including account generation and retention. On average, approximately 55% of Donnelley's sales force compensation is variable and based on performance. The Company has well-established practices and procedures to manage the productivity and effectiveness of its sales force. All of Donnelley's new account representatives complete a formal seven week training program, which consists of both classroom training and field training. Sales personnel may also receive specialized in-campaign training, which is typically based on actual feedback received during a sales campaign. Furthermore, Donnelley has supplied its New York sales force with laptop computers and customized software, which facilitates the sales process by allowing sales personnel to access account information, interactively design advertisements and provide advertising contracts while at a customer's location. Donnelley is considering distributing laptop computers with such customized software to its sales forces in other markets. The ability of Donnelley's sales management, sales force and marketing department to successfully integrate their efforts and increase advertising sales was recently demonstrated in New York City by Donnelley's advertising sales for Bell Atlantic's foreign and bilingual neighborhood directories, which were introduced during 1996 and 1997. Through advertising sales for these five directories (which are Chinese-language and Spanish English), management estimates that Donnelley generated incremental advertising sales of approximately $4.0 million in 1997 in a mature urban market. PUBLISHING AND PRODUCTION Donnelley is a leading provider of pre-press publishing services for yellow pages directories, including advertisement creation, sales contract management, listing database management, sales reporting and commissions, pagination, billing services and imaging. Donnelley recently completed its $40 million publishing center in Raleigh, North Carolina, which utilizes custom designed, state-of-the-art digital technology and relational databases to support the entire yellow pages advertising sales and publishing process on an integrated basis, from lead generation and sales presentation to advertisement creation and printer-ready final output. Donnelley also has a graphics center in Dunmore, Pennsylvania which produces artwork for the majority of advertisements and specialty pages included in the directories for which Donnelley provides publishing services. The Dunmore graphics center is electronically integrated with the Raleigh publishing center. Donnelley has staffs of approximately 300 and 140 employees at the Raleigh publishing center and the Dunmore graphics center, respectively. Donnelley provides publishing services for certain Ameritech and Sprint directories, among others, pursuant to agreements that extend through 2003 and 2004, respectively. The Raleigh publishing center has enabled Donnelley to reduce publishing costs by approximately 30% and publishing cycle times (i.e., the number of days between closing of an advertising sales campaign and delivery to the printer of a printer-ready paper or electronic version of the related directory) by approximately 50%, and, with minimal additional infrastructure and the potential addition of a second shift, would be able to expand its processing capacity to meet additional demand. In 1997, the Raleigh and Dunmore centers provided publishing services for 232 directories, produced over 82,000 pages of directory advertising, created over 200,000 new advertisements and handled approximately 1.5 million service order transactions for new or changed telephone listings. Donnelley also offers a broad range of production services to its publishing center customers once a printer-ready paper or electronic version of their directory has been completed. These 49 54 production services principally involve Donnelley's contracting on behalf of these customers with outside parties for printing, binding and distribution of directories. Donnelley provides production services in varying degrees for Sprint. NEW ADVERTISING MEDIA AND PRODUCTS In 1995 Donnelley developed a cable advertising product known as Yellow Pages Television(R), or YPTV(R). YPTV(R) advertisements begin with a customer's printed yellow pages advertisement, which is enhanced by audio content and graphics and aired in a 15 or 30 second spot on cable television. Donnelley contracts with an outside party for creation of the YPTV(R) advertisements. Donnelley currently offers YPTV(R) in selected Bell Atlantic and Sprint/CenDon markets. Donnelley combines marketing of printed yellow pages advertisements with YPTV(R) in these markets, so that only purchasers of printed advertisements may advertise through YPTV(R). Management believes that this bundling of YPTV(R) with printed yellow pages advertisements, together with Donnelley's purchases of cable television airtime in bulk, increase this product's cost-effectiveness to customers. YPTV(R) also typically refers the cable viewer to the customer's printed yellow pages advertisement, which management expects will stimulate usage of print directories. Donnelley generated net revenue from YPTV(R) of $2.9 million in 1997 in its Bell Atlantic and Sprint/CenDon markets. Donnelley has gained useful experience in electronic commerce advertising sales by acting as local sales agent for yellow pages advertising placed on Digital City, an Internet service provided by America Online in Cincinnati. In addition, DonTech has an agreement to serve as Ameritech's exclusive local advertising sales agent if Ameritech begins a yellow pages Internet directory in Illinois or northwest Indiana. The Internet complements traditional directory advertising, particularly by making it possible to update a yellow pages advertisement as needed, as compared with typically once a year for a printed advertisement. Management believes that Donnelley's experience in successfully selling advertising in new classified directory products, such as foreign language and bilingual directories, and its extensive reach into the business and consumer sectors in its markets will augment its ability to capitalize on emerging electronic directory opportunities. In addition, certain local telephone companies have expressed an interest in using Donnelley's established yellow pages sales channels to market their telecommunications products and services in the current, more competitive local telephone market. These products and services, which would be sold in conjunction with yellow pages advertising, may include long distance, cellular telephone, 800 numbers, Internet access and remote call forwarding. STRATEGIC ALLIANCES/MARKETS SERVED Donnelley has major relationships with Ameritech, Bell Atlantic and Sprint (through their subsidiaries) and provides each of them with advertising sales and/or publishing services. These relationships and Donnelley's proprietary operations encompass directories in 13 states and such major metropolitan areas as New York City, Chicago, Las Vegas and Orlando. 50 55 INFORMATION ON DIRECTORIES AND DIRECTORY ADVERTISEMENTS BY RELATIONSHIP (1997)
AMERITECH(1) BELL ATLANTIC SPRINT/CENDON ------------- ------------- -------------- Primary markets served......................... IL, IN NY NV, FL, VA, NC Number of directories.......................... 125 95 44 Total circulation (in millions)................ 10.3 14.7 5.5 Directory market share(2)...................... 79% 90%(3) 83% Advertising sales account retention rate(4).... 90% 82% 90% Advertising sales renewal rate(5).............. 93% 88% 97% Number of advertisers.......................... 139,000 158,000(6) 63,000 Number of paid ads and paid listings........... 787,000 721,000(6) 223,000 Average ad sales(7)............................ $566 $550(6) $767
- --------------- (1) Through the DonTech partnership. (2) Represents the Company's percentage of yellow pages usage in the applicable markets, based on third-party surveys. (3) Represents directory market share for the Chicago metropolitan service area in 1996; 1997 data is not available. (4) Represents the percentage of the Company's 1996 customers who advertised in 1997 in the applicable markets, excluding customers who disconnected their telephone service. Including customers who disconnected their telephone service, the Company's advertising sales account retention rates were 86%, 78% and 87% in its Ameritech, Bell Atlantic and Sprint/CenDon markets, respectively. (5) Represents the percentage of the Company's 1996 advertising sales in the applicable markets which were generated in 1997 from the Company's 1996 customers in those markets. (6) Represents 1996 data; 1997 data not available. (7) Average ad sales represents total advertising sales divided by the number of advertisements sold. Ameritech Donnelley's relationship with telephone companies currently owned by Ameritech began in 1908 with the Chicago Telephone Company. Since then, Donnelley has had a variety of contractual relationships with Ameritech including, beginning in 1984, a series of partnerships (collectively referred to as DonTech or the DonTech partnership). The current partnership arrangement reflects Donnelley's goal of lengthening its agreements to provide advertising sales and/or publishing services and was structured without an expiration date in exchange for contractual reductions in Donnelley's percentage share of DonTech's profits. These contractual reductions were completed in 1997, and management does not anticipate any further such reductions. DonTech is a 50/50 general partnership between Donnelley and a subsidiary of Ameritech. DonTech is the exclusive local advertising sales agent for Ameritech's 125 printed and any future Internet directories in Illinois (including the metropolitan Chicago area) and northwest Indiana. DonTech receives a sales commission on advertising sold and recognizes these commissions upon the signing of the related advertising contract. Donnelley receives 50% of the profits generated by DonTech on a monthly basis and also receives directly from the Ameritech entity which publishes the directories fees which are tied to advertising sales generated by DonTech. Income from these sources is included in Donnelley's income statement as income from partnerships and related fees. Under a separate agreement that extends through 2003, Donnelley provides publishing services for Ameritech's Illinois and northwestern Indiana directories on a negotiated basis; the related fees are recognized by Donnelley as revenue. Historically, a disproportionate number of the directories that DonTech sells advertising for were published in the fourth quarter, which led to inefficient use of DonTech's 51 56 sales force and Donnelley's publishing infrastructure during other times of the year. In 1997, a two-year program was initiated to reschedule the related directories' publication dates in order to publish these directories more evenly throughout the year. Subject to regulatory approval and certain other conditions, Ameritech recently agreed to merge with SBC Communications Inc. ("SBC"), which currently conducts all of its yellow pages operations in-house. The proposed merger will not trigger any change to the current contractual relationship governing the DonTech partnership and the related yellow pages directories, and SBC has announced it intends to continue using the Ameritech brand if such merger is completed. There can be no assurance as to what effect, if any, the proposed merger will have on the DonTech partnership. Bell Atlantic Donnelley's relationship with Bell Atlantic began with a contract with New York Telephone Company entered into in 1909. Under the current agreement, which was entered into in 1985 and extends through 2005, Donnelley is the exclusive advertising sales agent for 95 Bell Atlantic directories, which cover substantially all of New York State, including New York City. The arrangement was originally with a subsidiary of NYNEX; with the Bell Atlantic/NYNEX merger in 1997, the agreement was transferred to a subsidiary of Bell Atlantic. Donnelley earns a sales commission on advertising sold and recognizes these commissions upon the signing of the related advertising contract. Donnelley's management expects to pursue potential outsourcing opportunities with Bell Atlantic. Bell Atlantic currently operates in-house yellow pages advertising sales operations in its service territory between Maine and West Virginia, except in New York State. In May 1998, Donnelley became the exclusive advertising sales agent, beginning with directories published in 1999, for Bell Atlantic's 26 yellow pages directories in the greater Buffalo area, which previously were outsourced by Bell Atlantic to another third-party marketer. The contract which governs the relationship between Donnelley and the relevant Bell Atlantic entity in the greater Buffalo area continues until 2002, unless extended by Bell Atlantic. In 1997, Donnelley sold its East Coast proprietary yellow pages business to an independent yellow pages publisher and as part of the sale agreement agreed to forego certain business activities, including yellow pages advertising sales, in certain mid-Atlantic states until September 1999. Sprint The Sprint relationship began in 1980 when Donnelley began publishing directories for predecessors or affiliates of Central Telephone Company and United Telephone Company of Florida, both since merged into Sprint. Donnelley has a partnership with a Sprint affiliate, known as the CenDon partnership and sales agency agreements with CenDon and a separate affiliate of Sprint. CenDon. Donnelley and a Sprint affiliate each have a 50% interest in CenDon, which publishes directories in selected Sprint markets in Nevada (primarily Las Vegas), Florida (including Tallahassee), Virginia and North Carolina. Donnelley earns a 50% share of CenDon's income and records its share as income from partnerships, a component of Donnelley's operating income. In addition to the profits derived from its 50% stake in CenDon, Donnelley has a contract to provide advertising sales, marketing and customer service on an exclusive basis to CenDon and receives a sales commission for its services. Donnelley recognizes these commissions as revenues upon the publication of the related directory. The current CenDon partnership agreement and the sales agency agreement were entered into in 1988 and extend through 2004. Pursuant to the partnership agreement, Donnelley also provides publishing services to CenDon. Fees for these 52 57 publishing services are based upon a separate price schedule which extends through 1999; these fees are recognized by Donnelley as revenue. Sprint Sales Agency. In the greater Orlando marketplace, Donnelley is Sprint's exclusive advertising sales agent and earns sales commissions on local advertising and national advertising sales. Donnelley recognizes these commissions as revenues upon the signing of the related advertising contract. The contract which governs this relationship was entered into in 1994 and extends through 2004, but could be terminated as a result of a five year performance review required no later than March 1, 2000. Donnelley also provides publishing services to Sprint pursuant to this contract; the related fees are recognized by Donnelley as revenues. The publishing services portion of this contract could be terminated if a new price schedule for such services is not agreed upon by March 1, 2000. CINCINNATI PROPRIETARY OPERATION Donnelley launched a proprietary directory operation in Cincinnati, northern Kentucky and southeast Indiana in September 1997 and expects to publish its first directories in the fall of 1998. Donnelley's historical agreement with Cincinnati Bell to act as yellow pages advertising sales agent for Cincinnati Bell's directories expired in August 1997. Donnelley's Cincinnati Bell operations accounted for approximately 3% of its operating income before corporate overhead and depreciation and amortization expense in 1997, which was partially offset by the start-up costs involved with the proprietary directory operations in 1997. COMPETITION There is competition for yellow pages advertising sales to varying degrees in the Company's markets from the sales forces of yellow pages publishers with which the Company is not affiliated. These yellow pages publishers include local telephone companies with which the Company does not maintain a contractual relationship, independent publishers (publishers that are not affiliated with any telephone company) and national yellow pages sales agents. In the majority of its markets, Donnelley benefits from its long-term contractual relationships with affiliates of the largest potential competitor in a directory market, the incumbent local telephone company. The market position of incumbent local telephone companies may be impacted by the Telecommunications Act of 1996, which effectively opened local telephone markets to increased competition. There is also competition for advertising sales from other media, including newspapers, magazines, radio, direct mail, online information services, television and cable television, and advances in technology have brought to the industry new participants, new products and new channels, including increasing use of the Internet as an advertising media. INTELLECTUAL PROPERTY Donnelley owns and controls a number of trade secrets, confidential information, trademarks, service marks, trade names, copyrights and other intellectual property rights which, in the aggregate, are of material importance to Donnelley's business. Management believes that the "Donnelley" name and related names, marks and logos are material to Donnelley's business. Donnelley is licensed to use certain technology and other intellectual property rights owned and controlled by others, and, similarly, other companies are licensed to use certain technology and other intellectual property rights owned and controlled by Donnelley. Donnelley considers its trademarks, service marks, databases, software and other intellectual property to be proprietary and Donnelley relies on a combination of copyright, trademark, trade secret, non-disclosure and contract safeguards for protection. Donnelley also benefits from the use of both the phrase "yellow pages" and the walking fingers logo, which Donnelley believes to be in the public domain in the United States. The names of Donnelley's products and services referred to herein are trademarks, servicemarks or registered trademarks or servicemarks owned by Donnelley. 53 58 EMPLOYEES As of March 31, 1998, Donnelley had approximately 1,417 full-time employees, of which approximately 300 and 140 were employed at the Raleigh publishing center and the Dunmore graphics center, respectively. This number does not include the employees of DonTech. None of the Company's employees are covered by collective bargaining agreements. Donnelley considers its relations with its employees to be good and it has not experienced any strikes or work stoppages. PROPERTIES Donnelley's operations are conducted from 21 leased locations in 7 states. Donnelley leases approximately 74,000 square feet for its administrative headquarters and offices located in Purchase, New York, and approximately 72,000 square feet in New York, New York for its New York sales force. Donnelley's new $40 million Raleigh publishing center is located in a 55,500 square foot building which Donnelley leases. Donnelley leases 20,000 square feet in a building for its graphics center in Dunmore, Pennsylvania. LEGAL PROCEEDINGS On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming as defendants the Parent Company, A.C. Nielsen Company and IMS International Inc. (former subsidiaries of the Parent Company) (the "IRI Action"). The complaint alleges, among other things, various violations of the antitrust laws and seeks damages in excess of $350 million, which IRI is seeking to have trebled under the antitrust laws. IRI also seeks punitive damages in an unspecified amount. Pursuant to the Distribution Agreement, New D&B will assume and indemnify Donnelley Corp. and Donnelley against any payments to be made by Donnelley Corp. or Donnelley in respect of the IRI Action under the Indemnity and Joint Defense Agreement (as described below), the Distribution Agreement or otherwise, including any ongoing legal fees and expenses related thereto. The Parent Company has entered into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense Agreement") with two former subsidiaries of the Parent Company, ACNielsen Corporation ("ACNielsen") and Cognizant Corporation ("Cognizant"), pursuant to which ACNielsen has agreed to be responsible for any potential liabilities which may ultimately be incurred by the Parent Company or Cognizant as a result of the IRI Action, up to a maximum amount to be determined by an independent investment bank if and when any such liabilities are incurred. The determination of the maximum amount will be based on ACNielsen's ability to satisfy such liabilities and remain financially viable, subject to certain assumptions and limitations. The Parent Company and Cognizant have agreed that, to the extent that ACNielsen is unable to satisfy any such liabilities in full and remain financially viable, the Parent Company and Cognizant will each be responsible for 50% of the difference between the amount, if any, which may be payable as a result of such litigation and the maximum amount which ACNielsen is then able to pay as determined by such investment bank. Under the terms of a distribution agreement, dated as of October 28, 1996, among the Parent Company, Cognizant and ACNielsen, as a condition to the Distribution, New D&B is required to undertake to be jointly and severally liable with Donnelley Corp. to Cognizant and ACNielsen. Other than the suit described above, Donnelley is involved in legal proceedings, claims and litigation arising in the ordinary conduct of its business. Although there can be no assurances, Donnelley management believes that the outcome of such legal proceedings will not have a material adverse affect on Donnelley's financial position or results of operations. 54 59 RELATIONSHIP BETWEEN DONNELLEY CORP. AND THE NEW DUN & BRADSTREET CORPORATION AFTER THE DISTRIBUTION As of June 30, 1998, the Parent Company effected the Distribution. Accordingly, as of the date of this Prospectus, Donnelley Corp.'s only remaining subsidiary is Donnelley and each of Donnelley Corp. and New D&B are independent, publicly-traded companies. In connection with the Distribution, the Parent Company was renamed R.H. Donnelley Corporation and New D&B was renamed The Dun & Bradstreet Corporation. Except as described below, all contractual relationships existing prior to the Distribution between Donnelley Corp. and New D&B were terminated in connection with the Distribution. In connection with the Distribution, Donnelley Corp. and New D&B have entered into certain agreements, described below, governing the relationship between Donnelley Corp. and New D&B subsequent to the Distribution and providing for the allocation of tax, employee benefits and certain other liabilities and obligations arising from periods prior to the Distribution. The Distribution Agreement provides for, among other things, certain corporate transactions required to effect the Distribution and other arrangements between Donnelley Corp. and New D&B subsequent to the Distribution. The following paragraphs describe the major provisions of the Distribution Agreement and related agreements. DISTRIBUTION AGREEMENT In general, pursuant to the terms of the Distribution Agreement, all assets of the Parent Company prior to the Distribution Date, other than those relating to Donnelley's business, will become assets of New D&B. The Distribution Agreement also provides for assumptions of liabilities and cross indemnities designed to allocate generally, effective as of the Distribution Date, financial responsibility for all liabilities of the Parent Company other than those specified to be transferred to Donnelley on or prior to the Distribution Date or to remain with Donnelley subsequent to the Distribution Date (which liabilities primarily relate to Donnelley's business and assets, the Offering and the borrowings under the New Credit Facility), to New D&B. See "Business". The Distribution Agreement provides for the allocation generally of the financial responsibility for the liabilities arising out of or in connection with former businesses, other than those formerly conducted by Donnelley prior to the Distribution, to New D&B. Pursuant to the terms of a distribution agreement, dated as of October 28, 1996, among the Parent Company Cognizant Corporation ("Cognizant") and ACNielsen Corporation ("ACNielsen") pursuant to which the Parent Company spun off Cognizant and ACNielsen to its shareholders (the "1996 Distribution Agreement"), as a condition to the Distribution, New D&B is required to undertake to be jointly and severally liable with Donnelley Corp. to Cognizant and ACNielsen for any liabilities arising thereunder. Pursuant to the Distribution Agreement, all liabilities of the Parent Company under the 1996 Distribution Agreement and related agreements will be liabilities of New D&B, and New D&B will indemnify Donnelley Corp. against such liabilities. In addition, any rights of the Parent Company arising under the 1996 Distribution Agreement and related agreements will be rights of New D&B. The Distribution Agreement provides that, in connection with the Distribution, Donnelley Corp. will transfer cash to New D&B in an amount such that, immediately following the Distribution, Donnelley Corp.'s net debt will be approximately $500 million. The Distribution Agreement provides that Donnelley Corp. and New D&B will comply, and otherwise not take action inconsistent, with each representation and statement made to the IRS in connection with the Parent Company's request for a ruling letter as to certain tax aspects of the Distribution. Each of Donnelley Corp. and New D&B agrees to maintain its status as a company engaged in the active conduct of a trade or business, as defined in Section 355(b) of the Code, to continue to own stock of certain operating subsidiaries constituting control (within the meaning of 55 60 Section 368(c) of the Code) of such operating subsidiaries and to maintain at least 90% of the fair market value of its assets in the form of stock and securities of certain operating subsidiaries, in each case until the second anniversary of the Distribution Date. Neither Donnelley Corp. nor New D&B expects this limitation to inhibit its financing or other activities or its ability to respond to unanticipated developments. Under the Distribution Agreement, Donnelley Corp. agrees that, until two years after the Distribution Date, it will not (i) merge or consolidate with another corporation, (ii) liquidate or partially liquidate, (iii) sell or transfer all or substantially all of its assets, (iv) redeem or repurchase its stock (except in certain limited circumstances) or (v) take any other action which would result in one or more persons acquiring a 50 percent or greater interest in Donnelley Corp., unless, prior to taking such action, it obtains a written opinion of a law firm reasonably acceptable to New D&B or a supplemental ruling from the IRS that such action will not affect the tax-free treatment of the Distribution. As a result of the representations in the request for a ruling letter and the covenants in the Distribution Agreement, the acquisition of control of each of Donnelley Corp. and New D&B prior to the second anniversary of the Distribution Date may be more difficult or less likely to occur because of the potential substantial liabilities associated with a breach of such representations or covenants. The Distribution Agreement requires a party that takes or fails to take any action which contributes to a determination that the Distribution is not tax-free to Donnelley Corp., New D&B or their shareholders to indemnify the other party and its shareholders from any taxes arising therefrom. The Distribution Agreement also provides that, except as otherwise set forth therein or in any other agreement, all costs or expenses in connection with the Distribution will be borne by New D&B. New D&B will agree to be liable for any claims arising from or based upon "controlling person" liability relating to the Registration Statement on Form 10 filed with the Securities and Exchange Commission for registration of the New D&B common stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by New D&B. Except as set forth in the Distribution Agreement or any related agreement, each party shall bear its own costs and expenses incurred after the Distribution Date. TAX ALLOCATION AGREEMENT Donnelley Corp. and New D&B have entered into a Tax Allocation Agreement (the "Tax Allocation Agreement") to the effect that New D&B will generally be liable for all income taxes of the Parent Company and its subsidiaries attributable to periods prior to the Distribution, provided that in the case of any separate company state or local income taxes, Donnelley Corp. and its subsidiaries, including Donnelley, and New D&B and its subsidiaries will be liable for their own liabilities arising from any audit adjustment. For income taxes attributable to periods beginning after the Distribution, New D&B will be liable for taxes relating to New D&B and its subsidiaries and Donnelley Corp. will be liable for taxes relating to Donnelley Corp. and its subsidiaries, including Donnelley. For all other taxes, New D&B and its subsidiaries and Donnelley Corp. and its subsidiaries, including Donnelley, will be responsible for their own liabilities for all periods. EMPLOYEE BENEFITS AGREEMENT Donnelley Corp. and New D&B have entered into an Employee Benefits Agreement (the "Employee Benefits Agreement"), which allocates responsibility for certain employee benefits matters on and after the Distribution Date. The Employee Benefits Agreement provides that Donnelley Corp. will adopt a new defined benefit pension plan and savings plan for its and Donnelley's employees and that New D&B will assume and become the sponsor of the current Parent Company plans for the benefit of its employees and in general former employees who terminated employment on or prior to the Distribution Date. Assets and liabilities of the current Parent Company pension plan and account balances in the savings plan that are attributable to Donnelley Corp. and Donnelley employees will be transferred to the new Donnelley Corp. plans. 56 61 Generally New D&B will assume and become the sponsor of the Parent Company's nonqualified supplemental pension plans for the benefit of persons who, prior to the Distribution Date were participants thereunder; provided, however, that with respect to Donnelley Corp. and Donnelley employees, New D&B generally will retain only those liabilities that were vested prior to the Distribution Date. Donnelley Corp. will guarantee payment of the benefits under these plans to its and Donnelley's employees in the event that New D&B is unable to satisfy its obligations. The Employee Benefits Agreement also provides that Donnelley Corp. will continue to sponsor its welfare plans for its and Donnelley's employees. As of the Distribution Date, New D&B will adopt welfare plans for the benefit of its employees and its former employees who terminated employment on or prior to the Distribution Date. Donnelley Corp. will be responsible for providing retiree welfare benefits, where applicable, to its employees and New D&B will be responsible for providing retiree welfare benefits, where applicable, to its employees and its former employees who terminated employment on or prior to the Distribution Date. Donnelley Corp., Donnelley and New D&B will generally retain the severance liabilities of their respective employees who terminated employment prior to the Distribution Date. With respect to equity-based plans, the Employee Benefits Agreement provides that unexercised stock options for common stock of the pre-Distribution Parent Company held by Donnelley Corp., Donnelley and New D&B employees as of the Distribution Date will be adjusted to reflect the Distribution. The number of shares covered by such options (which, for Donnelley Corp. and Donnelley employees as of the Distribution Date, will be for Donnelley Corp. common stock, and for New D&B employees as of the Distribution Date will be for New D&B common stock) will be increased, and the exercise price per share will be decreased, pursuant to a formula designed to cause the economic value of stock option grants to remain the same after the Distribution. Unexercised stock options for common stock of the pre-Distribution Parent Company held by former employees who terminated employment on or prior to the Distribution Date will be adjusted in substantially the same manner as options held by Donnelley Corp. and Donnelley employees, and New D&B will offer such former employees alternative adjustments or substitutions, provided such former employees agree to surrender their adjusted stock options. All limited stock appreciation rights will be adjusted or converted in substantially the same manner as the unexercised stock options for common stock of the pre-Distribution Parent Company. Restricted stock of the pre-Distribution Parent Company held by New D&B employees and New D&B restricted stock credited to New D&B employees as a dividend shall be forfeited and such individuals shall receive replacement New D&B restricted stock equal to (i) the number of shares of forfeited New D&B restricted stock plus (ii) the number of shares of forfeited restricted stock of the pre-Distribution Parent Company multiplied by the ratio for converting unexercised stock options for common stock of the pre-Distribution Parent Company at the Distribution Date into options for New D&B common stock and the reciprocal of the ratio for the comparable conversion of such stock options into Donnelley Corp. common shares, such replacement shares of New D&B restricted stock to have the same terms as restricted stock of the pre-Distribution Parent Company from which they arose. If performance targets are met pursuant to the Performance Unit Plan of the pre-Distribution Parent Company and Donnelley, Donnelley Corp. and Donnelley employees shall receive promptly after the Distribution Date a number of shares of Donnelley Corp. common stock equal to (i) the target number of performance shares plus (ii) the target number of performance shares multiplied by the ratio for converting unexercised stock options for common stock of the pre-Distribution Parent Company at the Distribution Date into options for Donnelley Corp. common stock and the reciprocal of the ratio for the comparable conversion of such stock options into New D&B common shares. Outstanding opportunities for New D&B employees to earn performance shares under the Performance Unit Plan shall be cancelled and each individual shall receive a replacement opportunity to earn a number of New D&B performance shares equal to (i) the target number of 57 62 performance shares of the pre-Distribution Parent Company plus (ii) the target number of performance shares of the pre-Distribution Parent Company multiplied by the ratio for converting unexercised stock options for common stock of the pre-Distribution Parent Company at the Distribution Date into options for New D&B common stock and the reciprocal of the ratio for the comparable conversion of such stock options into Donnelley Corp. common shares. The Employee Benefits Agreement also provides that New D&B will generally retain all employee benefit litigation liabilities that are asserted prior to the Distribution Date (but not such liabilities that relate to the transferred retirement and savings plan assets of Donnelley Corp. and Donnelley employees). INTELLECTUAL PROPERTY AGREEMENT Donnelley Corp. and New D&B have entered into an Intellectual Property Agreement (the "Intellectual Property Agreement") which provides for the allocation and recognition by and between these companies of rights under patents, copyrights, software, technology, trade secrets and certain other intellectual property owned by Donnelley Corp. and New D&B and their respective subsidiaries as of the Distribution Date. SHARED TRANSACTION SERVICES AGREEMENT Donnelley Corp. and New D&B have entered into a Shared Transaction Services Agreement (the "Shared Transaction Services Agreement") providing for the orderly continuation, for a transitional period after the Distribution Date, of certain of the shared transaction and other services (such as payroll, accounts payable, general accounting and computer processing and support) currently being provided. DATA SERVICES AGREEMENT Donnelley Corp. and New D&B have entered into a Data Services Agreement (the "Data Services Agreement") providing for the orderly continuation, for a transitional period after the Distribution Date, of certain specified computer processing and related services to be provided by New D&B to Donnelley Corp. TRANSITION SERVICES AGREEMENT Donnelley Corp. and New D&B have entered into a number of Transition Services Agreements (the "Transition Services Agreements") pursuant to which the respective parties have agreed to certain basic terms governing the provision by New D&B to Donnelley Corp. of specified pension investment management services, insurance services or other support services for a transitional period after the Distribution Date. 58 63 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information concerning the individuals who will serve as executive officers and directors of Donnelley Corp.
NAME AGE* POSITION(S) - ---- ---- ----------- Frank R. Noonan.......................... 55 Chairman of the Board, President and Chief Executive Officer Philip C. Danford........................ 54 Senior Vice President and Chief Financial Officer Frederick J. Groser...................... 43 Senior Vice President Alexander R. Marasco..................... 45 Senior Vice President Judith A. Norton......................... 55 Senior Vice President -- Human Resources David C. Swanson......................... 43 Senior Vice President Stephen B. Wiznitzer..................... 47 Senior Vice President and General Counsel Diane P. Baker........................... 44 Director William G. Jacobi........................ 53 Director Robert Kamerschen........................ 62 Director Carol J. Parry........................... 56 Director Barry L. Williams........................ 53 Director
The following table sets forth information concerning the individuals who serve as executive officers and directors of Donnelley.
NAME AGE* POSITION(S) - ---- ---- ----------- Frank R. Noonan.......................... 55 Director, President and Chief Executive Officer Philip C. Danford........................ 54 Director, Senior Vice President and Chief Financial Officer Frederick J. Groser...................... 43 Executive Vice President -- Teleco Operations Alexander R. Marasco..................... 45 Executive Vice President -- Operations and Technology Judith A. Norton......................... 55 Senior Vice President -- Human Resources David C. Swanson......................... 43 Executive Vice President -- Corporate Strategy Stephen B. Wiznitzer..................... 47 Director, Senior Vice President and General Counsel
- --------------- * As of May 1, 1998. FRANK R. NOONAN has been a director of the Parent Company since April 1998, a director of Donnelley since February 1995, President since August 1991, and has been Chief Executive Officer of Donnelley Corp. and Donnelley since June 30, 1998. Mr. Noonan joined the Parent Company in 1989 as Senior Vice President Finance of Dun & Bradstreet Information Services. Prior to joining the Parent Company, Mr. Noonan served as Senior Vice President and Chief Financial Officer of UNUM Corporation and in various financial positions for the General Electric Company. Mr. Noonan is Chairman of the board of trustees for United Hospital Medical Center in Port Chester, New York, a member of the board of trustees of Manhattanville College, the Vice Chairman of the board of governors for the Buick Classic, and a member of the board of directors of the Yellow Pages Publishers Association. 59 64 PHILIP C. DANFORD is Senior Vice President and Chief Financial Officer of Donnelley Corp. and has been a director of Donnelley since July 1, 1998, and is Senior Vice President and Chief Financial Officer of Donnelley. Mr. Danford has served as Senior Vice President and Chief Financial Officer for Donnelley since March 1998, and prior thereto served as Vice President and Treasurer for the Parent Company from September 1992. In 1988, Mr. Danford joined the Parent Company as Assistant Treasurer. Before joining the Parent Company, Mr. Danford served as Vice President and Treasurer at The Perkin-Elmer Corporation and as Assistant Vice President and Manager at W.R. Grace & Co. FREDERICK J. GROSER has been a Senior Vice President of Donnelley Corp. since June 30 1998 and has served as Donnelley's Executive Vice President -- Telco Operations since July 1997. Prior thereto, Mr. Groser served as Donnelley's Executive Vice President -- Strategic Marketing and New Business Development from October 1995, as Donnelley's Vice President and General Manager - -- Sprint Operations from February 1994 and as a Vice President -- Sales from December 1990. Mr. Groser joined Donnelley in 1978 as a yellow pages account representative in New York. ALEXANDER R. MARASCO has been a Senior Vice President of Donnelley Corp. since June 30, 1998 and has served as Donnelley's Executive Vice President -- Operations and Technology since October 1995. Prior thereto, Mr. Marasco served as a Senior Vice President -- Planning for Donnelley from April 1991, and as an Assistant Vice President of Strategic Planning for Donnelley from March 1989. Mr. Marasco joined the Parent Company in 1976 in its strategic planning department in New York. JUDITH A. NORTON has been a Senior Vice President -- Human Resources of Donnelley Corp. since June 30, 1998 and has served as Donnelley's Senior Vice President -- Human Resources since January 1998. Prior thereto, Ms. Norton was an independent human resources consultant from January 1997, a Senior Vice President-Human Resources for The Chase Manhattan Bank from April 1996, and a Senior Vice President and Director of Staffing and Development for Chemical Bank from January 1991. DAVID C. SWANSON has been a Senior Vice President of Donnelley Corp. since June 30, 1998, and has served as Donnelley's Executive Vice President Corporate Strategy since June 24, 1998. Prior thereto, Mr. Swanson was an Executive Vice President and General Manager for Proprietor Operations from July 1997, an Executive Vice President -- Sales for Donnelley from October 1995, Donnelley's Vice President and General Manager -- Cincinnati Operations from September 1993, an Assistant Vice President-Operations for Donnelley from January 1993 and a General Sales Manager for Donnelley from January 1992. STEPHEN B. WIZNITZER is a Senior Vice President and General Counsel of Donnelley Corp., has been a director of Donnelley since July 1, 1998, and is Senior Vice President and General Counsel of Donnelley. Mr. Wiznitzer has served as Donnelley's Senior Vice President and General Counsel since June 1997. Prior thereto, Mr. Wiznitzer served as counsel for NYNEX Corporation from December 1989. Earlier, Mr. Wiznitzer had been Senior Counsel for SSMC, Inc., when it was spun off from the Singer Company in 1986. DIANE P. BAKER. Diane P. Baker has been a director of Donnelley Corp. since June 30, 1998. Ms. Baker was Senior Vice President, Chief Financial Officer and Treasurer of The New York Times Company from 1995 to 1998. From 1990 through 1994, Ms. Baker was the Group Senior Vice President and Chief Financial Officer of R.H. Macy & Company. WILLIAM G. JACOBI. William G. Jacobi has been a director of Donnelley Corp. since June 30, 1998. Mr. Jacobi has been the non-employee chairman of Nielsen Media Research, Inc., (formerly an affiliate of the Parent Company and Donnelley) since November 1996. Prior to July 1, 1998, Mr. Jacobi was employed at Cognizant Corporation where he served as Executive Vice President and Chairman of Nielsen Media Group from 1996. Mr. Jacobi was also Executive Vice President and President of ERISCO and Executive Vice President, President and Chief Executive Officer of IMS 60 65 International. Mr. Jacobi was Executive Vice President of Dun & Bradstreet Corporation from 1995 to 1996. Previously, he was Senior Vice President of NCH Promotional Services, Senior Vice President of ERISCO, Senior Vice President of Sales Technologies, Senior Vice President of Dun & Bradstreet Pension Services and Plan Services, Inc., and President, Chief Operating Officer and Executive Vice President of Nielsen Media Research. ROBERT KAMERSCHEN. Robert Kamerschen has been a director of Donnelley Corp. since June 30, 1998. Mr. Kamerschen has been Chairman and Chief Executive Officer of ADVO, Inc. since 1988. Mr. Kamerschen currently serves on the Board of ADVO, Inc., IMS Health Incorporated, General Signal Network, Inc. and Micrografx, Inc. CAROL J. PARRY. Carol J. Parry has been a director of Donnelley Corp. since June 30, 1998. Ms. Parry has been Executive Vice President of Community Development Group at Chase Manhattan Corporation since 1996 and its Managing Director from 1992 to 1996. Ms. Parry currently serves on the board of directors of Health Insurance Plan of Greater New York, and on a number of not-for-profit organizations. BARRY LAWSON WILLIAMS. Barry Lawson Williams has been a director of Donnelley Corp. since June 30, 1998. Mr. Williams has been President and Founder of Williams Pacific Ventures since 1987, Senior Mediator of JAMS/Endispute, Inc. since 1993, Adjunct Professor, Entrepreneurship at Haas School Of Business since 1995, and General Partner of WDG Ventures since 1987. Mr. Williams serves on the Boards of CH2M Hill, Inc., CompUSA, Inc., Newhall Land & Farming Company, Northwestern Mutual Life Insurance, Pacific Gas & Electric Company and USA Group, Inc. DIRECTOR'S COMPENSATION The Board of Directors of Donnelley Corp. has adopted a non-employee director compensation program providing for certain cash payments and deferred stock and stock option grants annually to each non-employee director. Pursuant to this program, each non-employee director annually will receive a cash retainer of $20,000, 7,500 deferred shares of common stock of Donnelley Corp., an option to purchase an additional 7,500 shares, $1,000 for each meeting attended and an annual fee of $2,000 for each committee of the Board of Directors chaired. In addition, each new non-employee director will receive a grant of an additional 7,500 deferred shares under this program upon his or her appointment to the Board of Directors. Such deferred share and option grants will vest over a period of three years of future service, subject to acceleration in the event of death, disability or retirement of the applicable non-employee director or change in control of Donnelley Corp. COMMITTEES OF THE BOARD OF DIRECTORS On July 2, 1998, Donnelley Corp.'s Board of Directors established an Audit & Finance Committee, a Compensation & Benefits Committee and a Nominating Committee. The Audit & Finance Committee will, among other matters: recommend independent certified public accountants; review the scope of the audit examination, including fees and staffing; review the independence of the auditors; review and approve non-audit services provided by the auditors, if any; review findings and recommendations of the auditors and management's response; and review the internal audit and control function. The Audit and Finance Committee members are Barry Lawson Williams (chairperson), Diane P. Baker and Carol J. Parry. The Compensation & Benefits Committee will, among other matters: review management compensation programs; approve compensation changes for executive officers; review compensation changes for senior management; and administer stock plans for management. The Compensation and Benefits Committee members are Robert Kamerschen (chairperson), Diane P. Baker and Barry Lawson Williams. The Nominating Committee will, among other matters: review potential candidates and nominate persons to the Board of Directors for positions on the Board of Directors and the various committees of the Board. The 61 66 Nominating Committee members are Carol J. Parry (chairperson), William G. Jacobi and Robert Kamerschen. EXECUTIVE COMPENSATION The following table sets forth the compensation paid by the Parent Company or Donnelley for services rendered to the Parent Company or Donnelley in 1997 by Donnelley's President and by each of the persons who are anticipated to be one of the four other most highly compensated executive officers of Donnelley Corp. following the Distribution. During the period presented, the individuals were compensated in accordance with the Parent Company's plans and policies. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS PAYOUTS ANNUAL COMPENSATION ----------------------------------- ----------------------------------------- SECURITIES OTHER RESTRICTED UNDERLYING LONG-TERM ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER NAME AND PRINCIPAL SALARY BONUS(1) COMPENSATION(2) AWARD(S) SARS(3) PAYOUTS COMPENSATION(4) POSITION POST-DISTRIBUTION YEAR ($) ($) ($) ($) ($) ($) ($) - -------------------------- ---- ------- -------- --------------- ---------- ---------- --------- --------------- Frank R. Noonan......... 1997 347,000 346,913 11,630 0 33,480 0 11,863 President and Chief Executive Officer Philip C. Danford....... 1997 265,000 238,582 0 0 27,571 0 8,787 Senior Vice President and Chief Financial Officer Frederick J. Groser..... 1997 195,000 41,288 29 0 13,340 0 6,238 Senior Vice President Alexander R. Marasco.... 1997 207,900 91,200 6,590 0 13,340 0 6,742 Senior Vice President David C. Swanson........ 1997 195,000 41,927 2,162 0 13,340 0 6,238 Senior Vice President
- --------------- (1) The 1997 bonus amounts shown were earned with respect to that year and paid in 1998. Included in the 1997 amounts is one-half of the 1997 performance share grant made under the Key Employees Performance Unit Plan for the pre-Distribution Parent Company and its subsidiaries (the "PUP") and earned with respect to 1997. The remaining one-half of the 1997 performance share grant is payable, pro rata, at the time of the Distribution, based on performance goals covering the period January 1997 through the Distribution Date. The performance shares will be paid in unrestricted shares of Parent Company common stock. (2) Amounts shown represent reimbursement for taxes paid by the named executive officers with respect to Parent Company-directed spousal travel and personal use of automobiles and/or reimbursement for certain other expenses. (3) Amounts shown represent the number of non-qualified stock options granted in 1997. (4) Amounts shown represent aggregate annual Parent Company contributions for the account of each named executive officer under the Parent Company's Profit Participation Plan (the "PPP") and the Profit Participation Benefit Equalization Plan (the "PPBEP"), which plans were open to employees of the Parent Company and certain subsidiaries. The PPP is a tax-qualified defined contribution plan and the PPBEP is a non-qualified plan that provides benefits to participants in the PPP equal to the amount of Parent Company contributions that would have been made to the participant's PPP account but for certain Federal tax laws. 62 67 OPTION GRANTS ON PARENT COMPANY COMMON STOCK TO CERTAIN EXECUTIVE OFFICERS IN 1997 The following table provides information on fiscal year 1997 grants of options to the named Donnelley Corp. executives to purchase shares of common stock of the pre-Distribution Parent Company. Following the Distribution, the number of shares covered by and the exercise price for options to acquire Donnelley Corp. common stock have been adjusted. See "Relationship Between Donnelley Corp. and The New Dun & Bradstreet Corporation After the Distribution -- Employee Benefits Agreement". OPTION GRANTS/SAR GRANTS IN 1997
NUMBER OF % OF TOTAL SECURITIES OPTIONS/SARS UNDERLYING GRANTED TO OPTIONS/SARS EMPLOYEES IN EXERCISE OR GRANT DATE GRANTED(1) FISCAL YEAR BASE PRICE EXPIRATION PRESENT VALUE(2) NAME (#) (%) ($/SHARE) DATE ($) - ---- ------------ ------------ ----------- ---------- ---------------- Frank R. Noonan...... 33,480 1 30.2188 12/22/07 186,818 Philip C. Danford.... 13,340 0.4 30.2188 12/22/07 74,437 14,231 0.5 27.7188 7/16/07 75,140 Frederick J. Groser............. 13,340 0.4 30.2188 12/22/07 74,437 Alexander R. Marasco............ 13,340 0.4 30.2188 12/22/07 74,437 David C. Swanson..... 13,340 0.4 30.2188 12/22/07 74,437
- --------------- (1) Amounts shown represent the number of non-qualified stock options, without tandem stock appreciation rights ("SARs"), granted in 1997. Options may not be exercised for at least one year after grant and may then be exercised in installments of 25% of the grant amount each year until they are 100% vested. Payments for all options must be made in full upon exercise in cash or Parent Company common stock. The option holder may elect to have shares of Parent Company common stock issuable upon exercise withheld by the Parent Company to pay withholding taxes due. The options shown for Mr. Noonan include Limited SARs in tandem with the options. Limited SARs are exercisable only if and to the extent that the related option is exercisable and are exercisable only during the 30-day period following the acquisition of at least 20% of the outstanding Parent Company common stock pursuant to a tender or exchange offer not made by the Parent Company. Each Limited SAR permits the holder to receive cash equal to the excess over the related option exercise price of the highest price paid pursuant to a tender or exchange offer for Parent Company common stock which is in effect at any time during the 60 days preceding the date upon which the Limited SAR is exercised. Limited SARs can be exercised regardless of whether the Parent Company supports or opposes the offer. (2) Grant date present value is based on the Black-Scholes option valuation model applied to the Parent Company prior to the Distribution, which makes the following material assumptions for the July 16, 1997 grant and the December 22, 1997 grant: an expected stock-price volatility factor of 20.0%, a risk-free rate of return of 6.06% and 5.71% respectively, a dividend yield of 3.3% and a weighted average exercise date of 4.5 years from date of grant. These assumptions may or may not be fulfilled. The amounts shown cannot be considered predictions of future value. In addition, the options will gain value only to the extent the stock price exceeds the option exercise price during the life of the option. AGGREGATE PARENT COMPANY OPTION EXERCISES IN 1997 AND YEAR-END PARENT COMPANY OPTION VALUES The following table provides information on option exercises in 1997 by the named executives of Donnelley Corp. and the value of each such executive's unexercised options to acquire common 63 68 stock of the pre-Distribution Parent Company at December 31, 1997. See also, "Relationship Between Donnelley Corp. and The New Dun & Bradstreet Corporation After the Distribution -- Employee Benefits Agreement". AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF UNEXERCISED, NUMBER OF SECURITIES IN-THE-MONEY PARENT UNDERLYING UNEXERCISED COMPANY PARENT COMPANY OPTIONS/SARS AT FISCAL SHARES OPTIONS/SARS YEAR END(2) ACQUIRED ON VALUE AT FISCAL YEAR-END(#) ($) EXERCISE REALIZED(1) --------------------------- --------------------------- NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ----------- ----------- ------------- ----------- ------------- Frank R. Noonan......... 0 0 110,593 87,423 1,148,181 455,428 Philip C. Danford....... 0 0 34,630 38,432 282,389 143,915 Frederick J. Groser..... 0 0 24,337 34,450 225,489 176,427 Alexander R. Marasco.... 0 0 35,774 38,384 375,216 206,047 David C. Swanson........ 2,604 25,640 15,803 33,502 131,210 169,679
- --------------- (1) Amounts shown represent the value realized upon the exercise of stock options during 1997, which equals the difference between the exercise price of the options and the average of the high and low market price of the underlying Parent Company common stock on the exercise date. (2) The values shown equal the difference between the exercise price of unexercised in-the-money options and the closing market price of the underlying Parent Company common stock at December 31, 1997. Options are in-the-money if the fair market value of the Parent Company common stock exceeds the exercise price of the option. LONG-TERM PARENT COMPANY INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
NUMBER OF SHARES, PERFORMANCE UNDER NON-STOCK PRICE-BASED PLANS (2) UNITS OR OR OTHER ESTIMATED FUTURE PAYOUTS OTHER PERIOD UNTIL ------------------------------------------ RIGHTS(1) MATURATION THRESHOLD(#) TARGET(#) MAXIMUM(#) NAME (#) OR PAYOUT (0%) (100%) (200%) - ---- ------------ ------------ ------------- ---------- ----------- Frank R. Noonan........ 11,200 Two Years 0 11,200 22,400 Philip C. Danford...... 4,460 Two Years 0 4,460 8,920 Frederick J. Groser.... 4,460 Two Years 0 4,460 8,920 Alexander R. Marasco... 4,460 Two Years 0 4,460 8,920 David C. Swanson....... 4,460 Two Years 0 4,460 8,920
- --------------- (1) Amounts shown represent the performance shares granted under the Performance Unit Plan of the pre-Distribution Parent Company for the intended performance period of 1998-1999. At the time of the Distribution, each named executive officer will receive a pro rata award of performance shares based on achievement of performance goals from January 1998 through the Distribution Date. Earned pro rata awards will be paid in unrestricted shares of Donnelley Corp. common stock. (2) Pro rata awards may range from 0 to 200% of the targeted performance shares based on achievements within a range of performance goals. RETIREMENT BENEFITS The following table sets forth the estimated aggregate annual benefits payable under the Parent Company's Retirement Account Plan, Supplemental Executive Benefit Plan ("SEBP") and Pension Benefit Equalization Plan ("PBEP") to persons in specified average final compensation and 64 69 credited service classification upon retirement at age 65. Amounts shown in the table include U.S. Social Security benefits and benefits payable under predecessor plans of the Parent Company which would be deducted in calculating benefits payable under these plans. These aggregate annual retirement benefits do not increase as a result of additional credited service after 20 years.
ESTIMATED AGGREGATE ANNUAL RETIREMENT BENEFIT ASSUMING CREDITED SERVICE OF: -------------------------------------------------- AVERAGE FINAL COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS - -------------------------- -------- ---------- ---------- ---------- $ 550,000............................. $275,000 $ 330,000 $ 330,000 $ 330,000 700,000............................. 350,000 420,000 420,000 420,000 850,000............................. 425,000 510,000 510,000 510,000 1,000,000............................. 500,000 600,000 600,000 600,000 1,300,000............................. 650,000 780,000 780,000 780,000 1,600,000............................. 800,000 960,000 960,000 960,000 1,900,000............................. 950,000 1,140,000 1,140,000 1,140,000
The number of years of credited service under the plans as of December 31, 1997 of Messrs. Noonan and Danford are 8 and 9, respectively. Compensation, for the purpose of determining retirement benefits, consists of salary, wages, regular cash bonuses, commissions and overtime pay. Severance pay, contingent payments and other forms of special remuneration are excluded. Bonuses included in the Summary Compensation Table are normally not paid until the year following the year in which they are accrued and expensed; therefore, compensation for purposes of determining retirement benefits varies from the Summary Compensation Table amounts in that bonuses expensed in the previous year, but paid in the current year, are part of retirement compensation in the current year, and current year's bonuses accrued and included in the Summary Compensation Table are not. For 1997, compensation for purposes of determining retirement benefits also varies from the Summary Compensation Table in that the amounts shown in the "Bonus" column include performance share payouts under the PUP, which are not creditable compensation under the retirement plans. For the reasons discussed above, compensation for determining retirement benefits for the named executive officers differed by more than 10% from the amounts shown in the Summary Compensation Table. 1997 compensation for purposes of determining retirement benefits for Messrs. Noonan and Danford was $382,000 and $285,333, respectively. Average final compensation is defined as the highest average annual compensation during five consecutive twelve-month periods in the last ten consecutive twelve-month periods of the member's credited service. Members vest in their accrued retirement benefit upon completion of five years of service. The benefits shown in the table above are calculated on a straight-life annuity basis. The Retirement Account Plan, together with the PBEP, provides retirement income based on a percentage of annual compensation. The percentage of compensation allocated annually ranges from 3% to 12.5%, based on age and credited service. Amounts allocated also receive interest credits based on 30-year Treasury rates with a minimum interest credit rate of 3%. Executives close to or eligible to retire as of January 1, 1997 will receive the higher of benefits provided by the final pay formula in effect prior to 1997 or the Retirement Account formula. The SEBP provides retirement benefits in addition to the benefits provided under the Retirement Account Plan and the PBEP. The SEBP has the effect of increasing the retirement benefits under the Retirement Account Plan and the PBEP to the amounts depicted in the preceding table. The SEBP provides maximum benefits after 20 years. Executives close to or eligible for retirement, as approved by the chairman and chief executive officer of the Parent Company, will receive maximum benefits after 15 years. Messrs. Groser, Marasco and Swanson participate in the Retirement Account Plan and the PBEP, but do not participate in the SEBP. 65 70 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT All of the outstanding capital stock of Donnelley is owned by Donnelley Corp. The following table sets forth the number of shares of Donnelley Corp. common stock beneficially owned as of June 30, 1998 by (i) owners of more than 5% of the outstanding shares of Donnelley Corp.'s common stock, (ii) each of the directors of Donnelley Corp. and Donnelley, (iii) each of Donnelley Corp.'s executive officers named in the Summary Compensation Table above, and (iv) all of the Donnelley Corp. directors and executive officers as a group. Except as indicated in the footnotes to the table, Donnelley Corp. believes that the persons named in the table have sole voting and investment power with respect to all shares owned beneficially by them. The mailing address for each of the Donnelley Corp.'s directors and executive officers listed below is One Manhattanville Road, Purchase, NY 10577.
SHARES OF DONNELLEY CORP. COMMON STOCK ------------------------------------------ AMOUNT BENEFICIALLY PERCENTAGE OF BENEFICIAL OWNERS OWNED(1) CLASS - ----------------- ------------------------- ------------- Frank R. Noonan....................................... 1,151,212(2) * Phillip C. Danford.................................... 393,048(3) * Frederick J. Groser................................... 249,926(4) * Alexander R. Marasco.................................. 376,645(5) * David C. Swanson...................................... 173,241(6) * Stephen B. Wiznitzer.................................. 24,705(7) * Diane P. Baker........................................ 15,000(8) * William G. Jacobi..................................... 20,578(8) * Robert J. Kamerschen.................................. 15,000(8) * Barry Lawson Williams................................. 15,000(8) * All Directors and Executive Officers as a Group....... 2,833,722 1.65% Harris Associates L.P. and its general partner,....... 17,374,440(9) 10.14% Harris Associates, Inc. Two North LaSalle Street, Ste. 500 Chicago, Illinois 60602-3790 AMVESCAP, PLC and certain of its subsidiaries......... 12,048,320(10) 7.03% 11 Devonshire Square London EC2M 4YR England
- --------------- * Represents ownership of less than 1%. (1) The amounts and percentage of Donnelley Corp.'s common stock beneficially owned are reported on the basis of rules and regulations of the Securities and Exchange Commission (the "Commission") governing the determination of beneficial ownership of securities. Under such rules and regulations, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power", which includes the power to vote or to direct the voting of such security, or "investment power", which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities which that person has a right to acquire beneficial ownership of within 60 days. Under these rules and regulations, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities in which he has no economic interest. (2) Includes 1,142,893 shares of Donnelley Corp.'s common stock which may be acquired pursuant to options exercisable as of June 30, 1998 or within 60 days thereafter. (3) Includes 391,268 shares of Donnelley Corp.'s common stock which may be acquired pursuant to options exercisable as of June 30, 1998 or within 60 days thereafter. 66 71 (4) Includes 249,359 shares of Donnelley Corp.'s common stock which may be acquired pursuant to options exercisable as of June 30, 1998 or within 60 days thereafter. (5) Includes 366,543 shares of Donnelley Corp.'s common stock which may be acquired pursuant to options exercisable as of June 30, 1998 or within 60 days thereafter. (6) Includes 172,188 shares of Donnelley Corp.'s common stock which may be acquired pursuant to options exercisable as of June 30, 1998 or within 60 days thereafter. (7) All 24,705 shares listed are shares of Donnelley Corp.'s common stock which may be acquired pursuant to options exercisable as of June 30, 1998 or within 60 days thereafter. (8) Includes (i) options to purchase 7,500 shares of Donnelley Corp.'s common stock, which options will become exercisable in equal increments on each of the first three anniversary's of the date of the grant, July 14, 1998, and (ii) 7,500 deferred shares of Company's common stock which will vest in equal increments on each of the first three anniversary's of the date of the grant, July 14, 1998. (9) Harris Associates L.P. ("Harris") and its sole general partner, Harris Associates, Inc. ("Harris Inc."), jointly filed a Schedule 13G with the Commission on February 11, 1998. According to such Schedule 13G, Harris, a registered investment adviser, had as of December 31, 1997, shared voting power over 14,903,640 shares of Donnelley Corp.'s common stock. Of such shares, Harris had sole dispositive power over 5,171,140 shares and shared dispositive power over 9,732,500 shares. On April 9, 1998, Harris and Harris Inc. jointly filed an amendment to their Schedule 13G with the Commission which reported that as of March 31, 1998 Harris shared voting power over 17,374,440 shares of Donnelley Corp.'s common stock. Of such shares, Harris had sole dispositive power over 5,435,440 shares and shared dispositive power over 11,939,000 shares. The foregoing Schedule 13G and the amendments thereto related to the common stock of The Dun & Bradstreet Corporation, the predecessor of Donnelley Corp. (10) AMVESCAP PLC and its subsidiaries, ADZ, Inc. (a holding company), AIM Management Group Inc. (a holding company), INVESCO, Inc. (a holding company), INVESCO North American Holdings, Inc. (a holding company), INVESCO Capital Management, Inc. (a registered investment adviser), INVESCO Funds Group, Inc. (a registered investment adviser), INVESCO Management & Research, Inc. (a registered investment adviser), and INVESCO Realty Advisers, Inc. (a registered investment adviser), jointly filed a Schedule 13G with the Commission on February 11, 1998. This Schedule 13G reported that these companies had, as of December 31, 1997, shared voting power and shared dispositive power over 12,048,320 shares of Donnelley Corp.'s common stock. The foregoing Schedule 13G related to the common stock of The Dun & Bradstreet Corporation, the predecessor of the Company. DESCRIPTION OF NEW CREDIT FACILITY Donnelley has entered into the New Credit Facility (the "Credit Agreement") with The Chase Manhattan Bank ("Chase"), Chase Securities Inc. ("CSI") and Goldman Sachs Credit Partners L.P. ("Goldman Sachs Credit Partners" and, together with Chase, the "Lenders") pursuant to which the Lenders have provided, subject to the terms and conditions set forth in the Credit Agreement, (i) a senior secured Revolving Facility of $100 million and (ii) senior secured Term Facilities in aggregate of $300 million. The Term Facilities consist of $75 million in aggregate principal amount of Tranche A Term Loans, $125 million in aggregate principal amount of Tranche B Term Loans and $100 million in aggregate principal amount of Tranche C Term Loans. CSI and Goldman Sachs Credit Partners managed the syndication of the New Credit Facility. The following summary of the New Credit Facility does not purport to be complete and is qualified in its entirety by reference to the definitive documentation for the New Credit Facility, a copy of which has been filed as an exhibit to the Registration Statement. 67 72 The obligations of Donnelley under the New Credit Facility are unconditionally guaranteed by Donnelley Corp. and each future domestic direct or indirect subsidiary of Donnelley (the "Credit Facility Subsidiary Guarantors"). The New Credit Facility and the guarantees are secured by substantially all of the assets and the capital stock of Donnelley and the Credit Facility Subsidiary Guarantors. The Revolving Facility and the Tranche A Term Loans will mature in June 2004. The Tranche B Term Loans will mature in December 2005 and the Tranche C Term Loans will mature in December 2006. The Term Facilities in aggregate will amortize in quarterly installments commencing in September 1998. Donnelley will be required to repay $2.25 million, $6.0 million, $13.5 million, $17.25 million, $21.0 million, $28.5 million, $38.5 million, $81.0 million and $92.0 million in the first through ninth years, respectively, of the New Credit Facility. The loans under the New Credit Facility bear interest based on, at Donnelley's election, LIBOR or ABR (both as defined in the New Credit Facility), plus a certain spread which is based on Donnelley's ratio of total debt to EBITDA. Indebtedness under the Revolving Facility and Tranche A Term Loans will initially (subject to adjustment based on Donnelley's total debt to EBITDA ratio) bear interest at a rate of, at Donnelley's option, either LIBOR plus 1.50% or ABR plus 0.5%. Indebtedness under the Tranche B Term Loans will initially (subject to adjustment based on Donnelley's total debt to EBITDA ratio) bear interest at a rate of, at Donnelley's option, either LIBOR plus 1.75% or ABR plus 0.75%. Indebtedness under the Tranche C Term Loans will initially (subject to adjustment based on Donnelley's total debt to EBITDA ratio) bear interest at a rate of, at Donnelley's option, either LIBOR plus 2.00% or ABR plus 1.00%. The New Credit Facility contains a number of covenants that, among other things, restrict the ability of Donnelley and any future subsidiaries (and, in some instances, restrict Donnelley from voting its partnership interests) to engage in mergers, consolidations and asset sales, make certain changes of business or other fundamental changes, engage in certain transactions with affiliates, amend or waive terms of material contracts (including the agreements entered into in connection with the Distribution), create liens on assets, incur additional indebtedness, enter into sale-leasebacks, make investments, prepay debt, pay dividends or make capital distributions and otherwise restrict corporate activities. In addition, the New Credit Facility will require Donnelley to meet certain financial tests, including (i) total debt to EDITDA ratio and (ii) EDITDA to fixed charge ratio. The New Credit Facility contains customary events of default, including the failure to pay principal when due or any interest or other amount that becomes due within three business days after the due date, a default in the performance of certain covenants, breach of representations or warranties, invalidity of any guarantee or security document, certain insolvency events, cross default, certain change of control events, failure to consummate the Distribution within 45 days of the closing of the New Credit Facility, and termination of certain material contracts. DESCRIPTION OF NOTES The Exchange Notes will be issued under an Indenture, dated as of June 5, 1998 (the "Indenture"), between Donnelley and The Bank of New York, as trustee (the "Trustee"), which has been filed as a exhibit to the Registration Statement of which this Prospectus constitutes a part. The statements under this caption relating to the Notes and the Indenture are summaries and do not purport to be complete, and are subject to, and are qualified in their entirety by reference to, all the provisions of the Indenture, including the definitions of certain terms therein. The Indenture is by its terms subject to and governed by the Trust Indenture Act of 1939, as amended. Unless otherwise indicated, references under this caption to sections, "sec." or articles are references to the Indenture. Where reference is made to particular provisions of the Indenture or to defined terms not otherwise defined herein, such provisions or defined terms are incorporated herein by reference. Copies of the Indenture referred to below will be available at the corporate trust office of the Trustee. 68 73 GENERAL The terms of the Exchange Notes are identical in all material respects to the Old Notes, except for certain transfer restrictions relating to the Old Notes and except that, if (i) the registration statement relating to the Exchange Offer has not been filed within 60 days following the Closing, (ii) the Registration Statement has not become effective within 120 days following the Closing or (iii) the Exchange Offer has not been consummated within 60 business days after the effective date of the Exchange Offer Registration Statement or (iv) any registration statement required by the Registration Rights Agreement is filed and declared effective but shall thereafter cease to be effective (except as specifically permitted therein) without being succeeded immediately by an additional registration statement filed and declared effective (any such event referred to in clauses (i) through (iv), a "Registration Default"), then the per annum interest rate on the Notes will increase, for the period from the occurrence of the Registration Default until such time as no Registration Default is in effect (at which time the interest rate will be reduced to its initial rate) by 0.25% during the first 90-day period following the occurrence of such Registration Default, which rate shall increase by an additional 0.25% during each subsequent 90-day period, up to a maximum of 1.0%. The Notes are unsecured obligations of Donnelley and mature on June 1, 2008. The Notes are unconditionally guaranteed on a senior subordinated basis (the "Donnelley Corp. Guarantee") by Donnelley Corp. The Donnelley Corp. Guarantee is subordinated to all Donnelley Corp. Senior Debt. At the original issue date of the Notes, Donnelley had no Restricted Subsidiaries. Donnelley covenanted to cause any future Restricted Subsidiaries to unconditionally guarantee the Notes, jointly and severally on a subordinated basis (such guarantees, the "Subsidiary Guarantees" and such guarantors, the "Subsidiary Guarantors"), provided that each such Restricted Subsidiary will cease to be a Subsidiary Guarantor when it ceases to be a Restricted Subsidiary. The ranking and effectiveness of the Subsidiary Guarantees are subject to certain legal considerations and are therefore uncertain. See "Risk Factors -- Risk of Fraudulent Transfer" above. Notes bear interest at a rate of 9.125% per annum from June 5, 1998 or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semiannually on June 1 and December 1 of each year, commencing December 1, 1998, to the Person in whose name the Note (or any predecessor Note) is registered at the close of business on the preceding May 15 or November 15, as the case may be. Settlement for the Notes will be made in immediately available funds and payments by Donnelley in respect of the Notes (including principal, premium, if any, and interest) will be made in immediately available funds. Interest on the Notes will be computed on the basis of a 360-day year comprised of twelve 30-day months. (Sections 301, 307 and 310) Principal of and premium, if any, and interest on the Notes will be payable, and the Notes may be presented for registration of transfer and exchange, at the office or agency of Donnelley maintained for that purpose in the Borough of Manhattan, The City of New York, provided that at the option of Donnelley, payment of interest on the Notes may be made by check mailed to the address of the Person entitled thereto as it appears in the Note Register. Until otherwise designated by Donnelley, such office or agency will be the corporate trust office of the Trustee, as Paying Agent and Registrar. (Sections 301, 305 and 1002) FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES Notes will be issued only in fully registered form, without interest coupons, in denominations of $1,000 and integral multiples thereof. Notes will not be issued in bearer form. Global Notes. The Exchange Notes initially will be represented by one or more Notes in registered, global form without interest coupons (collectively, the "Global Note"). The Global Notes will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company 69 74 ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. Transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and CEDEL), which may change from time to time. Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for Notes in certificated form except in the limited circumstances described below under "-- Exchanges of Book-Entry Notes for Certificated Notes". Exchanges of Book-Entry Notes for Certificated Notes. A beneficial interest in a Global Note may not be exchanged for a Note in certificated form unless (i) DTC (x) notifies Donnelley that it is unwilling or unable to continue as Depositary for the Global Note or (y) has ceased to be a clearing agency registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in either case Donnelley thereupon fails to appoint a successor Depositary, (ii) Donnelley, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Notes in certificated form or (iii) there shall have occurred and be continuing an Event of Default with respect to the Notes. In all cases, certificated Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depositary (in accordance with its customary procedures). Any certificated Note issued in exchange for an interest in a Global Note will bear the legend restricting transfers that is borne by such Global Note. Any such exchange will be effected through the DWAC System and an appropriate adjustment will be made in the records of the Security Registrar to reflect a decrease in the principal amount of the relevant Global Note. Certain Book-Entry Procedures. The descriptions of the operations and procedures of DTC, Euroclear and CEDEL that follow are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them from time to time. Donnelley takes no responsibility for these operations and procedures and urges investors to contact the system or their participants directly to discuss these matters. The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer promptly after the date of this Prospectus. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account in accordance with the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") procedures for transfer. However, the exchange for the Old Notes so tendered will only be made after timely confirmation of such book-entry transfer of Old Notes into the Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's Message (as such term is defined in the next sentence) and any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from a participant tendering Old Notes that are the subject of such Book-Entry Confirmation that such participant has received and agrees to be bound by the terms of the Letter of Transmittal, and that the Company may enforce such agreement against such participant. DTC has advised Donnelley as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants ("participants") and facilitate the clearance and settlement of 70 75 securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical transfer and delivery of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations. Indirect access to the DTC system is available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). DTC has advised Donnelley that its current practice, upon the issuance of the Global Note, is to credit, on its internal system, the respective principal amount of the individual beneficial interests represented by such Global Notes to the accounts with DTC of the participants through which such interests are to be held. Ownership of beneficial interests in the Global Notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominees (with respect to interests of participants) and the records of participants and indirect participants (with respect to interests of persons other than participants). AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL NOTE, DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE OWNER AND HOLDER OF THE NOTES REPRESENTED BY SUCH GLOBAL NOTE FOR ALL PURPOSES UNDER THE INDENTURE AND THE NOTES. Except in the limited circumstances described above under "-- Exchanges of Book-Entry Notes for Certificated Notes", owners of beneficial interests in a Global Note will not be entitled to have any portions of such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Notes in definitive form and will not be considered the owners or Holders of the Global Note (or any Note represented thereby) under the Indenture or the Notes. Investors may hold their interests in the Global Note directly through DTC, if they are participants in such system, or indirectly through organizations (including Euroclear and CEDEL) which are participants in such system. CEDEL and Euroclear will hold interests in the Global Note on behalf of their participants through customers' securities accounts in their respective names on the books of their respective depositories. The depositories, in turn, will hold such interests in such Global Notes in customers' securities accounts in the depositories' names on the books of DTC. All interests in a Global Note, including those held through Euroclear or CEDEL, will be subject to the procedures and requirements of DTC. Those interests held through Euroclear or CEDEL will also be subject to the procedures and requirements of such system. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons may be limited to that extent. Because DTC can act only on behalf of its participants, which in turn act on behalf of indirect participants and certain banks, the ability of a person having a beneficial interest in a Global Note to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate evidencing such interest. Payments of the principal of, premium, if any, and interest on Global Notes will be made to DTC or its nominee as the registered owner thereof. Neither Donnelley, the Trustee nor any of their respective agents will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Donnelley expects that DTC or its nominee, upon receipt of any payment of principal or interest in respect of a Global Note representing any Notes held by it or its nominee, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note for such Notes as shown on the records of DTC or its nominee. Donnelley also expects that payments by participants to owners of beneficial interests in such Global Note held through such participants will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers registered in "street name". Such payment will be the responsibility of such participants. 71 76 Except for trades involving only Euroclear and CEDEL participants, interests in the Global Note will trade in DTC's settlement system and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its participants. Transfers between participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. Transfers between participants in Euroclear and CEDEL will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer and exchange provisions applicable to the Notes described elsewhere herein, cross-market transfers between DTC participants, on the one hand, and Euroclear or CEDEL participants, on the other hand, will be effected by DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or CEDEL, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depository to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC Euroclear participants and CEDEL participants may not deliver instructions directly to the depositories for Euroclear or CEDEL. Because of time zone differences, the securities account of a Euroclear or CEDEL participant purchasing an interest in a Global Note from a DTC participant will be credited, and any such crediting will be reported to the relevant Euroclear or CEDEL participant, during the securities settlement processing day (which must be a business day for Euroclear and CEDEL) immediately following the DTC settlement date. Cash received in Euroclear or CEDEL as a result of sales of interests in a Global Note by or through a Euroclear or CEDEL participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear or CEDEL cash account only as of the business day for Euroclear or CEDEL following the DTC settlement date. DTC has advised Donnelley that it will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose account with DTC interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default (as defined below) under the Notes, the Global Notes will be exchanged for legended Notes in certificated form, and distributed to DTC's participants. Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures in order to facilitate transfers of beneficial ownership interests in the Global Notes among participants of DTC, Euroclear and CEDEL, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of Donnelley, the Trustee nor any of their respective agents will have any responsibility for the performance by DTC, Euroclear and CEDEL, their participants or indirect participants of their respective obligations under the rules and procedures governing their operations, including maintaining, supervising or reviewing the records relating to, or payments made on account of, beneficial ownership interests in Global Notes. OPTIONAL REDEMPTION The Notes will be subject to redemption, at the option of Donnelley, in whole or in part, at any time on or after June 1, 2003 and prior to maturity, upon not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at such Holder's address appearing in the Note Register, in amounts of $1,000 or an integral multiple of $1,000, at the following Redemption 72 77 Prices (expressed as percentages of the principal amount) plus accrued interest to but excluding the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), if redeemed during the 12-month period beginning June 1 of the years indicated:
REDEMPTION YEAR PRICE - ---- ---------- 2003..................................................... 104.563% 2004..................................................... 103.042% 2005..................................................... 101.521% 2006 and thereafter...................................... 100.000%
(Sections 203, 1101, 1105 and 1107) In addition, at any time prior to June 1, 2001 in the event Donnelley Corp. or Donnelley receives net cash proceeds from the sale of its Common Stock in one or more Equity Offerings, Donnelley (to the extent it receives such proceeds and has not used such proceeds, directly or indirectly, to redeem or repurchase other securities pursuant to optional redemption provisions) may, at its option, use all or a portion of any such net proceeds to redeem, from time to time, Notes in an aggregate principal amount of up to 35% of the original aggregate principal amount of the Notes, provided, however, that Notes having a principal amount equal to at least 65% of the original aggregate principal amount of the Notes remain outstanding after such redemption. Such redemption must occur on a Redemption Date within 120 days of such sale and upon not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at such Holder's address appearing in the Note Register, in amounts of $1,000 or an integral multiple of $1,000, at a redemption price of 109.125% of the principal amount of the Notes plus accrued interest to but excluding the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). If less than all the Notes are to be redeemed, the Trustee shall select, in such manner as it shall deem fair and appropriate, the particular Notes to be redeemed or any portion thereof that is an integral multiple of $1,000. (Section 1104) The Notes will not have the benefit of any sinking fund. SUBORDINATION The indebtedness evidenced by the Notes will, to the extent set forth in the Indenture, be subordinate in right of payment to the prior payment in full of all Senior Debt. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of Donnelley, whether voluntary or involuntary, or any bankruptcy, insolvency, receivership or similar proceedings of Donnelley, the holders of all Senior Debt will first be entitled to receive payment in full of such Senior Debt, or provision made for such payment, before the Holders of the Notes will be entitled to receive any payment in respect of the principal of or premium, if any, or interest on, or any obligation to repurchase, the Notes. In the event that notwithstanding the foregoing, the Trustee or the Holder of any Note receives any payment or distribution of assets of Donnelley of any kind or character (including any such payment or distribution which may be payable or deliverable by the reason of the payment of any other indebtedness of Donnelley being subordinated to the payment of the Notes), before all the Senior Debt is so paid in full, then such payment or distribution will be required to be paid over or delivered forthwith to the trustee in bankruptcy or other person making payment or distribution of assets of Donnelley for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay the Senior Debt in full. No payments on account of principal of, premium, if any, or interest on, or in respect of the purchase or other acquisition of, the Notes, and no defeasance of the Notes, may be made if there 73 78 shall have occurred and be continuing a Senior Payment Default. "Senior Payment Default" means any default in the payment of any principal of or premium, if any, or interest on Senior Debt when due, whether at the stated maturity of any such payment or by declaration of acceleration, call for redemption or otherwise. Upon the occurrence of a Senior Nonmonetary Default and receipt of written notice by Donnelley and the Trustee of the occurrence of such Senior Nonmonetary Default from any holder of Senior Debt (or any trustee, agent or other representative for such holder) which is the subject of such Senior Nonmonetary Default, no payments on account of principal of, premium, if any, or interest on, or in respect of the purchase or other acquisition of, the Notes, and no defeasance of the Notes, may be made for a period (the "Payment Blockage Period") commencing on the date of the receipt of such notice and ending the earlier of (i) the date on which such Senior Nonmonetary Default shall have been cured or waived or ceased to exist or all Senior Debt the subject of such Senior Nonmonetary Default shall have been discharged and (ii) the 179th day after the date of the receipt of such notice. In any event, no more than one Payment Blockage Period may be commenced during any 360-day period and there shall be a period of at least 181 days during each 360-day period when no Payment Blockage Period is in effect. In addition, no Senior Nonmonetary Default that existed or was continuing on the date of the commencement of a Payment Blockage Period may be made the basis of the commencement of a subsequent Payment Blockage Period whether or not within a period of 360 consecutive days, unless such Senior Nonmonetary Default shall have been cured for a period of not less than 90 consecutive days. "Senior Nonmonetary Default" means the occurrence or existence and continuance of an event of default with respect to Senior Debt, other than a Senior Payment Default, permitting the holders of the Senior Debt (or a trustee or other agent on behalf of the holders thereof) then to declare such Senior Debt due and payable prior to the date on which it would otherwise become due and payable. The failure to make any payment on the Notes by reason of the provisions of the Indenture described under this caption "Subordination" will not be construed as preventing the occurrence of an Event of Default with respect to the Notes arising from any such failure to make payment. Upon termination of any period of payment blockage Donnelley shall resume making any and all required payments in respect of the Notes, including any missed payments. "Senior Debt" means (i) the principal of (and premium, if any) and interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to Donnelley whether or not such claim for post-petition interest is allowed in such proceeding) on, and penalties and any obligation of Donnelley for reimbursement, indemnities and fees relating to, any Credit Facility and (ii) the principal of (and premium, if any) and interest on Debt of Donnelley for money borrowed, whether Incurred on or prior to the date of original issuance of the Notes or thereafter, and any amendments, renewals, extensions, modifications, refinancings and refundings of any such Debt and (iii) Permitted Interest Rate, Currency or Commodity Price Agreements entered into with respect to Debt described in clauses (i) and (ii) above; provided, however, that the following shall not constitute Senior Debt: (1) any Debt as to which the terms of the instrument creating or evidencing the same provide that such Debt is not superior in right of payment to the Notes, (2) any Debt which is subordinated in right of payment in any respect to any other Debt of Donnelley, (3) Debt evidenced by the Notes, (4) any Debt owed to a Person when such Person is a Subsidiary of Donnelley, (5) any obligation of Donnelley arising from Redeemable Stock of Donnelley, (6) that portion of any Debt which is Incurred in violation of the Indenture and (7) Debt which, when Incurred and without respect to any election under Section 1111 (b) of Title 11, United States Code, is without recourse to Donnelley. By reason of such subordination, in the event of insolvency, creditors of Donnelley who are not holders of Senior Debt or of the Notes may recover less, ratably, than holders of Senior Debt and more, ratably, than Holders of the Notes. 74 79 The subordination provisions described above will not be applicable to payments in respect of the Notes from a defeasance trust established in connection with any defeasance or covenant defeasance of the Notes as described under "-- Defeasance." (Article Thirteen) REGISTRATION COVENANT; EXCHANGE OFFER Holders of Old Notes are entitled to certain registration rights pursuant to the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Company agreed, for the benefit of the holders of the Old Notes, (i) to file with the Commission, within 60 days following the time of delivery of the Notes (the "Closing"), a registration statement (the "Exchange Offer Registration Statement") under the Securities Act relating to an exchange offer (the "Exchange Offer") pursuant to which the Exchange Notes would be offered in exchange for the Old Notes tendered at the option of the holders thereof and (ii) to use its reasonable best efforts to cause the Exchange Offer Registration Statement to become effective as soon as practicable thereafter. Donnelley has further agreed to commence the Exchange Offer promptly after the Exchange Offer Registration Statement has become effective, hold the offer open for at least 30 days, and exchange the Exchange Notes for all Old Notes validly tendered and not withdrawn before the expiration of the offer. Under existing Commission interpretations, the Exchange Notes would in general be freely transferable after the Exchange Offer without further registration under the Securities Act, except that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer will be subject to a prospectus delivery requirement with respect to resales of those Exchange Notes. The Commission has taken the position that participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the Exchange Notes (other than a resale of an unsold allotment from the original sale of the Notes) by delivery of the prospectus contained in the Exchange Offer Registration Statement. Under the Registration Rights Agreement, Donnelley is required to allow Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such Exchange Notes. The Exchange Offer Registration Statement will be kept effective for a period of 180 days after the Exchange Offer has been consummated in order to permit resales of Exchange Notes acquired by broker-dealers in aftermarket transactions. Each holder of Old Notes (other than certain specified holders) who wishes to exchange such Old Notes for Exchange Notes in the Exchange Offer will be required to represent that any Exchange Notes to be received by it will be acquired in the ordinary course of its business, that at the time of the commencement of the Exchange Offer it has no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and that it is not an Affiliate of Donnelley. However, if (i) on or before the date of consummation of the Exchange Offer, the existing Commission interpretations are changed such that the Exchange Notes would not in general be freely transferable in such manner on such date, (ii) the Exchange Offer has not been consummated within 210 days following the Closing or (iii) the Initial Purchasers so request within 60 days after the consummation of the Exchange Offer with respect to any Notes held by them following consummation of the Exchange Offer, Donnelley will, in lieu of (or, in the case of clause (iii), in addition to) effecting registration of Exchange Notes, use its best efforts to cause a registration statement under the Securities Act relating to a shelf registration of the Notes for resale by holders or, in the case of clause (iii), of the Notes held by the Initial Purchasers for resale by the Initial Purchasers (the "Resale Registration") to become effective and to remain effective until two years following the Closing (or such earlier date as of which all of the Notes shall have been sold thereunder). Donnelley will, in the event of the Resale Registration, provide to the holder or holders of the applicable Notes copies of the prospectus that is a part of the registration statement filed in connection with the Resale Registration, notify such holder or holders when the Resale Registration for the applicable Notes has become effective and take certain other actions as are required to 75 80 permit unrestricted resales of the applicable Notes. A holder of Notes that sells such Notes pursuant to the Resale Registration generally would be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to such a holder (including certain indemnification obligations). In the event that (i) Donnelley has not filed, if applicable, the Resale Registration within 60 days following the Closing or (ii) the registration statement relating to the Exchange Offer has not become effective within 120 days following the Closing or (iii) the Exchange Offer has not been consummated within 60 business days after the effective date of the Exchange Offer Registration Statement or (iv) any registration statement required by the Registration Rights Agreement is filed and declared effective but shall thereafter cease to be effective (except as specifically permitted therein) without being succeeded immediately by an additional registration statement filed and declared effective (any such event referred to in clauses (i) through (iv), a "Registration Default"), then the per annum interest rate on the Notes will increase, for the period from the occurrence of the Registration Default until such time as no Registration Default is in effect (at which time the interest rate will be reduced to its initial rate) by 0.25% during the first 90-day period following the occurrence of such Registration Default, which rate shall increase by an additional 0.25% during each subsequent 90-day period, up to a maximum of 1.0%. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which will be available upon request to the Trustee or Donnelley. The Old Notes and the Exchange Notes will be considered collectively to be a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and Offers to Purchase, and for purposes of this Description of Notes (except under this caption "Registration Covenant; Exchange Offer") all references herein to "Notes" shall be deemed to refer collectively to Old Notes and any Exchange Notes, unless the context otherwise requires. COVENANTS The Indenture contains, among others, the following covenants: Limitation on Consolidated Debt Donnelley may not, and may not permit any Restricted Subsidiary of Donnelley to, Incur any Debt unless immediately after giving pro forma effect to the Incurrence of such Debt and the receipt and application of the proceeds thereof, the Consolidated Cash Flow Coverage Ratio of Donnelley would be greater than 2 to 1. Notwithstanding the foregoing limitation, Donnelley may, and may permit any Restricted Subsidiary to, incur the following Debt: (i) Debt Incurred pursuant to any Credit Facility; provided, however, that, after giving effect to any such Incurrence, the aggregate principal amount of all Debt Incurred under this clause (i) then outstanding does not exceed $400 million less the sum of all principal payments with respect to such Debt pursuant to clause (iii) (1) of the covenant described under "-- Limitation on Asset Disposition"; (ii) the original issuance by Donnelley of the Debt evidenced by the Notes and any Guarantees of the Notes; 76 81 (iii) Debt (other than Debt described in another clause of this paragraph) outstanding on the date of original issuance of the Notes after giving effect to the application of the proceeds of the Notes; (iv) Debt owed by Donnelley to any Wholly Owned Restricted Subsidiary of Donnelley for which fair value has been received or Debt owed by a Restricted Subsidiary of Donnelley to Donnelley or a Wholly Owned Restricted Subsidiary of Donnelley; provided, however, that upon either (1) the transfer or other disposition by such Wholly Owned Restricted Subsidiary or Donnelley of any Debt so permitted to a Person other than Donnelley or another Wholly Owned Restricted Subsidiary of Donnelley or (2) the issuance (other than directors' qualifying shares), sale, lease, transfer or other disposition of shares of Capital Stock (including by consolidation or merger) of such Wholly Owned Restricted Subsidiary to a Person other than Donnelley or another such Wholly, Owned Restricted Subsidiary, the provisions of this clause (iv) shall no longer be applicable to such Debt and such Debt shall be deemed to have been Incurred at the time of such transfer or other disposition; (v) Debt consisting of Permitted Interest Rate, Currency or Commodity Price Agreements; (vi) Debt of a Restricted Subsidiary that does not violate the covenant described under "-- Limitation on Debt of Restricted Subsidiaries"; (vii) Refinancing Debt in respect of Debt Incurred pursuant to the first paragraph of this covenant or pursuant to clause (ii), (iii) or (vi) or this clause (vii); provided, however, that to the extent such Refinancing Debt directly or indirectly Refinances Debt of a Restricted Subsidiary Incurred pursuant to clause (vi), such Refinancing Debt shall be incurred only by such Subsidiary; and (viii) Debt not otherwise permitted to be Incurred pursuant to clauses (i) through (vii) above, which, together with any other outstanding Debt Incurred pursuant to this clause (viii), has an aggregate principal amount not in excess of $5 million at any time outstanding. (Section 1007) For purposes of determining compliance with the foregoing covenant, (i) in the event that an item of Debt meets the criteria of more than one of the types of Debt described above, Donnelley, in its sole discretion, will classify such item of Debt and will only be required to include the amount and type of such Debt in one of the above clauses, (ii) an item of Debt may be divided and classified in more than one of the types of Debt described above and (iii) any other obligation of the obligor on any item of Debt (or of any other Person who could have Incurred such Debt under this covenant) arising under any Guarantee, Lien or letter of credit supporting such Debt shall be disregarded to the extent that it secures the principal amount of such Debt. Limitation on Debt of Restricted Subsidiaries Donnelley may not cause, and may not permit, any Restricted Subsidiary of Donnelley to Incur any Debt except: (i) guarantees not prohibited by the covenant described under "-- Limitation on Issuance of Guarantees of Subordinated Debt"; (ii) Debt outstanding on the date of the Indenture; (iii) Debt of Restricted Subsidiaries permitted by clauses (iv) and (vii) of the covenant described under "-- Limitation on Consolidated Debt"; or (iv) Debt or Preferred Stock Incurred by a Person prior to the time (A) such Person became a Restricted Subsidiary of Donnelley, (B) such Person merges into or consolidates with a Restricted Subsidiary of Donnelley or (C) another Restricted Subsidiary of Donnelley merges into or consolidates with such Person (in a transaction in which such Person becomes a Restricted Subsidiary of Donnelley), which Debt or Preferred Stock was not Incurred or issued in anticipation of such transaction and was outstanding prior to such transaction. (Section 1008) 77 82 Limitation on Senior Subordinated Debt Donnelley may not incur any Debt which by its terms is both (i) subordinated in right of payment to any Senior Debt and (ii) senior in right of payment to the Notes. (Section 1009) Limitation on Issuance of Guarantees of Subordinated Debt Donnelley may not permit any Restricted Subsidiary, directly or indirectly, to assume, guarantee or in any other manner become liable with respect to any Debt of Donnelley that by its terms is subordinate or junior in right of payment to the Notes. (Section 1010) Limitation on Liens Donnelley may not, and may not permit any Restricted Subsidiary to, create, incur or assume any Lien on or with respect to any property or assets of Donnelley or any such Restricted Subsidiary now owned or hereafter acquired to secure Debt which is pari passu with or subordinated in right of payment to the Notes without making, or causing such Restricted Subsidiary to make, effective provision for securing the Notes (and, if Donnelley shall so determine, any other Debt of Donnelley which is not subordinate to the Notes or of such Restricted Subsidiary) (x) equally and ratably with such Debt as to such property or assets for so long as such Debt shall be so secured or (y) in the event such Debt is Debt of Donnelley which is subordinate in right of payment to the Notes, prior to such Debt as to such property for so long as such Debt will be so secured. Limitation on Restricted Payments Donnelley (i) may not, directly or indirectly, declare or pay any dividend or make any distribution (including any payment in connection with any merger or consolidation derived from assets of Donnelley or any Restricted Subsidiary) in respect of its Capital Stock, excluding any dividends or distributions by Donnelley payable solely in shares of its Capital Stock (other than Redeemable Stock) or in options, warrants or other rights to acquire its Capital Stock (other than Redeemable Stock), (ii) may not, and may not permit any Restricted Subsidiary to, purchase, redeem, or otherwise acquire or retire for value (a) any Capital Stock of Donnelley or any Related Person of Donnelley or (b) any options, warrants or other rights to acquire shares of Capital Stock of Donnelley or any Related Person of Donnelley or any securities convertible or exchangeable into shares of Capital Stock of Donnelley or any Related Person of Donnelley, (iii) may not make, or permit any Restricted Subsidiary to make, any Investment other than a Permitted Investment, and (iv) may not, and may not permit any Restricted Subsidiary to, redeem, repurchase, defease or otherwise acquire or retire for value prior to any scheduled maturity, repayment or sinking fund payment Debt of Donnelley which is subordinate in right of payment to the Notes (each of clauses (i) through (iv) being a "Restricted Payment") if: (1) an Event of Default, or an event that with the passing of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and is continuing or would result from such Restricted Payment, or (2) after giving effect to such Restricted Payment Donnelley could not Incur at least $1.00 of additional Debt pursuant to the terms of the Indenture described in the first paragraph of "-- Limitation on Consolidated Debt" above, or (3) upon giving effect to such Restricted Payment, the aggregate of all Restricted Payments from the date of issuance of the Notes exceeds the sum of: (a) 50% of cumulative Consolidated Net Income (or, in the case Consolidated Net Income shall be negative, less 100% of such deficit) of Donnelley since the first day of the first full fiscal quarter commencing immediately following the date of issuance of the Notes through the last day of the last full fiscal quarter ending immediately preceding the date of such Restricted Payment for which quarterly or annual financial statements are available (taken as a single accounting period); plus (b) 100% of the aggregate net proceeds received by Donnelley after the date of original issuance of the Notes, including the fair market value of property other than cash (determined in good faith by the Board of Directors as evidenced by a resolution of the Board of Directors filed with the Trustee), from contributions of capital or the issuance and sale (other than to a Restricted Subsidiary) of Capital 78 83 Stock (other than Redeemable Stock) of Donnelley, options, warrants or other rights to acquire Capital Stock (other than Redeemable Stock) of Donnelley and Debt of Donnelley that has been converted into or exchanged for Capital Stock (other than Redeemable Stock and other than by or from a Restricted Subsidiary) of Donnelley after the date of original issuance of the Notes, provided that any such net proceeds received by Donnelley from an employee stock ownership plan financed by loans from Donnelley or a Restricted Subsidiary of Donnelley shall be included only to the extent such loans have been repaid with cash on or prior to the date of determination; plus (c) an amount equal to the sum of (i) the net reduction in Investments in any Person resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to Donnelley or any Restricted Subsidiary from such Person, and (ii) the portion (proportionate to Donnelley's equity interest in any Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any Person, the amount of Investments previously made (and treated as a Restricted Payment) by Donnelley or any Restricted Subsidiary in such Person; plus (d) $25 million. Prior to the making of any Restricted Payment, Donnelley shall deliver to the Trustee an Officers' Certificate setting forth the computations by which the determinations required by clauses (2) and (3) above were made and stating that no Event of Default, or event that with the passing of time or the giving of notice, or both, would constitute an Event of Default, has occurred and is continuing or will result from such Restricted Payment. Notwithstanding the foregoing, so long as no Event of Default, or event that with the passing of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and is continuing or would result therefrom, (i) Donnelley may pay any dividend on Capital Stock of any class within 60 days after the declaration thereof if, on the date when the dividend was declared, Donnelley could have paid such dividend in accordance with the foregoing provisions; (ii) Donnelley may refinance any Debt otherwise permitted by clause (vii) of the second paragraph under "-- Limitation on Consolidated Debt" above solely in exchange for or out of the net proceeds of the substantially concurrent sale (other than from or to a Restricted Subsidiary or from or to an employee stock ownership plan financed by loans from Donnelley or a Restricted Subsidiary of Donnelley) of shares of Capital Stock (other than Redeemable Stock) of Donnelley, provided that the amount of net proceeds from such exchange or sale shall be excluded from the calculation of the amount available for Restricted Payments pursuant to the preceding paragraph; (iii) Donnelley may purchase, redeem, acquire or retire any shares of Capital Stock of Donnelley solely in exchange for or out of the net proceeds of the substantially concurrent sale (other than from or to a Restricted Subsidiary or from or to an employee stock ownership plan financed by loans from Donnelley or a Restricted Subsidiary of Donnelley) of shares of Capital Stock (other than Redeemable Stock) of Donnelley; and (iv) Donnelley may dividend to the Parent Company the net proceeds from the issuance of the Notes and the proceeds of the initial borrowings under the New Credit Facility in an aggregate amount not in excess of $500 million; and (v) Donnelley may dividend to the Parent Company up to all its cash on the date prior to or on the date of the Distribution. Any payment made pursuant to clause (i) or (iii) of this paragraph shall be a Restricted Payment for purposes of calculating aggregate Restricted Payments pursuant to the preceding paragraph and any payment made pursuant to clause (ii), (iv) or (v) of this paragraph shall be excluded from Restricted Payments for purposes of such calculation. (sec. 1012) Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries Donnelley may not, and may not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of Donnelley (i) to pay dividends (in cash or otherwise) or make any other distributions in respect of its Capital Stock or pay any Debt or other obligation owed to Donnelley or any other Restricted Subsidiary; (ii) to make loans or advances to Donnelley or any other Restricted Subsidiary; or (iii) to transfer any of its property or assets to Donnelley or any other Restricted Subsidiary. Notwithstanding the foregoing, Donnelley may, and may permit any 79 84 Restricted Subsidiary to, suffer to exist any such encumbrance or restriction (a) pursuant to any agreement in effect on the date of original issuance of the Notes; (b) pursuant to an agreement relating to any Debt Incurred by a Person (other than a Restricted Subsidiary of Donnelley existing on the date of original issuance of the Notes or any Restricted Subsidiary carrying on any of the businesses of any such Restricted Subsidiary) prior to the date on which such Person became a Restricted Subsidiary of Donnelley and outstanding on such date and not Incurred in anticipation of becoming a Restricted Subsidiary, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person so acquired; (c) pursuant to an agreement effecting a renewal, refunding or extension of Debt Incurred pursuant to an agreement referred to in clause (a) or (b) above, provided, however, that the provisions contained in such renewal, refunding or extension agreement relating to such encumbrance or restriction are no more restrictive in any material respect than the provisions contained in the agreement the subject thereof, as determined in good faith by the Board of Directors and evidenced by a resolution of the Board of Directors filed with the Trustee; (d) in the case of clause (iii) above, restrictions contained in any security agreement (including a capital lease) securing Debt of a Restricted Subsidiary otherwise permitted under the Indenture, but only to the extent such restrictions restrict the transfer of the property subject to such security agreement; (e) in the case of clause (iii) above, customary nonassignment provisions entered into in the ordinary course of business in leases and other contracts to the extent such provisions restrict the transfer or subletting of any such lease or the assignment of rights under any such contract; (f) any restriction with respect to a Restricted Subsidiary of Donnelley imposed pursuant to an agreement which has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary, provided that consummation of such transaction would not result in an Event of Default or an event that, with the passing of time or the giving of notice or both, would constitute an Event of Default, that such restriction terminates if such transaction is closed or abandoned and that the closing or abandonment of such transaction occurs within one year of the date such agreement was entered into; or (g) such encumbrance or restriction is the result of applicable corporate law or regulation relating to the payment of dividends or distributions. (Section 1013) Limitation on Asset Dispositions Donnelley may not, and may not permit any Restricted Subsidiary to, make any Asset Disposition in one or more related transactions unless: (i) Donnelley or the Restricted Subsidiary, as the case may be, receives consideration for such disposition at least equal to the fair market value for the assets sold or disposed of as determined by the Board of Directors in good faith and evidenced by a resolution of the Board of Directors filed with the Trustee; (ii) at least 75% of the consideration for such disposition consists of cash or readily marketable cash equivalents or the assumption of Debt (other than Debt that is subordinated to the Notes) relating to such assets and release from all liability on the Debt assumed; and (iii) all Net Available Proceeds, less any amounts invested within 360 days of such disposition in assets related to the business of Donnelley, are applied within 360 days of such disposition (1) first, to the permanent repayment or reduction of Senior Debt then outstanding under any agreements or instruments which would require such application or prohibit payments pursuant to clause (2) following, (2) second, to the extent of remaining Net Available Proceeds, to make an Offer to Purchase outstanding Notes at 100% of their principal amount plus accrued interest to the date of purchase and, to the extent required by the terms thereof, any other Debt of Donnelley that is pari passu with the Notes at a price no greater than 100% of the principal amount thereof plus accrued interest to the date of purchase, and (3) third, to the extent of any remaining Net Available Proceeds, to any other use as determined by Donnelley which is not otherwise prohibited by the Indenture. (Section 1014) Transactions with Affiliates and Related Persons Donnelley may not, and may not permit any Restricted Subsidiary of Donnelley to, enter into any transaction (or series of related transactions) with an Affiliate or Related Person of Donnelley 80 85 (other than Donnelley or a Wholly Owned Restricted Subsidiary of Donnelley), including any Investment, either directly or indirectly, unless such transaction is in the best interests of Donnelley or such Restricted Subsidiary and is on terms no less favorable to Donnelley or such Restricted Subsidiary than those that could be obtained in a comparable arm's-length transaction with an entity that is not an Affiliate or Related Person (or, in the event that there are no comparable transactions involving persons who are not Affiliates or Related Persons of Donnelley or the relevant Restricted Subsidiary to apply for comparative purposes, is otherwise on terms that, taken as a whole, Donnelley has determined to be fair to Donnelley or the relevant Restricted Subsidiary). For any transaction that involves in excess of $1,000,000, a majority of the disinterested members of the Board of Directors shall determine that the transaction satisfies the above criteria and shall evidence such a determination by a Board Resolution filed with the Trustee. For any transaction that involves in excess of $5,000,000, Donnelley shall also obtain an opinion from a nationally recognized expert with experience in appraising the terms and conditions of the type of transaction (or series of related transactions) for which the opinion is required stating that such transaction (or series of related transactions) is on terms no less favorable to Donnelley or such Restricted Subsidiary than those that could be obtained in a comparable arm's-length transaction with an entity that is not an Affiliate or Related Person of Donnelley, which opinion shall be filed with the Trustee. The foregoing limitations shall not apply to (i) transactions with DonTech, CenDon and any similar joint venture or partnership with a Person that is not a Related Person that are pursuant to the agreements between Donnelley and DonTech and CenDon in effect on the date of original issuance of the Notes or any other substantially similar agreements, as the same may be amended or modified in a manner not materially adverse to the interests of the holders of the Notes, (ii) transactions between Donnelley and its Subsidiaries and New D&B and its Subsidiaries pursuant to agreements in effect on the date of the Distribution and any similar arrangements approved by the Board of Directors of Donnelley or Donnelley Corp., as the same may be amended or modified in a manner not materially adverse to the interests of the holders of the Notes or (iii) any Restricted Payment permitted to be made pursuant to the covenant described under "-- Limitation on Restricted Payments". (Section 1015) Change of Control Within 30 days following the date on which a Person files with the Commission a Schedule 13D under the Securities Exchange Act of 1934, evidencing of the occurrence of a Change of Control, Donnelley will be required to make an Offer to Purchase all Outstanding Notes at a purchase price equal to 101% of their principal amount plus accrued interest to the date of purchase. A "Change of Control" will be deemed to have occurred at such time as either (a) any Person or any Persons acting together that would constitute a "group" (a "Group") for purposes of Section 13(d) of the Securities Exchange Act of 1934, or any successor provision thereto, together with any Affiliates or Related Persons thereof, shall beneficially own (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, or any successor provision thereto), directly or indirectly, at least 50% of the aggregate voting power of all classes of Voting Stock of Donnelley (for the purposes of this clause (a) a person shall be deemed to beneficially own the Voting Stock of a corporation that is beneficially owned (as defined above) by another corporation (a "parent corporation"), if such person beneficially owns (as defined above) at least 50% of the aggregate voting power of all classes of Voting Stock of such parent corporation); (b) any Person or Group, together with any Affiliates or Related Persons thereof, shall succeed in having a sufficient number of its nominees elected to the Board of Directors of Donnelley Corp. such that such nominees, when added to any existing director remaining on the Board of Directors of Donnelley Corp. after such election who was a nominee of or is an Affiliate or Related Person of such Person or Group, will constitute a majority of the Board of Directors of Donnelley Corp.; or (c) Donnelley shall, directly or indirectly, transfer, sell, lease or otherwise dispose of all or substantially all of its assets; or (d) there shall be adopted a plan of liquidation or dissolution of Donnelley, provided, however, that a transaction effected to create a holding company of Donnelley or Donnelley Corp., (i) pursuant to which Donnelley or Donnelley Corp. becomes a wholly owned Subsidiary of such holding company, and (ii) as a result 81 86 of which the holders of Capital Stock of such holding company are substantially the same as the holders of Capital Stock of Donnelley or Donnelley Corp. immediately prior to such transaction, shall not be deemed to involve a "Change of Control". (Section 1016) In the event that Donnelley makes an Offer to Purchase the Notes, Donnelley intends to comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Securities Exchange Act of 1934. Provision of Financial Information For so long as any of the Notes are outstanding, Donnelley shall file with the Commission the annual reports, quarterly reports and other documents which a reporting company is required to file with the Commission pursuant to Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 or any successor provisions thereto. (Section 1017) UNRESTRICTED SUBSIDIARIES Donnelley may designate any Subsidiary of Donnelley to be an "Unrestricted Subsidiary" as provided below in which event such Subsidiary and each other Person that is then or thereafter becomes a Subsidiary of such Subsidiary will be deemed to be an Unrestricted Subsidiary. "Unrestricted Subsidiary" means (1) any Subsidiary designated as such by the Board of Directors as set forth below where (a) neither Donnelley nor any of its other Subsidiaries (other than another Unrestricted Subsidiary) (i) provides credit support for, or any Guarantee of, any Debt of such Subsidiary or any Subsidiary of such Subsidiary (including any undertaking, agreement or instrument evidencing such Debt) or (ii) is directly or indirectly liable for any Debt of such Subsidiary or any Subsidiary of such Subsidiary, and (b) no default with respect to any Debt of such Subsidiary or any Subsidiary of such Subsidiary (including any right which the holders thereof may have to take enforcement action against such Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Debt of Donnelley and its Subsidiaries (other than another Unrestricted Subsidiary) to declare a default on such other Debt or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, any other Subsidiary of Donnelley which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary, provided that either (x) the Subsidiary to be so designated has total assets of $1,000 or less or (y) immediately after giving effect to such designation, Donnelley could Incur at least $1.00 of additional Debt pursuant to the first paragraph under "-- Limitation on Consolidated Debt" and provided, further, that Donnelley could make a Restricted Payment in an amount equal to the greater of the fair market value and book value of such Subsidiary pursuant to "-- Limitation on Restricted Payments" and such amount is thereafter treated as a Restricted Payment for the purpose of calculating the aggregate amount available for Restricted Payments thereunder. (Section 101) MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS Donnelley may not, in a single transaction or a series of related transactions, (i) consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into Donnelley or (ii) directly or indirectly, transfer, sell, lease or otherwise dispose of all or substantially all of its assets unless: (1) in a transaction in which Donnelley does not survive or in which Donnelley transfers, sells, leases or otherwise disposes of all or substantially all of its assets, the successor entity to Donnelley is organized under the laws of the United States of America or any State thereof or the District of Columbia and shall expressly assume, by a supplemental indenture executed and delivered to the Trustee in form satisfactory to the Trustee, all of Donnelley's obligations under the Indenture; (2) immediately before and after giving effect to such transaction and treating any Debt which becomes an obligation of Donnelley or a Restricted Subsidiary as a 82 87 result of such transaction as having been Incurred by Donnelley or such Restricted Subsidiary at the time of the transaction, no Event of Default or event that with the passing of time or the giving of notice, or both, would constitute an Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, the Consolidated Net Worth of Donnelley (or other successor entity to Donnelley) is equal to or greater than that of Donnelley immediately prior to the transaction; (4) except with respect to a merger of Donnelley with or into a Wholly Owned Restricted Subsidiary, immediately after giving effect to such transaction and treating any Debt which becomes an obligation of Donnelley or a Restricted Subsidiary as a result of such transaction as having been Incurred by Donnelley or such Restricted Subsidiary at the time of the transaction, Donnelley (including any successor entity to Donnelley) could Incur at least $1.00 of additional Debt pursuant to the provisions of the Indenture described in the first paragraph under "-- Limitation on Consolidated Debt" above; and (5) certain other conditions are met. (Section 801) CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. (Section 101) "Acquired Debt" of any particular Person means Debt of any other Person existing at the time such other Person merged with or into or became a Subsidiary of such particular Person or assumed by such particular Person in connection with the acquisition of assets from any other Person, and not Incurred by such other Person in connection with, or in contemplation of, such other Person merging with or into such particular Person or becoming a Subsidiary of such particular Person or such acquisition. "Affiliate" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing; provided however, that, for the purposes of the covenant described under "-- Transactions with Affiliates and Related Persons", a joint venture, partnership or similar Person which is engaged in a principal business of Donnelley and its Restricted Subsidiaries or in a business related thereto and all of the equity interests in which are held by Donnelley or a Restricted Subsidiary and another Person or Persons that are not Related Persons of Donnelley or such Restricted Subsidiary shall not be deemed an "Affiliate" of Donnelley or such Restricted Subsidiary. "Asset Disposition" by any Person means any transfer, conveyance, sale, lease or other disposition in one or more related transactions by such Person or any of its Restricted Subsidiaries (including any issuance or sale by a Restricted Subsidiary of Capital Stock of such Restricted Subsidiary and including a consolidation or merger or other sale of any such Restricted Subsidiary with, into or to another Person in a transaction in which such Restricted Subsidiary ceases to be a Restricted Subsidiary, but excluding a disposition by a Restricted Subsidiary of such Person to such Person or a Wholly Owned Restricted Subsidiary of such Person or by such Person to a Wholly Owned Restricted Subsidiary of such Person) of (i) shares of Capital Stock (other than directors' qualifying shares) or other ownership interests of a Restricted Subsidiary of such Person, (ii) substantially all of the assets of such Person or any of its Restricted Subsidiaries representing a division or line of business or (iii) other assets or rights of such Person or any of its Restricted Subsidiaries outside of the ordinary course of business, provided in each case that the aggregate consideration for such transfer, conveyance, sale, lease or other disposition is equal to $5 million or more. "Average Life" means, as of the date of determination, with respect to any Debt, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Debt multiplied by the amount of such payment by (ii) the sum of all such payments. 83 88 "Capital Lease Obligation" of any Person means the obligation to pay rent or other payment amounts under a lease of (or other Debt arrangements conveying the right to use) real or personal property of such Person which is required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person in accordance with generally accepted accounting principles. The stated maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. The principal amount of such obligation shall be the capitalized amount thereof that would appear on the face of a balance sheet of such Person in accordance with generally accepted accounting principles. "Capital Stock" of any Person means any and all shares, interests, participations or other equivalents (however designated) of corporate stock or other equity participations, including partnership interests, whether general or limited, of such Person. "Cash Equivalents" means (i) direct obligations of the United States of America or any agency thereof having maturities of not more than one year from the date of acquisition, (ii) time deposits and certificates of deposit of any domestic commercial bank of recognized standing having capital and surplus in excess of $500 million, with maturities of not more than one year from the date of acquisition, (iii) repurchase obligations issued by any bank described in clause (ii) above with a term not to exceed 30 days; (iv) commercial paper rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's, in each case maturing within one year after the date of acquisition and (v) shares of any money market mutual fund, or similar fund, in each case having assets in excess of $500 million, which invests predominantly in investments of the types describes in clauses (i) through (iv) above. "Common Stock" of any Person means Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Consolidated Cash Flow Available for Fixed Charges" for any period means the Consolidated Net Income of Donnelley and its Restricted Subsidiaries for such period increased by the sum of (i) Consolidated Interest Expense of Donnelley and its Restricted Subsidiaries for such period, plus (ii) Consolidated Income Tax Expense of Donnelley and its Restricted Subsidiaries for such period, plus (iii) the consolidated depreciation and amortization expense included in the income statement of Donnelley and its Restricted Subsidiaries for such period, plus (iv) all other non-cash items reducing Consolidated Net Income of Donnelley and its Restricted Subsidiaries, unless and until such time as cash disbursements are made in respect of such items (at which time the amount of any such cash disbursements shall be deducted from Consolidated Cash Flow Available for Fixed Charges), and less all non-cash items increasing Consolidated Net Income of Donnelley and its Restricted Subsidiaries; provided, however, that there shall be excluded therefrom the Consolidated Cash Flow Available for Fixed Charges (if positive) of any Restricted Subsidiary of Donnelley (calculated separately for such Restricted Subsidiary in the same manner as provided above for Donnelley) that is subject to a restriction which prevents the payment of dividends or the making of distributions to Donnelley or another Restricted Subsidiary of Donnelley to the extent of such restriction, except to the extent of the amount of dividends or other distributions actually paid by such Restricted Subsidiary to Donnelley or to a Restricted Subsidiary not subject to such a restriction during such period. Notwithstanding any other provision of the Indenture to the contrary, Consolidated Cash Flow Available for Fixed Charges of Donnelley for any period will be deemed to include 100% of the cash distributions to Donnelley or any of its Restricted Subsidiaries not subject to such a restriction in respect of such period from DonTech, CenDon or any similar partnership or joint venture, to the extent not otherwise included in Consolidated Cash Flow Available for Fixed Charges in respect of such period. 84 89 "Consolidated Cash Flow Coverage Ratio" as of any date of determination means the ratio of (i) Consolidated Cash Flow Available for Fixed Charges of Donnelley and its Restricted Subsidiaries for the period of the most recently completed four consecutive fiscal quarters for which quarterly or annual financial statements are available to (ii) Consolidated Fixed Charges of Donnelley and its Restricted Subsidiaries for such period; provided, however, that Consolidated Fixed Charges shall be adjusted to give effect on a pro forma basis to any Debt that has been Incurred by Donnelley or any Restricted Subsidiary since the beginning of such period that remains outstanding and to any Debt that is proposed to be Incurred by Donnelley or any Restricted Subsidiary as to which such determination is to be made, as if in each case such Debt had been Incurred on the first day of such period and as if any Debt that (i) is or will no longer be outstanding as the result of the Incurrence of any such Debt or (ii) had been repaid or retired during such period had not been outstanding as of the first day of such period; provided further, that in making such computation, the Consolidated Interest Expense of Donnelley and its Restricted Subsidiaries attributable to interest on any proposed Debt bearing a floating interest rate shall be computed on a pro forma basis as if the rate in effect on the date of computation had been the applicable rate for the entire period; and provided further that, in the event Donnelley or any of its Restricted Subsidiaries has made Asset Dispositions or acquisitions of assets not in the ordinary course of business (including acquisitions of other Persons by merger, consolidation or purchase of Capital Stock) during or after such period, such computation shall be made on a pro forma basis as if the Asset Dispositions or acquisitions had taken place on the first day of such period. "Consolidated Fixed Charges" for any period means the sum of (i) Consolidated Interest Expense and (ii) the consolidated amount of interest capitalized by Donnelley and its Restricted Subsidiaries during such period calculated in accordance with generally accepted accounting principles. "Consolidated Income Tax Expense" for any period means the consolidated provision for income taxes of Donnelley and its Restricted Subsidiaries for such period calculated on a consolidated basis in accordance with generally accepted accounting principles. "Consolidated Interest Expense" means for any period the consolidated interest expense included in a consolidated income statement (without deduction of interest income) of Donnelley and its Restricted Subsidiaries for such period calculated on a consolidated basis in accordance with generally accepted accounting principles, including without limitation or duplication (or, to the extent not so included, with the addition of), (i) the amortization of Debt discounts; (ii) any payments or fees with respect to letters of credit, bankers' acceptances or similar facilities; (iii) fees with respect to interest rate swap or similar agreements or foreign currency hedge, exchange or similar agreements; (iv) Preferred Stock dividends of Restricted Subsidiaries of Donnelley (other than with respect to Redeemable Stock) declared and paid or payable; (v) accrued Redeemable Stock dividends of Donnelley and its Restricted Subsidiaries, whether or not declared or paid; (vi) interest on Debt guaranteed by Donnelley and its Restricted Subsidiaries; and (vii) the portion of any rental obligation allocable to interest expense. "Consolidated Net Income" for any period means the consolidated net income (or loss) of Donnelley and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with generally accepted accounting principles; provided that there shall be excluded therefrom (a) the net income (or loss) of any Person acquired by of Donnelley or a Restricted Subsidiary of Donnelley in a pooling-of-interests transaction for any period prior to the date of such transaction, (b) the net income (or loss) of any Person that is not a Subsidiary of Donnelley except to the extent of the amount of dividends or other distributions actually paid to Donnelley or a Subsidiary of Donnelley by such Person during such period, (c) gains or losses on Asset Dispositions by Donnelley or its Restricted Subsidiaries, (d) all extraordinary gains and extraordinary losses, (e) the cumulative effect of changes in accounting principles and (f) the tax effect of any of the items described in clauses (a) through (e) above; provided, further, that for purposes of any determination pursuant to the provisions described under "-- Limitation on Restricted Pay- 85 90 ments", there shall further be excluded therefrom the net income (but not net loss) of any Restricted Subsidiary of Donnelley that is subject to a restriction which prevents the payment of dividends or the making of distributions to Donnelley or another Restricted Subsidiary of Donnelley to the extent of such restriction, except to the extent of the amount of dividends or other distributions actually paid to Donnelley or a Restricted Subsidiary not subject to such a restriction by such Restricted Subsidiary during such period. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with generally accepted accounting principles, less amounts attributable to Redeemable Stock of such Person; provided that, with respect to Donnelley, adjustments following the date of the Indenture to the accounting books and records of Donnelley in accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting from the acquisition of control of Donnelley by another Person shall not be given effect to. "Credit Facility" means, with respect to Donnelley or any Restricted Subsidiary, one or more debt or commercial paper facilities with banks or other institutional lenders (including the New Credit Facility) providing for revolving credit loans, term loans, receivables or inventory financing (including through the sale of receivables or inventory to such lenders or to special purpose, bankruptcy remote entities formed to borrow from such lenders against such receivables or inventory) or letters of credit, in each case together with any amendments, supplements, modifications (including by any extension of the maturity thereof), refinancing or replacements thereof by a lender or syndicate of lenders in one or more successive transactions (including any such transaction that changes the amount available thereunder, replaces such agreement or document, or provides for other agents or lenders). "Debt" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations Incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith), (v) every Capital Lease Obligation of such Person, (vi) all Receivables Sales of such Person, together with any obligation of such Person to pay any discount, interest, fees, indemnities, penalties, recourse, expenses or other amounts in connection therewith, (vii) all Redeemable Stock issued by such Person, (viii) Preferred Stock of Restricted Subsidiaries of such Person held by Persons other than such Person or one of its Wholly Owned Restricted Subsidiaries, (ix) every obligation under Interest Rate, Currency or Commodity Price Agreements of such Person and (x) every obligation of the type referred to in clauses (i) through (ix) of another Person and all dividends of another Person the payment of which, in either case, such Person has Guaranteed or is responsible or liable for, directly or indirectly, as obligor, Guarantor or otherwise. The "amount" or "principal amount" of Debt at any time of determination as used herein represented by (a) any Receivables Sale, shall be the amount of the unrecovered capital or principal investment of the purchaser (other than Donnelley or a Wholly Owned Restricted Subsidiary of Donnelley) thereof, excluding amounts representative of yield or interest earned on such investment and (b) any Redeemable Stock, shall be the maximum fixed redemption or repurchase price in respect thereof. "Equity Offering" means a primary public or private offering of Common Stock of Donnelley or of Donnelley Corp. pursuant to an effective registration statement under the Securities Act or pursuant to an exemption to the registration requirements of the Securities Act. 86 91 "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guaranteeing, any Debt of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Debt, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Debt of the payment of such Debt, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings correlative to the foregoing); provided, however, that the Guarantee by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business. "Incur" means, with respect to any Debt or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such Debt or other obligation or the recording, as required pursuant to generally accepted accounting principles or otherwise, of any such Debt or other obligation on the balance sheet of such Person (and "Incurrence", "Incurred", "Incurable" and "Incurring" shall have meanings correlative to the foregoing); provided, however, that a change in generally accepted accounting principles that results in an obligation of such Person that exists at such time becoming Debt shall not be deemed an Incurrence of such Debt. "Interest Rate, Currency or Commodity Price Agreement" of any Person means any forward contract, futures contract, swap, option or other financial agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements) relating to, or the value of which is dependent upon, interest rates, currency exchange rates or commodity prices or indices (excluding contracts for the purchase or sale of goods in the ordinary course of business). "Investment" by any Person means any direct or indirect loan, advance or other extension of credit or capital contribution (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise) to, or purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidence of Debt issued by, any other Person, including any payment on a Guarantee of any obligation of such other Person. "Lien" means, with respect to any property or assets, any mortgage or deed of trust, pledge, hypothecation, assignment, Receivables Sale, deposit arrangement, security interest, lien, charge, easement (other than any easement not materially impairing usefulness or marketability), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing). "Moody's" means Moody's Investors Services, Inc. "Net Available Proceeds" from any Asset Disposition by any Person means cash or readily marketable cash equivalents received (including by way of sale or discounting of a note, installment receivable or other receivable, but excluding any other consideration received in the form of assumption by the acquiree of Debt or other obligations relating to such properties or assets) therefrom by such Person, net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses Incurred and all federal, state, provincial, foreign and local taxes required to be accrued as a liability as a consequence of such Asset Disposition, (ii) all payments made by such Person or its Restricted Subsidiaries on any Debt which is secured by such assets in accordance with the terms of any Lien upon or with respect to such assets or which must by the terms of such Lien, or in order to obtain a necessary consent to such Asset Disposition or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments made to minority interest holders in Restricted Subsidiaries of such Person or joint 87 92 ventures as a result of such Asset Disposition and (iv) appropriate amounts to be provided by such Person or any Restricted Subsidiary thereof, as the case may be, as a reserve in accordance with generally accepted accounting principles against any liabilities associated with such assets and retained by such Person or any Restricted Subsidiary thereof, as the case may be, after such Asset Disposition, including, without limitation, liabilities under any indemnification obligations and severance and other employee termination costs associated with such Asset Disposition, in each case as determined by the Board of Directors, in its reasonable good faith judgment evidenced by a resolution of the Board of Directors filed with the Trustee; provided, however, that any reduction in such reserve following the consummation of such Asset Disposition will be treated for all purposes of the Indenture and the Notes as a new Asset Disposition at the time of such reduction with Net Available Proceeds equal to the amount of such reduction. "Offer to Purchase" means a written offer (the "Offer") sent by Donnelley by first class mail, postage prepaid, to each Holder at his address appearing in the Note Register on the date of the Offer offering to purchase up to the principal amount of Notes specified in such Offer at the purchase price specified in such Offer (as determined pursuant to the Indenture). Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Offer to Purchase which shall be, subject to any contrary requirements of applicable law, not less than 30 days or more than 60 days after the date of such Offer and a settlement date (the "Purchase Date") for purchase of Notes within five Business Days after the Expiration Date. Donnelley shall notify the Trustee at least 15 Business Days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of Donnelley's obligation to make an Offer to Purchase, and the Offer shall be mailed by Donnelley or, at Donnelley's request, by the Trustee in the name and at the expense of Donnelley. The Offer shall contain information concerning the business of Donnelley and its Restricted Subsidiaries which Donnelley in good faith believes will enable such Holders to make an informed decision with respect to the Offer to Purchase (which at a minimum will include (i) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to the Indenture (which requirements may be satisfied by delivery of such documents together with the Offer), (ii) a description of material developments in Donnelley's business subsequent to the date of the latest of such financial statements referred to in clause (i) (including a description of the events requiring Donnelley to make the Offer to Purchase), (iii) if applicable, appropriate pro forma financial information concerning the Offer to Purchase and the events requiring Donnelley to make the Offer to Purchase and (iv) any other information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Offer to Purchase. The Offer shall also state: (1) the Section of the Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal amount of the Outstanding Notes offered to be purchased by Donnelley pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Indenture provision requiring the Offer to Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by Donnelley for each $1,000 aggregate principal amount of Notes accepted for payment (as specified pursuant to the Indenture) (the "Purchase Price"); (5) that the Holder may tender all or any portion of the Notes registered in the name of such Holder and that any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal amount; 88 93 (6) the place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase; (7) that interest on any Note not tendered or tendered but not purchased by Donnelley pursuant to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date the Purchase Price will become due and payable upon each Note being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (9) that each Holder electing to tender a Note pursuant to the Offer to Purchase will be required to surrender such Note at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Note being, if Donnelley or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to Donnelley and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing); (10) that Holders will be entitled to withdraw all or any portion of Notes tendered if Donnelley (or their Paying Agent) receives, not later than the close of business on the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder tendered, the certificate number of the Note the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (11) that (a) if Notes in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, Donnelley shall purchase all such Notes and (b) if Notes in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, Donnelley shall purchase Notes having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Notes in denominations of $1,000 or integral multiples thereof shall be purchased); and (12) that in the case of any Holder whose Note is purchased only in part, Donnelley shall execute, and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Note so tendered. Any Offer to Purchase shall be governed by and effected in accordance with the Offer for such Offer to Purchase. "Donnelley Corp. Senior Debt" means (i) the principal of (and premium, if any) and interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to Donnelley Corp. whether or not such claim for post-petition interest is allowed in such proceeding) on, and penalties and any obligation of Donnelley Corp. for reimbursement, indemnities and fees relating to, any Credit Facility and (ii) the principal of (and premium, if any) and interest on Debt of Donnelley Corp. for money borrowed, whether Incurred on or prior to the date of original issuance of the Notes or thereafter, and any amendments, renewals, extensions, modifications, refinancings and refundings of any such Debt and (iii) Permitted Interest Rate, Currency or Commodity Price Agreements entered into with respect to Debt described in clauses (i) and (ii) above; provided, however, that the following shall not constitute Donnelley Corp. Senior Debt: (1) any Debt as to which the terms of the instrument creating or evidencing the same provide that such Debt is not superior in right of payment to the Donnelley Corp. Guarantee, (2) any Debt which is subordinated in right of payment in any respect to any other Debt of Donnelley Corp., (3) any Debt owed to a Person when such Person is a Subsidiary of Donnelley Corp., (4) any obligation of Donnelley Corp. arising from Redeemable Stock of Donnelley Corp., and (5) Debt which, when 89 94 Incurred and without respect to any election under Section 1111 (b) of Title 11, United States Code, is without recourse to Donnelley Corp. "Permitted Interest Rate, Currency or Commodity Price Agreement" of any Person means any Interest Rate, Currency or Commodity Price Agreement entered into with one or more financial institutions in the ordinary course of business that is designed to protect such Person against fluctuations in interest rates or currency exchange rates with respect to Debt Incurred and which shall have a notional amount no greater than the payments due with respect to the Debt being hedged thereby, or in the case of currency or commodity protection agreements, against currency exchange rate or commodity price fluctuations in the ordinary course of business relating to then existing financial obligations or then existing or sold production and not for purposes of speculation. "Permitted Investments" means (i) an Investment in Donnelley or a Wholly-Owned Restricted Subsidiary of Donnelley; (ii) an Investment in a Person, if such Person or a Subsidiary of such Person will, as a result of the making of such Investment and all other contemporaneous related transactions, become a Wholly Owned Restricted Subsidiary of Donnelley or be merged or consolidated with or into or transfer or convey all or substantially all its assets to Donnelley or a Wholly Owned Restricted Subsidiary of Donnelley; (iii) a Temporary Cash Investment; (iv) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with generally accepted accounting principles; (v) stock, obligations or securities received in settlement of debts owing to Donnelley or a Restricted Subsidiary of Donnelley as a result of bankruptcy or insolvency proceedings or upon the foreclosure, perfection, enforcement or agreement in lieu of foreclosure of any Lien in favor of Donnelley or a Restricted Subsidiary of Donnelley; (vi) Investments in the Notes; (vii) Investments in Permitted Interest Rate, Currency or Commodity Price Agreements and (viii) Investments in an entity which is engaged in a principal business of Donnelley and its Restricted Subsidiaries or a business related thereto not in excess of $10 million. "Preferred Stock" of any Person means Capital Stock of such Person of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Receivables" means receivables, chattel paper, instruments, documents or intangibles evidencing or relating to the right to payment of money. "Receivables Sale" of any Person means any sale of Receivables of such Person (pursuant to a purchase facility or otherwise), other than in connection with a disposition of the business operations of such Person relating thereto or a disposition of defaulted Receivables for purpose of collection and not as a financing arrangement. "Redeemable Stock" of any Person means any Capital Stock of such Person that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or otherwise (including upon the occurrence of an event) matures or is required to be redeemed (pursuant to any sinking fund obligation or otherwise) or is convertible into or exchangeable for Debt or is redeemable at the option of the holder thereof, in whole or in part, at any time prior to the final Stated Maturity of the Notes; provided that "Redeemable Stock" shall not include any Capital Stock that is payable at maturity, or upon required redemption or redemption at the option of the holder thereof, or that is automatically convertible or exchangeable, solely in or into Common Stock of such Person. "Refinance" means, in respect of any Debt, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Debt in exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Debt" means Debt that Refinances any Debt of Donnelley or any Restricted Subsidiary existing on the date of original issuance of the Notes or Incurred in compliance with the 90 95 Indenture, including Debt that Refinances Refinancing Debt; provided, however, that (i) such Refinancing Debt has a Stated Maturity no earlier than the Stated Maturity of the Debt being Refinanced, (ii) in the case of any refinancing of Debt which is pari passu to the Notes, such Refinancing Debt is made pari passu to the Notes or subordinated to the Notes, (iii) such Refinancing Debt constitutes Subordinated Debt in the case of any refinancing of Debt which is subordinated to the Notes, (iv) such Refinancing Debt does not permit redemption or other retirement (including pursuant to an offer to purchase) of such Debt at the option of the holder thereof prior to the Stated Maturity of the Debt being refinanced, other than a redemption or other retirement at the option of the holder of such Debt which is conditioned upon provisions substantially similar to those described under "-- Change of Control" and "-- Limitation on Asset Dispositions"; (v) such Refinancing Debt has an Average Life at the time such Refinancing Debt is Incurred that is equal to or greater than the Average Life of the Debt being Refinanced and (vi) such Refinancing Debt has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus accrued interest and fees and expenses, including any premium and defeasance costs) under the Debt being Refinanced; provided further, however, that Refinancing Debt shall not include (x) Debt of a Subsidiary that Refinances Debt of Donnelley or (y) Debt of Donnelley or a Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary. "Related Person" of any Person means any other Person directly or indirectly owning (a) 5% or more of the Outstanding Common Stock of such Person (or, in the case of a Person that is not a corporation, 5% or more of the equity interest in such Person) or (b) 5% or more of the combined voting power of the Voting Stock of such Person. "Restricted Subsidiary" means any Subsidiary, whether existing on or after the date of the Indenture, unless such Subsidiary is an Unrestricted Subsidiary. "S&P" means Standard & Poor's Rating Group, a division of McGraw-Hill, Inc. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Debt" means Debt of Donnelley as to which the payment of principal of (and premium, if any) and interest and other payment obligations in respect of such Debt shall be subordinate to the prior payment in full of the Notes to at least the following extent: (i) no payments of principal of (or premium, if any) or interest on or otherwise due in respect of such Debt may be permitted for so long as any default in the payment of principal (or premium, if any) or interest on the Notes exists; (ii) in the event that any other default that with the passing of time or the giving of notice, or both, would constitute an event of default exists with respect to the Notes, upon notice by 25% or more in principal amount of the Notes to the Trustee, the Trustee shall have the right to give notice to Donnelley and the holders of such Debt (or trustees or agents therefore) of a payment blockage, and thereafter no payments of principal of (or premium, if any) or interest on or otherwise due in respect of such Debt may be made for a period of 179 days from the date of such notice; and (iii) such Debt may not (x) provide for payments of principal of such Debt at the Stated Maturity thereof or by way of a sinking fund applicable thereto or by way of any mandatory redemption, defeasance, retirement or repurchase thereof by Donnelley (including any redemption, retirement or repurchase which is contingent upon events or circumstances, but excluding any retirement required by virtue of acceleration of such Debt upon an event of default thereunder), in each case prior to the final Stated Maturity of the Notes or (y) permit redemption or other retirement (including pursuant to an offer to purchase made by Donnelley) of such other Debt at the option of the holder thereof prior to the final Stated Maturity of the Notes, other than a redemption or other 91 96 retirement at the option of the holder of such Debt (including pursuant to an offer to purchase made by Donnelley) which is conditioned upon a change of control of Donnelley pursuant to provisions substantially similar to those described under "-- Change of Control" (and which shall provide that such Debt will not be repurchased pursuant to such provisions prior to Donnelley's repurchase of the Notes required to be repurchased by Donnelley pursuant to the provisions described under Change of Control"). "Subsidiary" of any Person means (i) a corporation more than 50% of the combined voting power of the outstanding Voting Stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof or (ii) any other Person (other than a corporation) in which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership and power to direct the policies, management and affairs thereof. "Temporary Cash Investments" means any Investment in the following kinds of instruments: (A) readily marketable obligations issued or unconditionally guaranteed as to principal and interest by the United States of America or by any agency or authority controlled or supervised by and acting as an instrumentality of the United States of America if, on the date of purchase or other acquisition of any such instrument by Donnelley or any Restricted Subsidiary of Donnelley, the remaining term to maturity or interest rate adjustment is not more than two years; (B) obligations (including, but not limited to, demand or time deposits, bankers' acceptances and certificates of deposit) issued or guaranteed by a depository institution or trust company incorporated under the laws of the United States of America, any state thereof or the District of Columbia, provided that (1) such instrument has a final maturity nor more than one year from the date of purchase thereof by Donnelley or any Restricted Subsidiary of Donnelley and (2) such depository institution or trust company has at the time of Donnelley's or such Restricted Subsidiary's Investment therein or contractual commitment providing for such Investment, (x) capital, surplus and undivided profits (as of the date of such institution's most recently published financial statements) in excess of $100 million and (y) the long-term unsecured debt obligations (other than such obligations rated on the basis of the credit of a Person other than such institution) of such institution, at the time of Donnelley's or such Restricted Subsidiary's Investment therein or contractual commitment providing for such Investment, are rated in the highest rating category of both S&P and Moody's; (C) commercial paper issued by any corporation, if such commercial paper has, at the time of Donnelley's or any Restricted Subsidiary's Investment therein or contractual commitment providing for such Investment credit ratings of at least A-1 by S&P and P-1 by Moody's; (D) money market mutual or similar funds having assets in excess of $100 million; (E) readily marketable debt obligations issued by any corporation, if at the time of Donnelley's or any Restricted Subsidiary's Investment therein or contractual commitment providing for such Investment (1) the remaining term to maturity is not more than two years and (2) such debt obligations are rated in one of the two highest rating categories of both S&P and Moody's; (F) demand or time deposit accounts used in the ordinary course of business with commercial banks the balances in which are at all times fully insured as to principal and interest by the Federal Deposit Insurance Corporation or any successor thereto; and (G) to the extent not otherwise included herein, Cash Equivalents. In the event that either S&P or Moody's ceases to publish ratings of the type provided herein, a replacement rating agency shall be selected by Donnelley with the consent of the Trustee, and in each case the rating of such replacement rating agency most nearly equivalent to the corresponding S&P or Moody's rating, as the case may be, shall be used for purposes hereof. "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. 92 97 "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person or by such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. EVENTS OF DEFAULT The following will be Events of Default under the Indenture: (a) failure to pay principal of (or premium, if any, on) any Note when due; (b) failure to pay any interest on any Note when due, continued for 30 days; (c) default in the payment of principal and interest on Notes required to be purchased pursuant to an Offer to Purchase as described under "-- Change of Control" and "-- Limitation on Certain Asset Dispositions" when due and payable; (d) failure to perform or comply with the provisions described under "-- Mergers, Consolidations and Certain Sales of Assets"; (e) failure to perform any other covenant or agreement of Donnelley under the Indenture or the Notes continued for 60 days after written notice to Donnelley by the Trustee or Holders of at least 25% in aggregate principal amount of Outstanding Notes; (f) default under the terms of any instrument evidencing or securing Debt for money borrowed by Donnelley or any Restricted Subsidiary having an outstanding principal amount of $5 million individually or in the aggregate which default results in the acceleration of the payment of such indebtedness or constitutes the failure to pay such indebtedness when due; (g) the rendering of a final judgment or judgments (not subject to appeal) against Donnelley or any Restricted Subsidiary in an amount in excess of $5 million which remains undischarged or unstayed for a period of 60 days after the date on which the right to appeal has expired; and (h) certain events of bankruptcy, insolvency or reorganization affecting Donnelley or any Restricted Subsidiary. (Section 501) Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default (as defined) shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. (Section 603) Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. (Section 512) If an Event of Default (other than an Event of Default described in Clause (h) above) shall occur and be continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Notes may accelerate the maturity of all Notes; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of Outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. If an Event of Default specified in Clause (h) above occurs, the Outstanding Notes will ipso facto become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. (Section 502) For information as to waiver of defaults, see "-- Modification and Waiver". No Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default (as defined) and unless also the Holders of at least 25% in aggregate principal amount of the Outstanding Notes shall have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as trustee, and the Trustee shall not have received from the Holders of a majority in aggregate principal amount of the Outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. (Section 507) However, such limitations do not apply to a suit instituted by a Holder of a Note for enforcement of payment of the principal of or premium, if any, or interest on such Note on or after the respective due dates expressed in such Note. (Section 508) 93 98 Donnelley will be required to furnish to the Trustee quarterly a statement as to the performance by Donnelley of certain of its obligations under the Indenture and as to any default in such performance. (Section 1020) SATISFACTION AND DISCHARGE OF THE INDENTURE The Indenture will cease to be of further effect as to all outstanding Notes (except as to (i) rights of registration of transfer and exchange and Donnelley's right of optional redemption, (ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of Holders to receive payment of principal and interest on the Notes, (iv) rights, obligations and immunities of the Trustee under the Indenture and (v) rights of the Holders of the Notes as beneficiaries of the Indenture with respect to any property deposited with the Trustee payable to all or any of them), if (x) Donnelley will have paid or caused to be paid the principal of and interest on the Notes as and when the same will have become due and payable or (y) all outstanding Notes (except lost, stolen or destroyed Notes which have been replaced or paid) have been delivered to the Trustee for cancellation. DEFEASANCE The Indenture will provide that, at the option of Donnelley, (a) if applicable, Donnelley will be discharged from any and all obligations in respect of the Outstanding Notes or (b) if applicable, Donnelley may omit to comply with certain restrictive covenants, and that such omission shall not be deemed to be an Event of Default under the Indenture and the Notes, in either case (A) or (B) upon irrevocable deposit with the Trustee, in trust, of money and/or U.S. government obligations which will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent certified public accountants to pay the principal of and premium, if any, and each installment of interest, if any, on the Outstanding Notes. With respect to clause (B), the obligations under the Indenture other than with respect to such covenants and the Events of Default other than the Events of Default relating to such covenants above shall remain in full force and effect. Such trust may only be established if, among other things (i) with respect to clause (A), Donnelley has received from, or there has been published by, the Internal Revenue Service a ruling or there has been a change in law, which in the Opinion of Counsel provides that Holders of the Notes will not recognize gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred; or, with respect to clause (B), Donnelley has delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Notes will not recognize gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (ii) no Event of Default or event that with the passing of time or the giving of notice, or both, shall constitute an Event of Default shall have occurred or be continuing; (iii) Donnelley has delivered to the Trustee an Opinion of Counsel to the effect that such deposit shall not cause the Trustee or the trust so created to be subject to the Investment Company Act of 1940; and (iv) certain other customary conditions precedent are satisfied. MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made by Donnelley and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the Holder of each Outstanding Note affected thereby, (a) change the Stated Maturity of the principal of, or any installment of interest on, any Note, (b) reduce the principal amount of, (or the premium) or interest on, any Note, (c) change the place or currency of payment of principal of (or premium), 94 99 \ or interest on, any Note, (d) impair the right to institute suit for the enforcement of any payment on or with respect to any Note, (e) reduce the above-stated percentage of Outstanding Notes necessary to modify or amend the Indenture, (f) reduce the percentage of aggregate principal amount of Outstanding Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults, (g) modify any provisions of the Indenture relating to the modification and amendment of the Indenture or the waiver of past defaults or covenants, except as otherwise specified, or (h) following the mailing of any Offer to Purchase, modify any Offer to Purchase for the Notes required under the "-- Limitation on Asset Dispositions" and the "-- Change of Control" covenants contained in the Indenture in a manner materially adverse to the Holders thereof. (Section 902) The Holders of a majority in aggregate principal amount of the Outstanding Notes, on behalf of all Holders of Notes, may waive compliance by Donnelley with certain restrictive provisions of the Indenture. (Section 1021) Subject to certain rights of the Trustee, as provided in the Indenture, the Holders of a majority in aggregate principal amount of the Outstanding Notes, on behalf of all Holders of Notes, may waive any past default under the Indenture, except a default in the payment of principal, premium or interest or a default arising from failure to purchase any Note tendered pursuant to an Offer to Purchase. (Section 513) GOVERNING LAW The Indenture and the Notes will be governed by the laws of the State of New York. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and provisions of the Trust Indenture Act incorporated by reference therein contain limitations on the rights of the Trustee, should it become a creditor of Donnelley, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claim as security or otherwise. The Trustee is permitted to engage in other transactions with Donnelley or any Affiliate, provided, however, that if it acquires any conflicting interest (as defined in the Indenture or in the Trust Indenture Act), it must eliminate such conflict or resign. DESCRIPTION OF THE DONNELLEY CORP. GUARANTEE Pursuant to the Donnelley Corp. Guarantee, Donnelley Corp. has irrevocably and unconditionally agreed, irrespective of the validity, regularity or enforceability of any Note or the Indenture, to pay in full, to the holders of Notes authenticated and delivered by the Trustee and to the Trustee, (without duplication of amounts theretofore paid by the Company), the due and punctual payment of the principal of (and premium, if any) and interest and all other amounts due hereunder on such Note when and as the same shall become due and payable, whether at the Stated Maturity or by acceleration, call for redemption, purchase or otherwise, in accordance with the terms of such Note and of the Indenture. In case of the failure of the Company punctually to make any such payment, Donnelley Corp. has agreed to cause such payment to be made punctually when and as the same shall become due and payable, whether at the Stated Maturity or by acceleration, call for redemption, purchase or otherwise, and as if such payment were made by the Company. The Donnelley Corp. Guarantee may be amended in accordance with the general provisions of the Indenture governing amendments. See "Description of the Notes -- Modification and Waiver". The Donnelley Corp. Guarantee is subordinated in right of payment to all Donnelley Corp. Senior Debt and senior in right of payment to all subordinated indebtedness of Donnelley Corp. As 95 100 of the date of this Prospectus, Donnelley Corp. has guaranteed approximately $350 million principal amount of Senior Debt represented by borrowings by Donnelley under the New Credit Facility. Donnelley has $50 million of unused capacity available under the Revolving Facility portion of the New Credit Facility, which amounts, if drawn, will also be guaranteed by Donnelley Corp. As of the date of this Prospectus, Donnelley's capital stock is the only significant asset of Donnelley Corp. and dividends on such capital stock will be the sole source of funds available to Donnelley Corp. to meet its obligations, including its obligations under the Donnelley Corp. Guarantee. Such capital stock has been pledged to secure Donnelley's obligations under the New Credit Facility. In addition, the payment of dividends on the Company's capital stock is restricted by certain covenants contained in the Indenture and the New Credit Facility and may be restricted by other agreements entered into by the Company in the future and by applicable law. In the event of a default in payment of principal (or premium, if any) or interest on any Note, whether at its Stated Maturity or by acceleration, call for redemption, purchase or otherwise, legal proceedings may be instituted by the Trustee on behalf of, or by, the Holder of such Note, subject to the terms and conditions set forth in the Indenture, directly against Donnelley Corp. to enforce the Donnelley Corp. Guarantee without first proceeding against the Company. If, after the occurrence and during the continuance of an Event of Default, the Trustee or any of the Holders are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Notes, to collect interest on the Notes or to enforce or exercise any other right or remedy with respect to the Notes, or the Trustee or the Holders are prevented from taking any action to realize on any collateral, Donnelley Corp. agrees to pay to the Trustee for the account of the Holders, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of the Holders. The Donnelley Corp. Guarantee will terminate and be of no further force and effect when the Indenture shall have terminated and the principal of and interest on the Notes and all other Donnelley Corp. Guarantee obligations shall have been paid in full. In addition, concurrently with the defeasance or covenant defeasance of the Notes under the Indenture, Donnelley Corp. shall be released from all of its obligations under the Donnelley Corp. Guarantee. CERTAIN UNITED STATES TAX CONSEQUENCES The Exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer will not result in any federal income tax consequences to the Holders. When a Holder exchanges an Old Note for a New Note pursuant to the Exchange Offer, the Holder will have the same adjusted basis and holding period in the New Note as in the Old Note immediately before the exchange. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 90 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any such broker-dealer for use in connection with any such resale. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive 96 101 compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker-dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed in the Registration Rights Agreement to indemnify each broker-dealer reselling Exchange Notes pursuant to this Prospectus, and their officers, directors and controlling persons, against certain liabilities in connection with the offer and sale of the Exchange Notes, including liabilities under the Securities Act, or to contribute to payments that such broker-dealers may be required to make in respect thereof. VALIDITY OF THE NOTES Certain legal matters in connection with the Notes offered hereby will be passed upon for Donnelley by Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017. EXPERTS The consolidated financial statements of R.H. Donnelley Corporation and the combined financial statements of DonTech I and DonTech II as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997, included in this Prospectus, have been included herein in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company and Donnelley Corp. have filed with the Commission a Registration Statement on Form S-4 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act, with respect to the Notes offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company, Donnelley Corp. and the Notes, reference is hereby made to such Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or document filed as exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. Each purchaser of the Exchange Notes will be furnished with a copy of the Prospectus and any related amendments or supplements to this Prospectus (as so amended or supplemented, unless the context otherwise requires, the "Prospectus"). Each person receiving this Prospectus acknowledges that (i) such person has been afforded an opportunity to request from the Company and Donnelley Corp., and to review and has received, all additional information considered by it to be necessary to verify the accuracy and completeness of the information herein, (ii) such person has not relied on the Exchange Agent or any person affiliated with the Exchange Agent in connection with this investigation of the accuracy of such information or its investment decision and (iii) except 97 102 as provided pursuant to (i) above, no person has been authorized to give any information or to make any representation concerning the New Notes offered hereby other than those contained herein and, if given or made, such other information or representation should not be relied upon as having been authorized by the Company and Donnelley Corp. or the Exchange Agent. Written requests for such information should be directed to: R.H. Donnelley Inc., One Manhattanville Road, Purchase, New York 10577, Attention: Jane B. Clark. Donnelley Corp. is, and the Company will be, subject to the informational requirements of the Exchange Act, and, in accordance therewith Donnelley Corp. is, and the Company will be, required to file reports and other information with the Commission. The Registration Statement, as well as such reports and other information filed by Donnelley Corp. with the Commission, may be inspected without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's regional offices located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained by mail from the Commission's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, including Donnelley Corp., that file electronically with the Commission. In addition, such reports and other information concerning Donnelley Corp. may also be inspected at the offices of the New York Stock Exchange at 111 Wall Street, New York, NY 10005. 98 103 INDEX TO FINANCIAL STATEMENTS
PAGE ---- R.H. DONNELLEY CORPORATION UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 1998 and 1997................ F-2 Consolidated Balance Sheets (Unaudited) at March 31, 1998 and December 31, 1997..................................... F-3 Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1998 and 1997................ F-4 Notes to Consolidated Financial Statements.................. F-5 YEAR-END CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Accountants........................... F-8 Consolidated Statements of Operations for the Three Years Ended December 31, 1997................................... F-9 Consolidated Balance Sheets at December 31, 1997 and 1996... F-10 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1997................................... F-11 Consolidated Statements of Changes in Shareholders' Equity for the Three Years Ended December 31, 1997............... F-12 Notes to Consolidated Financial Statements.................. F-13 DONTECH Report of Independent Accountants........................... F-25 Combined Statements of Operations for the Three Years Ended December 31, 1997......................................... F-26 Combined Balance Sheets as of December 31, 1997 and 1996.... F-27 Combined Statements of Cash Flows for the Three Years Ended December 31, 1997......................................... F-28 Combined Statements of Partners' Capital for the Three Years Ended December 31, 1997................................... F-29 Notes to Combined Financial Statements...................... F-30
F-1 104 R.H. DONNELLEY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------------- 1998 1997 ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues.................................................... $ 24,344 $ 20,200 Expenses: Operating Expenses........................................ 7,093 5,553 General and Administrative................................ 17,695 16,963 Depreciation and Amortization............................. 4,952 5,416 -------- -------- Total Expenses.................................... 29,740 27,932 Income from Partnerships and Related Fees................... 25,642 5,442 -------- -------- Operating Income.................................. 20,246 (2,290) Provision for (Benefit from) Income Taxes................... 8,098 (916) -------- -------- Net Income (Loss)................................. $ 12,148 $ (1,374) ======== ======== Earnings Per Share Basic..................................................... $ 0.07 $ (0.01) ======== ======== Diluted................................................... $ 0.07 $ (0.01) ======== ======== Shares Used in Computing Earnings Per Share Basic..................................................... 171,153 171,189 Diluted................................................... 172,396 171,189
The accompanying notes are an integral part of the financial statements. F-2 105 R.H. DONNELLEY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31, 1998 1997 ------------ --------------- (IN THOUSANDS, EXCEPT SHARE DATA) Current Assets: Cash and Cash Equivalents................................. $ 17 $ 32 Accounts Receivable: Billed................................................. 1,605 5,208 Unbilled............................................... 122,580 129,620 Allowance for Doubtful Accounts........................ (5,657) (4,014) -------- -------- Total Accounts receivable -- net.................. 118,528 130,814 Deferred Contract Costs................................... 16,645 6,944 Other Current Assets...................................... 1,530 4,950 -------- -------- Total Current Assets.............................. 136,720 142,740 Property and Equipment -- net............................. 23,607 25,460 Prepaid Pension Costs..................................... 9,530 9,530 Computer Software -- net.................................. 36,895 37,546 Partnership Investments................................... 152,422 167,010 -------- -------- Total Assets...................................... $359,174 $382,286 ======== ======== Current Liabilities: Accounts Payable.......................................... $ 967 $ 1,395 Accrued and Other Current Liabilities..................... 49,560 58,070 -------- -------- Total Current Liabilities......................... 50,527 59,465 Postretirement and Postemployment Benefits................ 12,920 12,920 Deferred Income Taxes..................................... 34,456 34,456 Other Liabilities......................................... 15,384 16,770 -------- -------- Total Liabilities................................. 113,287 123,611 Commitments and Contingencies Shareholders' Equity: Preferred Stock, Par Value $1.00 per share, Authorized -- 10,000,000 shares; Outstanding -- none................. -- -- Common Stock, Par Value $1.00 per share, Authorized -- 400,000,000 shares; Issued -- 188,420,996 shares, less treasury shares of 16,850,856 and 17,853,652 at March 31, 1998 and December 31, 1997, respectively........... 171,570 170,567 Retained Earnings......................................... 74,317 88,108 -------- -------- Total Shareholders' Equity........................ 245,887 258,675 -------- -------- Total Liabilities and Shareholders' Equity........ $359,174 $382,286 ======== ========
The accompanying notes are an integral part of the financial statements. F-3 106 R.H. DONNELLEY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 ---- ---- (IN THOUSANDS) Cash Flows from Operating Activities: Net Income................................................ $ 12,148 $ (1,374) Reconciliation of Net Income to Net Cash Provided by Operating Activities Depreciation and Amortization.......................... 4,952 5,416 Provision for Doubtful Accounts........................ 1,262 1,104 Cash Received in Excess of Income from Partnerships.... 14,588 33,347 Loss on Sale of Property and Equipment................. 37 483 Net Decrease in Accounts Receivable.................... 11,023 50,516 Change in Other Current Assets......................... 3,420 4,731 Change in Deferred Contract Costs...................... (9,701) (28,434) Change in Accounts Payable, Accrued and Other Current Liabilities........................................... (8,938) (10,535) Change in Postretirement and Postemployment Liabilities........................................... -- 2,900 Change in Other Liabilities............................ (1,386) (450) -------- -------- Net Cash Provided by Operating Activities......... 27,405 57,704 -------- -------- Cash Flows from Investing Activities Additions to Property and Equipment....................... (651) (6,704) Additions to Computer Software............................ (1,834) (1,986) -------- -------- Net Cash Used by Investing Activities............. (2,485) (8,690) -------- -------- Cash Flows from Financing Activities Net Distributions to Parent............................... (24,935) (49,010) -------- -------- Net Cash Used by Financing Activities............. (24,935) (49,010) -------- -------- Increase (Decrease) in Cash and Cash Equivalents.......... (15) 4 Cash and Cash Equivalents, Beginning of Quarter............. 32 60 -------- -------- Cash and Cash Equivalents, End of Quarter................... $ 17 $ 64 ======== ========
The accompanying notes are an integral part of the financial statements. F-4 107 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) 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 ("R.H. Donnelley") and The New Dun & Bradstreet Corporation ("New D&B"). The distribution ("Distribution") is the method by which D&B will distribute to its stockholders shares of New D&B Common Stock, which will represent a continuing interest in D&B's businesses to be conducted by New D&B. After the Distribution, D&B's only operating subsidiary will be R.H. Donnelley Inc. Shares of D&B Common Stock held by D&B stockholders will represent a continuing ownership interest in R.H. Donnelley. In connection with the Distribution, D&B will change its name to "R.H. Donnelley Corporation" and therefore from and after the Distribution, D&B Common Stock will be R.H. Donnelley Corporation Common Stock and New D&B will change its name to "The Dun & Bradstreet Corporation." Therefore, on a consolidated basis, the financial statements of R.H. Donnelley Corporation and R.H. Donnelley, Inc. are substantially identical. As discussed in footnote 7, the financial statements have been restated to reflect the recapitalization of R.H. Donnelley as of July 1, 1998. The financial statements reflect the financial position, results of operations, and cash flows of R.H. Donnelley as if R.H. Donnelley were a separate entity. The financial statements of R.H. Donnelley include allocations of certain D&B corporate headquarters assets, liabilities and expenses relating to R.H. Donnelley's businesses that will be transferred to R.H. Donnelley from D&B. Management believes these allocations are reasonable. However, the costs of these services and benefits charged to R.H. Donnelley are not necessarily indicative of the costs that would have been incurred if R.H. Donnelley 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 R.H. Donnelley for the year ended December 31, 1997 included in this Information Statement. 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
1998 1997 ---- ---- Weighted average number of shares -- basic.................. 171,153 171,189 Effect of potentially dilutive stock options................ 1,243 -- Weighted average number of shares -- diluted................ 172,396 171,189
As required by SFAS No. 128, R.H. Donnelley has provided a reconciliation of basic weighted average shares to diluted weighted average shares within the table outlined above. The conversion of diluted shares has no impact on operating results. For 1997, the effect of potentially diluted stock options would be antidilutive and have not been included in the calculation. R.H. Donnelley's options generally expire 10 years after the initial grant date. 3. COMPREHENSIVE INCOME Effective January 1, 1998, R.H. Donnelley adopted SFAS No. 130, "Reporting Comprehensive Income". This statement requires that all items recognized under accounting standards as components of comprehensive earnings be reported in a financial statement for the period in which they F-5 108 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) are recognized and displayed with the same prominence as other financial statements. There were no additional components of comprehensive income and, as a result, R.H. Donnelley's total comprehensive income for the three month period ended March 31, 1998 and 1997 were equal to net income for those periods. 4. COMMITMENT In connection with the Distribution, R.H. Donnelley will borrow $350 million under a New Credit Facility (the "New Credit Facility") and will issue $150 million of senior subordinated notes. The net proceeds of the offering of the notes, along with R.H. Donnelley's anticipated borrowings under the New Credit Facility, will be used (i) to repay indebtedness of D&B, primarily commercial paper, (ii) to pay costs and expenses related to the Distribution and (iii) to repay indebtedness of D&B to subsidiaries which, following the Distribution, will be subsidiaries of New D&B. 5. 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 will assume and indemnify R.H. Donnelley against any payments to be made by R.H. Donnelley in respect to the IRI Action under the 1996 Distribution Agreement, under the Indemnity and Joint Defense Agreement or otherwise, including any ongoing legal fees and expenses related thereto. In the normal course of business, R.H. Donnelley is subject to proceedings, lawsuits and other claims. In the opinion of R.H. Donnelley's management, the outcome of such current legal proceedings, claims and litigation will not materially affect R.H. Donnelley's financial position or results of operations. 6. DONTECH PARTNERSHIPS In 1991, R.H. Donnelley formed a general partnership with Ameritech Corporation ("Ameritech"), the DonTech Partnership ("DonTech I"). Prior to August 1997, DonTech I published various directories, solicited advertising, and manufactured and delivered directories in Illinois and Northwest Indiana. During August 1997, R.H. Donnelley signed a series of agreements with Ameritech changing the structure of the existing partnership. A new partnership was formed ("DonTech II" and, together with DonTech I, "DonTech" or the "DonTech Partnerships") appointing DonTech the exclusive agent in perpetuity for yellow page directories published by Ameritech in Illinois and Northwest Indiana. The following are summarized combined financial information (unaudited) of the DonTech Partnerships:
THREE MONTHS ENDED MARCH 31, ------------------ 1998 1997 ---- ---- Gross Revenues......................................... $91,542 $10,900 Operating Income....................................... $58,556 $ 300 Net Income Before Taxes................................ $58,556 $ 300
F-6 109 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) 7. SUBSEQUENT EVENTS On July 1, 1998, as part of the Distribution, D&B distributed to its stockholders shares of New D&B stock, which represents a continuing interest in D&B's business to be conducted by New D&B. After the Distribution, D&B's only business is the R.H. Donnelley business, and shares of D&B Common Stock held by D&B stockholders represents a continuing interest only in that business. In connection with the Distribution, D&B changed its name to R.H. Donnelley Corporation and D&B Common Stock has become R.H. Donnelley Common Stock. The financial statements of R.H. Donnelley have been restated to reflect the recapitalization. On June 5, 1998 R.H. Donnelley Inc. entered into a Credit Agreement with the Chase Manhattan Bank, Chase Securities Inc., Goldman Sachs and the lenders party thereto. Under the terms of the agreement, R.H. Donnelley Inc. obtained a Senior Revolving Credit Facility of $100 million and Senior Secured Term Facilities in aggregate of $300 million, of which R.H. Donnelley has borrowed in aggregate $350 million payable over a maximum period of nine years. On June 16, 1998, R.H. Donnelley entered into 3 interest rate swap transactions which converted part of its floating rates interest obligations to fixed rates. The swap transactions total in aggregate $175 million of the $350 million of loans under the Credit Agreement. The swaps have terms of 3, 4 and 5 years. In addition, on June 5, 1998, R.H. Donnelley issued $150 million of Senior Subordinated Notes. These Notes pay interest semi-annually and are due in 2008. The aggregate $500 million was dividended to D&B, but repayment of such indebtedness remains an obligation of R.H. Donnelley Inc., as guaranteed by R.H. Donnelley Corporation. F-7 110 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of R.H. Donnelley Corporation: We have audited the accompanying consolidated balance sheets of R.H. Donnelley Corporation (formerly a wholly owned subsidiary of the The Dun & Bradstreet Corporation) at December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three year period ended December 31, 1997. These financial statements are the responsibility of R.H. Donnelley Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of R.H. Donnelley Corporation at December 31, 1997 and 1996, and the results of their operations and cash flows for each of the years in the three year period ended December 31, 1997, in conformity with generally accepted accounting principles. PricewaterhouseCoopers LLP New York, New York March 31, 1998, except as to Note 14, for which the date is July 1, 1998 F-8 111 R.H. DONNELLEY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, -------------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues................................................ $239,865 $270,029 $312,940 Expenses: Operating Expenses.................................... 132,278 135,500 157,559 General and Administrative............................ 81,089 83,803 75,754 Depreciation and Amortization......................... 21,930 16,229 16,322 Restructuring Charges................................. -- -- 17,690 -------- -------- -------- Total Expenses................................ 235,297 235,532 267,325 Income from Partnerships and Related Fees............... 130,171 132,945 137,180 -------- -------- -------- Operating Income.............................. 134,739 167,442 182,795 Gain (Loss) on Dispositions............................. 9,412 (28,500) -- -------- -------- -------- Income Before Provision for Income Taxes...... 144,151 138,942 182,795 Provision for Income Taxes.............................. 59,246 60,857 74,398 -------- -------- -------- Net Income.................................... $ 84,905 $ 78,085 $108,397 ======== ======== ======== Earnings Per Share: Basic................................................. $ 0.50 $ 0.46 $ 0.64 ======== ======== ======== Diluted............................................... $ 0.50 $ 0.46 $ 0.64 ======== ======== ======== Shares Used in Computing Earnings Per Share: Basic................................................. 170,765 170,017 169,522 Diluted............................................... 171,065 170,289 169,883
The accompanying notes are an integral part of the financial statements. F-9 112 R.H. DONNELLEY CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------- 1997 1996 --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash and Cash Equivalents................................. $ 32 $ 60 Accounts Receivable: Billed................................................. 5,208 21,322 Unbilled............................................... 129,620 143,443 Allowance for Doubtful Accounts........................ (4,014) (11,607) -------- -------- Total Accounts Receivable -- net.................. 130,814 153,158 Deferred Contract Costs................................... 6,944 17,301 Other Current Assets...................................... 4,950 13,630 -------- -------- Total Current Assets.............................. 142,740 184,149 Property and Equipment -- net............................. 25,460 30,752 Prepaid Pension Costs..................................... 9,530 10,329 Computer Software -- net.................................. 37,546 40,050 Partnership Investments................................... 167,010 233,706 Other Non-Current Assets.................................. -- 3,207 -------- -------- Total Assets...................................... $382,286 $502,193 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable.......................................... $ 1,395 $ 785 Accrued and Other Current Liabilities..................... 58,070 57,764 -------- -------- Total Current Liabilities......................... 59,465 58,549 Postretirement and Postemployment Benefits................ 12,920 10,020 Deferred Income Taxes..................................... 34,456 53,990 Other Liabilities......................................... 16,770 450 -------- -------- Total Liabilities................................. 123,611 123,009 Commitments and Contingencies SHAREHOLDERS' EQUITY: Preferred Stock, Par Value $1.00 per share, Authorized -- 10,000,000 shares, Outstanding -- none Common Stock, Par Value $1.00 per share, Authorized -- 400,000,000 shares; Issued -- 188,420,996 shares for 1997 and 1996, less Treasury shares of 17,853,652 and 17,612,776 for 1997 and 1996, respectively........................................... 170,567 170,808 Retained Earnings......................................... 88,108 208,376 -------- -------- Total Shareholders' Equity........................ 258,675 379,184 -------- -------- Total Liabilities and Shareholders' Equity........ $382,286 $502,193 ======== ========
The accompanying notes are an integral part of the financial statements. F-10 113 R.H. DONNELLEY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 --------- -------- -------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income........................................... $ 84,905 $ 78,085 $108,397 Reconciliation of Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization..................... 21,930 16,229 16,322 Provision for Doubtful Accounts................... 11,815 11,743 10,861 (Gain) Loss from Sales of Businesses.............. (9,412) 28,500 -- Cash Received in Excess of (Less Than) Income from Partnerships.................................... 62,540 (18,593) (11,609) Loss on Sale of Property, Plant and Equipment..... 1,551 724 1,149 Net Increase in Accounts Receivable............... (37,519) (5,616) (11,000) Change in Other Current Assets.................... 8,460 6,709 (1,715) Change in Deferred Contracts Costs................ (6,746) (8,403) 262 Change in Accounts Payable, Accrued and Other Current Liabilities............................. (38,993) (26,781) 7,396 Change in Postretirement and Postemployment Liabilities..................................... 2,900 (5,100) 4,120 Change in Other Liabilities....................... 16,320 -- 450 Change in Deferred Income Taxes................... (19,534) 23,586 11,969 Other............................................. 1,437 (545) -- --------- -------- -------- Net Cash Provided by Operating Activities.... 99,654 100,538 136,602 --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sale of Businesses..................... 122,000 21,368 -- Additions to Property and Equipment.................. (9,078) (15,965) (19,289) Additions to Computer Software....................... (7,190) (21,859) (23,723) --------- -------- -------- Net Cash (Used In) Provided by Investing Activities................................. 105,732 (16,456) (43,012) --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Distributions to D&B............................. (205,414) (85,466) (92,146) --------- -------- -------- Net Cash Used In Financing Activities........ (205,414) (85,466) (92,146) --------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents................................ (28) (1,384) 1,444 Cash and Cash Equivalents, Beginning of Year........... 60 1,444 -- --------- -------- -------- Cash and Cash Equivalents, End of Year................. $ 32 $ 60 $ 1,444 ========= ======== ========
The accompanying notes are an integral part of the financial statements. F-11 114 R.H. DONNELLEY CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
PREFERRED COMMON TREASURY TOTAL STOCK STOCK STOCK RETAINED SHAREHOLDERS' ($1 PAR VALUE) ($1 PAR VALUE) ($1 PAR VALUE) EARNINGS EQUITY --------------- --------------- --------------- --------- ------------- (IN THOUSANDS) Balance, January 1, 1995....... -- $188,421 $(18,651) $ 200,544 $ 370,314 Net Income..................... 108,397 108,397 Net Distribution to D&B........ (92,146) (92,146) Net Change in Shares of Treasury Stock............... (381) 381 0 -------- -------- --------- Balance, December 31, 1995..... -- 188,421 (19,032) 217,176 386,565 -------- -------- --------- Net Income..................... 78,085 78,085 Net Distribution to D&B........ (85,466) (85,466) Net Change in Shares of Treasury Stock............... 1,419 (1,419) 0 -------- -------- --------- Balance, December 31, 1996..... -- 188,421 (17,613) 208,376 379,184 -------- -------- --------- Net Income..................... 84,905 84,905 Net Distribution to D&B........ (205,414) (205,414) Net Change In Shares of Treasury Stock............... (241) 241 0 -------- -------- --------- Balance, December 31, 1997..... -- $188,421 $(17,854) $ 88,108 $ 258,675 ======== ======== =========
The accompanying notes are an integral part of the financial statements. F-12 115 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) 1. BACKGROUND AND BASIS OF PRESENTATION On December 17, 1997, the Board of Directors of The Dun & Bradstreet Corporation ("D&B") approved in principle a plan to separate into two publicly-traded companies -- R.H. Donnelley Corporation ("R.H. Donnelley") and The New Dun & Bradstreet Corporation ("New D&B"). The distribution ("Distribution") is the method by which D&B will distribute to its stockholders shares of New D&B Common Stock, which will represent a continuing interest in D&B's businesses to be conducted by New D&B. After the Distribution, D&B's only operating subsidiary will be R.H. Donnelley Inc. Shares of D&B Common Stock held by D&B stockholders will represent a continuing ownership interest in R.H. Donnelley. In connection with the Distribution, D&B will change its name to "R.H. Donnelley Corporation" and therefore from and after the Distribution, D&B Common Stock will be R.H. Donnelley Corporation Common Stock and New D&B will change its name to "The Dun & Bradstreet Corporation." Therefore, on a consolidated basis, the financial statements of R.H. Donnelley Corporation and R.H. Donnelley, Inc. are substantially identical. As discussed in footnote 14, the financial statements have been restated to reflect the recapitalization of R.H. Donnelley as of July 1, 1998. D&B has received a ruling from the Internal Revenue Service to the effect that the Distribution will be tax-free for Federal income tax purposes. Due to the relative significance of D&B to R.H. Donnelley, the transaction will be accounted for as a reverse spin-off. Historically R.H. Donnelley has operated through a number of long-term strategic alliances with affiliates of Ameritech, Bell Atlantic, Sprint and with other smaller local telephone service providers or yellow pages publishers acting as publisher, partner or sales agent based on its contractual business relationships. The Ameritech relationship has no expiration date, the Sprint and Bell Atlantic contracts expire in 2004 and 2005, respectively. R.H. Donnelley's revenue and cash flow is principally derived from commissions received from the sale of advertisements placed in yellow pages directories. In addition, R.H. Donnelley also receives revenue for publishing services such as advertisement creation and database management on a negotiated fee basis. R.H. Donnelley was incorporated on August 9, 1961 with 100 shares of Common Stock authorized, and outstanding with no par value, all of which are owned by D&B. R.H. Donnelley provides sales, marketing and publishing services for yellow pages and other directory products and is the largest independent marketer of yellow pages advertising in the United States. R.H. Donnelley will retain all the assets and liabilities related to the yellow pages and other directory product sales, marketing and publishing service businesses after the Distribution. The financial statements reflect the financial position, results of operations, and cash flows of R.H. Donnelley as if it were a separate entity for all periods presented. The financial statements include allocations of certain D&B corporate headquarters assets (including prepaid pension assets) and liabilities (including postretirement benefits), and expenses (including cash management, legal, accounting, tax, employee benefits, insurance services, data services and other D&B corporate overhead) relating to R.H. Donnelley's businesses that will be transferred to R.H. Donnelley from D&B. Management believes these allocations are reasonable. However, the costs of these services and benefits charged to R.H. Donnelley are not necessarily indicative of the costs that would have been incurred if R.H. Donnelley had performed or provided these functions as a separate entity. The financial information included herein may not necessarily reflect the results of operations, financial position, changes in shareholder's equity and cash flows of R.H. Donnelley in the future or what they would have been had it been a separate, stand-alone entity during the periods presented. F-13 116 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) For purposes of governing certain of the ongoing relationships between R.H. Donnelley and D&B after the Distribution and to provide for orderly transition, R.H. Donnelley and D&B will enter into various agreements including a Distribution Agreement, Tax Allocation Agreement, Employee Benefits Agreement, Shared Transaction Services Agreements, Intellectual Property Agreement, Data Services Agreements, and Transition Services Agreements. Summaries of these agreements are set forth elsewhere in this Information Statement. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents Cash equivalents include highly liquid investments with a maturity of less than three months at the time of acquisition. Property and Equipment Machinery and equipment are depreciated over their estimated useful lives using principally the straight-line method. Estimated useful lives are five years for machinery and equipment, ten years for furniture and fixtures, and three to five years for computer equipment. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful life of the improvement. Capitalized Software Costs Certain direct costs incurred for computer software to meet the internal needs of R.H. Donnelley are capitalized. These costs are amortized on a straight-line basis, over five years. Long-Lived Assets R.H. Donnelley adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121") in 1995. This statement requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, this statement requires recognition of an impairment loss when the sum of undiscounted expected future cash flows is less than the carrying amount of such assets. The measurement for such an impairment loss is then based on the fair value of the asset. Revenue Recognition R.H. Donnelley recognizes revenue as earned, which is based on contractual relationships. For relationships where R.H. Donnelley acts as a sales agent, revenue is comprised of sales commissions and is recognized upon execution of contracts for the sale of advertising. For relationships where R.H. Donnelley is the publisher, revenues are recognized when directories are published. Publishing services are recognized throughout the year as the services are performed. Income from Partnerships and Related Fees R.H. Donnelley has significant influence, but not a controlling interest over its partnerships and accounts for them under the equity method of accounting. Income from partnerships represent R.H. Donnelley's share of the profits generated by the DonTech Partnerships, the Cendon Partnership and the C-Don Partnership with Commonwealth Telephone Company during 1997, 1996 and 1995, F-14 117 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) and of the UniDon Partnership with United Telephone Company during 1995. Other related fees represents R.H. Donnelley's revenue participation earnings in 1997 from APIL Partners Partnership ("APIL"), a subsidiary of Ameritech Corporation. Unbilled Receivables For sales agency relationships, unbilled receivables represent revenues earned from the sale of advertising in directories that are scheduled to be published by the publisher. These receivables will be billed upon directory publication in accordance with contractual provisions. For businesses where R.H. Donnelley is the publisher, unbilled receivables represent revenues earned on published directories. Customers are billed ratably over the life of the directories, generally 12 months. Income Taxes R.H. Donnelley has been included in the Federal and certain state income tax returns of D&B. The provision for income taxes in the financial statements has been calculated on a separate-company basis; income taxes paid on behalf of R.H. Donnelley by D&B are included in equity. After the Distribution, R.H. Donnelley will file separate income tax returns. Concentration of Credit Risk R.H. Donnelley maintains significant accounts receivable balances from its relationships with affiliates of Ameritech, Bell Atlantic and with the CenDon Partnership. Deferred Contract Costs Direct costs incurred by R.H. Donnelley as publisher are deferred until these directories are published. Direct costs on contracts for which R.H. Donnelley is a sales agent are expensed in the year in which they are incurred. Contract Fees All costs associated with the renegotiation and extension of contracts are expensed when incurred. Financial Instruments At December 31, 1997, R.H. Donnelley's financial instruments included cash, receivables, and accounts payable. At December 31, 1997, the fair values of cash, receivables and accounts payable approximated carrying values because of the short-term nature of these instruments. Earnings Per Share of Common Stock In 1997, R.H. Donnelley adopted SFAS No. 128, "Earnings Per Share." Basic earnings per share are calculated by dividing net income by D&B's historical weighted average common shares outstanding, reflecting the one-for-one distribution ratio. Diluted earnings per share are calculated by dividing net income by the sum of D&B's historical weighted average common shares outstanding and potentially dilutive R.H. Donnelley common shares. Potentially dilutive common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all employee options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the options. F-15 118 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates are used in the determination of allowances for doubtful accounts, depreciation and amortization, computer software, employee benefit plans, taxes and contingencies among others. 3. RECONCILIATION OF SHARES USED IN COMPUTING EARNINGS PER SHARE
1997 1996 1995 ------- ------- ------- Weighted average number of shares -- basic.................. 170,765 170,017 169,522 Effect of potentially dilutive stock options as of year end....................................................... 300 272 361 ------- ------- ------- Weighted average number of shares -- diluted................ 171,065 170,289 169,883 ======= ======= =======
As required by SFAS No. 128, R.H. Donnelley has provided a reconciliation of basic weighted average shares to diluted weighted average shares within the table outlined above. The conversion of dilutive shares has no impact on operating results. The R.H. Donnelley's options generally expire 10 years after the initial grant date. 4. NON-RECURRING ITEMS Sale of Businesses In 1997, included in the operating results was a pretax gain of $9,412, related to the sale of its East Coast proprietary operations ("P-East"). In connection with the sale of the P-East business, R.H. Donnelley has accrued for the continuing obligation to provide publishing service through the year 2002. The 1996 results reflect a pre-tax charge of $28,500, incurred as a result of the sale of the West Coast proprietary operations ("P-West"). Restructuring In 1995, R.H. Donnelley recorded a restructuring charge of $17,690 in connection with the closing of the Terre Haute publishing facility. R.H. Donnelley moved its publishing operations from Terre Haute, Indiana to Raleigh, North Carolina. The restructuring charge was recorded to cover fixed asset write-offs, severance, legal costs, publishing costs, and advertising claims. At December 31, 1997, no restructuring reserve remains. 5. PARTNERSHIPS DonTech In 1991, R.H. Donnelley formed a general partnership with Ameritech Corporation ("Ameritech"), the DonTech Partnership ("DonTech I"). Prior to August 1997, DonTech I published various directories, solicited advertising, and manufactured and delivered directories in Illinois and Northwest Indiana. Under this agreement, R.H. Donnelley's share in DonTech I declined 1% each year between 1995 and 1997, from 55% to 53%. In August 1997, R.H. Donnelley signed a series of agreements with Ameritech changing the structure of the existing partnership. A new partnership was formed ("DonTech II" and, together with DonTech I, "DonTech" or the "DonTech Partner- F-16 119 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) ships") appointing DonTech the exclusive sales agent in perpetuity for yellow page directories published by Ameritech in Illinois and Northwest Indiana. Under the new sales agency partnership of which R.H. Donnelley receives a 50% share of the profits, DonTech performs the advertising sales function for the directories and earns a commission while APIL serves as the directories publisher. R.H. Donnelley receives an ongoing revenue participation fee from APIL in exchange for exclusive publishing rights. R.H. Donnelley receives payments directly from APIL for publishing services pursuant to a contract valid through the year 2003. R.H. Donnelley recognized equity earnings of $64,618, $121,354, and $125,578 from the DonTech partnership during 1997, 1996, and 1995, respectively. In addition, R.H. Donnelley recognized Revenue Participation earnings from APIL of $51,610 during 1997. Together, they represent 86%, 72% and 69% of R.H. Donnelley's operating income for the three years ended December 31, 1997, respectively. R.H. Donnelley's investment in DonTech was $151,979 and $215,373 at December 31, 1997 and 1996, respectively. CenDon R.H. Donnelley has a partnership, the CenDon Partnership ("CenDon") with the Sprint Corporation ("Sprint") through a subsidiary of Sprint. R.H. Donnelley has a 50% interest in CenDon which publishes directories in selected Sprint markets in Nevada, Florida, Virginia and North Carolina. R.H. Donnelley earns a 50% share of CenDon's income. R.H. Donnelley provides sales and publishing services for the CenDon partnership. The partnership is billed upon the publication of each directory based on a contractual rate for sales and is billed pro rata during the year for publishing for services based on a contractual fee. Sales and publishing services revenue for R.H. Donnelley were $35,126, $32,258, and $29,800 for 1997, 1996 and 1995, respectively. The CenDon partnership agreement extends until 2004. RHD recognized equity earnings of $12,219, $9,695 and $9,451 from the CenDon partnership during 1997, 1996 and 1995, respectively. RHD's investment in CenDon was $15,031 and $15,902 at December 31, 1997 and 1996, respectively. 6. OTHER TRANSACTIONS WITH AFFILIATES D&B uses a centralized cash management system to finance its operations. Cash deposits from the R.H. Donnelley's businesses are transferred to D&B on a daily basis and D&B funds the R.H. Donnelley's disbursement bank accounts as required. No interest has been charged on these transactions D&B provided certain centralized services (see Note 1 to the financial statements) to R.H. Donnelley. Expenses related to these services were allocated to R.H. Donnelley based on utilization of specific services or, where an estimate could not be determined, based on R.H. Donnelley's revenues in proportion to D&B's total revenues. Management believes these allocation methods are reasonable. However, the costs of these services and benefits charged to R.H. Donnelley are not necessarily indicative of the costs that would have been incurred if R.H. Donnelley had performed or provided these services as a separate entity. These allocations were $21,531, $18,626 and $24,111 in 1997, 1996, and 1995 respectively, and are included in operating expenses and general and administrative expenses in the Statement of Operations. Amounts due to D&B for these expenses are included in equity. F-17 120 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) Net distributions to D&B, included in equity, includes net cash transfers third party liabilities paid on behalf of R.H. Donnelley by D&B, amounts due to/from D&B for services and other charges. No interest has been charged on these intercompany transactions. 7. COMMITMENTS AND CONTINGENCIES Certain of the R.H. Donnelley's operations are conducted from leased facilities, which are under operating leases. Rent expense under real estate operating leases for the years 1997, 1996, and 1995 was $8,612, $9,482 and $10,068, respectively. The approximate minimum rent for real estate operating leases that have remaining noncancelable lease terms in excess of one year at December 31, 1997, are: 1998...................................................... $8,031 1999...................................................... 6,325 2000...................................................... 5,365 2001...................................................... 4,874 2002...................................................... 5,030 Thereafter................................................ 27,742 ------- Total........................................... $57,367 =======
R.H. Donnelley also leases certain computer and other equipment under operating leases. Rent expense under computer and other equipment leases was $2,245, $1,762 and $1,072 for 1997, 1996, and 1995 respectively. At December 31, 1997 the approximate minimum annual rental obligation for computer and other equipment under operating leases that have remaining noncancelable lease terms in excess of one year is not significant. On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States district court for the Southern district of New York, having as defendant D&B, A.C. Nielson Company, and IMS International Inc. ("the IRI Action"). New D&B will assume and indemnify R.H. Donnelley against any payments to be made by R.H. Donnelley in respect to the IRI Action under the Distribution Agreement, under the Indemnity and Joint Defense Agreement or otherwise, including any ongoing legal fees and expenses related thereto. In the normal course of business, R.H. Donnelley is subject to proceedings, lawsuits and other claims. In the opinion of R.H. Donnelley management, the outcome of such current legal proceedings, claims and litigation will not materially affect R.H. Donnelley's financial position or results of operations. 8. PENSION AND POSTRETIREMENT BENEFITS Upon the Distribution, R.H. Donnelley will assume responsibility for pension benefits for active employees of R.H. Donnelley, DonTech active employees and DonTech vested terminated employees with benefits under the D&B Retirement Plan. The responsibility for R.H. Donnelley retirees and vested terminated employees prior to the Distribution will remain with New D&B. R.H. Donnelley will assume responsibility for postretirement benefits for active employees of R.H. Donnelley and a portion of the cost of postretirement benefits for certain DonTech employees. An allocation of assets and liabilities related to active employee benefits has been included in the financial statements. F-18 121 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) Pension R.H. Donnelley participates in D&B's defined benefit pension plan covering substantially all employees. Effective January 1, 1997, the D&B Retirement Plan was amended to provide retirement income based on a percentage of annual compensation, rather than final pay. R.H. Donnelley accounts for the plan as a multi-employer plan. Accordingly, RHD has recorded pension costs as allocated by D&B totaling $996, $1,082, and $1,077 for the years 1997, 1996 and 1995, respectively. The assumptions of the multi-employer plan are described below. The weighted average expected long-term rate of return on pension plan assets was 9.70% for 1997 and 9.75% for 1996, and 1995. At December 31, 1997 and 1996, the projected benefit obligations were determined using weighted average discount rates of 7.01% and 7.77%, respectively, and weighted average rates of increase in future compensation levels of 4.46% and 5.15%, respectively. Plan assets are invested in diversified portfolios that consist primarily of equity and debt securities. Savings Plan Certain employees of R.H. Donnelley are also eligible to participate in the D&B sponsored defined contribution plan. RHD makes a matching contribution of up to 50% of employees' contribution based on specified limits of the employee's salary. R.H. Donnelley's expense related to this plan was $2,243, $2,268, and $3,288 for the years 1997, 1996 and 1995, respectively. Postretirement Benefits In addition to providing pension benefits, D&B provides various health-care and life-insurance benefits for retired employees. Employees are eligible for these benefits if they reach normal retirement age while working for R.H. Donnelley. R.H. Donnelley accounts for the plan as a multi-employer plan. Accordingly, R.H. Donnelley has recorded postretirement benefits costs as allocated by D&B totaling $1,724, $1,873, and $1,864 for the years 1997, 1996 and 1995. The assumption used for the multi-employer plan follows. The accumulated postretirement benefits obligation at December 31, 1997 and 1996, was determined using discount rates of 7.0% and 7.75%, respectively. The assumed rate of future increases in per capita cost of covered health-care benefits is 7.3% in 1998, decreasing gradually to 5.0% for the year 2021 and remaining constant thereafter. 9. EMPLOYEE STOCK OPTION PLANS Under D&B's Key Employees Stock Option Plans, certain employees of R.H. Donnelley are eligible for the grant of stock options, stock appreciation rights and limited stock appreciation rights in tandem with stock options. These awards are granted at the market price on the date of the grant. Immediately following the Distribution, outstanding awards under the post-Distribution D&B Key Employees Stock Option Plans held by R.H. Donnelley employees will be adjusted to have the same ratio of the exercise price per option to the market value per share, the same aggregate difference between market value and exercised price and the same vesting provisions, option periods and other terms and conditions applicable prior to the Distribution. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation", which requires that companies with stock-based compensation plans either recognize compensation expense based on the fair value of options granted or continue to apply the existing F-19 122 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) accounting rules and disclose pro forma net income and earnings per share assuming the fair value method had been applied. R.H. Donnelley has chosen to continue applying Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the fixed stock option plans. Had compensation cost for R.H. Donnelley's stock-based compensation plans been determined based on the fair value at the grant dates for awards to R.H. Donnelley's employees under those plans, consistent with the method of SFAS No. 123, R.H. Donnelley's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 ------- ------- -------- Net income: As reported.............................. $84,905 $78,085 $108,397 Pro forma................................ $84,542 $77,844 $108,397 Basic earnings per share of common stock As reported........................... $ 0.50 $ 0.46 $ 0.64 Pro forma............................. $ 0.50 $ 0.46 $ 0.64 Diluted earnings per share of common stock As reported........................... $ 0.50 $ 0.46 $ 0.64 Pro forma............................. $ 0.49 $ 0.46 $ 0.64
The pro-forma disclosures shown are not representative of the effects on income and earnings per share in future years. The fair value of D&B's stock options used to compute the R.H. Donnelley's pro forma income disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model. The weighted average assumptions used for 1997 were as follows dividend yield of 3.3%, expected volatility of 20%, risk-free interest rate of 5.73%, and an expected holding period of 4.5 years. The following weighted average assumptions were used to value grants made prior to the November 1, 1996 distribution: dividend yield of 4.7%, expected volatility of 15%, a risk-free interest rate of 6.08%, and an expected holding period of five years. The incremental fair value of the R.H. Donnelley's options converted on October 31, 1996, used to compute pro-forma income disclosures and the value of new grants after November 1, 1996, was determined using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 3.7%, expected volatility of 17%, a risk-free interest rate of 5.85%, and an expected holding period of 4.5 years. The D&B assumptions used in the option-pricing model may not be valid for R.H. Donnelley on a going forward basis. Options outstanding at December 31, 1997, were granted during the years 1988 through 1997 and are exercisable over periods ending not later than 2007. At December 31, 1997 and 1996, options for 606,459 shares and 575,941 shares of common stock, respectively, were exercisable and 1,450,195 shares, 4,240,772 shares and 10,306,592 shares, respectively, were available for future grants under the plans at December 31, 1997, 1996 and 1995, respectively. F-20 123 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) Changes in stock options for the three years ended December 31, 1997, are summarized as follows:
WEIGHTED AVERAGE EXERCISE SHARES PRICE($) --------- -------- Options outstanding, January 1, 1995: 340,730 $53.48 Granted................................................... 79,228 63.20 Exercised................................................. (27,619) 44.54 Surrendered or expired.................................... -- -- --------- ------ Options outstanding, December 31, 1995: 392,339 56.07 Granted................................................... -- -- Exercised................................................. (52,133) 51.99 Surrendered or expired.................................... (8,034) 57.18 --------- ------ Options outstanding, October 31, 1996....................... 332,172 56.68 --------- ------ Options converted, November 1, 1996......................... 876,137 21.48 Granted................................................... 474,305 22.87 Exercised................................................. (9,053) 20.95 Surrendered or expired.................................... (15,816) 22.12 --------- ------ Options outstanding, December 31, 1996:..................... 1,325,573 21.97 Granted................................................... 378,991 29.95 Exercised................................................. (175,064) 20.45 Surrendered or expired.................................... (119,412) 22.87 --------- ------ Options outstanding, December 31, 1997...................... 1,410,088 $24.23 ========= ======
The weighted average fair value of options granted during 1997, 1996 and 1995 was $5.54, $3.60 and $7.60, respectively. The following table summarizes information about stock options outstanding at December 31, 1997:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE ---------------------------------- -------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE -------------- --------- ----------- -------- ----------- ------------ $ 15.73-$20.46 271,096 4 years $19.36 230,672 $19.17 $ 20.94-$24.75 767,626 6.7 years $23.13 375,787 $23.05 $ 27.72-$30.22 371,366 9.8 years $30.06 -- $ -- --------- ------- 1,410,088 606,459 ========= =======
F-21 124 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) 10. INCOME TAXES Provision for income taxes consisted of:
1997 1996 1995 -------- -------- -------- Current Tax Provision: U.S. Federal.......................... $ 63,629 $ 28,634 $ 48,839 State and local....................... 8,660 15,675 13,232 -------- -------- -------- Total current tax provision... 72,289 44,309 62,071 Deferred tax (benefit) provision U.S. Federal.......................... (15,777) 19,347 9,473 State and local....................... 2,734 (2,799) 2,854 -------- -------- -------- Total deferred tax (benefit) provision................... (13,043) 16,548 12,327 -------- -------- -------- Provision for income taxes............ $ 59,246 $ 60,857 $ 74,398 ======== ======== ========
The following table summarizes the significant differences between the U.S. Federal statutory tax rate and R.H. Donnelley's effective tax rate for financial statement purposes.
1997 1996 1995 ------ ----- ----- Statutory tax rate............................... 35.0% 35.0% 35.0% State and local taxes, net of U.S. Federal tax benefit........................................ 5.1 6.0 5.7 Non-deductible capital losses.................... 0.0 2.8 0.0 Non-deductible expense........................... 1.0 0.0 0.0 ------ ----- ----- Effective tax rate............................... 41.1% 43.8% 40.7% ====== ===== =====
Deferred tax assets (liabilities) consisted of the following at December 31,
1997 1996 ------- ------- Deferred tax assets: Postretirement benefits.............................. $ 4,288 $ 4,008 Postemployment benefits.............................. 3,210 1,718 Reorganization and restructuring costs............... 937 1,606 Bad debts............................................ 1,606 4,643 Intangibles.......................................... 2,571 2,367 Other................................................ 15,535 401 ------- ------- Total deferred tax asset............................... 28,147 14,743 ------- ------- Deferred tax liabilities: Revenue recognition.................................. 45,160 51,270 Pension.............................................. 3,812 4,132 Plant, property and equipment........................ 829 906 Capitalized project costs............................ 12,802 12,425 ------- ------- Total deferred tax liabilities......................... 62,603 68,733 ------- ------- Net deferred tax liability............................. $34,456 $53,990 ======= =======
F-22 125 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) 11. SUPPLEMENTAL FINANCIAL INFORMATION Property and Equipment, Net:
1997 1996 -------- -------- Computer equipment................................... $ 35,516 $ 38,971 Machinery and equipment.............................. 4,949 5,368 Furniture and fixtures............................... 7,927 8,417 Leasehold improvements............................... 7,193 5,541 -------- -------- Total at cost.............................. 55,585 58,297 Less accumulated depreciation........................ (30,125) (27,545) -------- -------- Total net fixed assets............................... $ 25,460 $ 30,752 ======== ========
Computer Software:
COMPUTER SOFTWARE -------- January 1, 1996............................................. $22,101 Additions at cost........................................... 21,859 Amortization................................................ (3,910) ------- December 31, 1996...................................... 40,050 Additions at cost........................................... 7,190 Transfer in................................................. 95 Amortization................................................ (9,789) ------- December 31, 1997...................................... $37,546 =======
Accumulated amortization on computer software costs was $14,001 and $5,896 at December 31, 1997 and 1996, respectively. F-23 126 R.H. DONNELLEY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA) 12. VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND END OF DESCRIPTION PERIOD EXPENSES DEDUCTIONS(A) PERIOD - -------------------------------------------- ------------ ----------- ------------- ---------- Allowance for Doubtful Accounts: For the year ended December 31, 1997...... $11,607 $11,815 $19,408 $ 4,014 For the year ended December 31, 1996...... 21,167 11,743 21,303 11,607 For the year ended December 31, 1995...... 32,421 10,861 22,115 21,167
- --------------- (a) Includes accounts written off. 13. QUARTERLY INFORMATION (UNAUDITED)
THREE MONTHS ENDED --------------------------------------------------- YEAR ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 DECEMBER 31 -------- -------- ------------ ----------- ----------- 1997 Revenues................... $20,207 $ 60,465 $62,728 $ 96,465 $239,865 Operating income (loss).... $(2,290) $ 9,789 $46,833 $ 80,407 $134,739 Net income................. $(1,374) $ 5,873 $28,100 $ 52,306 $ 84,905 Earning per share data: Basic.................... $ (0.01) $ 0.03 $ 0.16 $ 0.32 $ 0.50 Diluted.................. $ (0.01) $ 0.03 $ 0.16 $ 0.32 $ 0.50 1996 Revenues................... $23,170 $ 64,615 $57,743 $124,501 $270,029 Operating income (loss).... $ 6,921 $ (4,400) $27,468 $137,453 $167,442 Net income................. $ 3,889 $(18,490) $15,437 $ 77,249 $ 78,085 Earning per share data: Basic.................... $ 0.02 $ (0.11) $ 0.09 $ 0.46 $ 0.46 Diluted.................. $ 0.02 $ (0.11) $ 0.09 $ 0.46 $ 0.46
14. SUBSEQUENT EVENTS On July 1, 1998, as part of the Distribution, D&B distributed to its stockholders shares of New D&B stock, which represents a continuing interest in D&B's business to be conducted by New D&B. After the Distribution, D&B's only business is the R.H. Donnelley business, and shares of D&B Common Stock held by D&B stockholders represents a continuing interest only in that business. In connection with the Distribution, D&B changed its name to R.H. Donnelley Corporation and D&B Common Stock has become R.H. Donnelley Common Stock. The financial statements of R.H. Donnelley have been restated to reflect the recapitalization. On June 5, 1998 R.H. Donnelley Inc. entered into a Credit Agreement with the Chase Manhattan Bank, Chase Securities Inc., Goldman Sachs and the Lenders party thereto. Under the terms of the agreement, R.H. Donnelley Inc. obtained a Senior Revolving Credit Facility of $100 million and Senior Secured Term Facilities in aggregate of $300 million, of which R.H. Donnelley has borrowed in aggregate $350 million payable over a maximum period of nine years. On June 16, 1998, R.H. Donnelley entered into 3 interest rate swap transactions which converted part of its floating rates interest obligations to fixed rates. The swap transactions total in aggregate $175 million of the $350 million of loans under the Credit Agreement. The swaps have terms of 3, 4 and 5 years. In addition on June 5, 1998 R.H. Donnelley Inc. issued $150 million of Senior Subordinated Notes. These Notes pay interest semi-annually and are due in 2008. The aggregate $500 million was dividended to D&B, but repayment of such indebtedness remains an obligation of R.H. Donnelley Inc., as guaranteed by R.H. Donnelley Corporation. F-24 127 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Partners of DonTech We have audited the accompanying combined balance sheets of AM-DON (doing business as "DonTech" and hereafter referred to as "DonTech I") and the DonTech II Partnership ("DonTech II") as of December 31, 1997 and 1996, and the related combined statements of operations, partners' capital, and cash flows for each of the years in the three year period ended December 31, 1997. These financial statements are the responsibility of the management of DonTech I and DonTech II. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of DonTech I and DonTech II as of December 31, 1997 and 1996, and the combined results of their operations and their cash flows for each of the years in the three year period ended December 31, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Chicago, Illinois January 8, 1998 F-25 128 DONTECH COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Sales................................................... $503,912 $459,083 $442,952 Less Allowances......................................... 77,788 50,202 51,076 -------- -------- -------- Net Sales..................................... 426,124 408,881 391,876 Expenses: Salary and Wages...................................... 12,133 -- -- Commission............................................ 4,558 -- -- Telephone Company Fees................................ 83,210 83,532 83,995 Printing and Manufacturing............................ 39,085 35,221 34,632 Selling............................................... 36,236 33,060 30,464 Compilation........................................... 8,888 9,067 9,870 Delivery.............................................. 7,703 7,316 10,950 Administrative........................................ 7,696 3,444 6,138 Occupancy and Depreciation............................ 9,880 8,148 6,175 Other................................................. 12,489 9,476 8,980 -------- -------- -------- Total Operating Expenses...................... 221,878 189,264 191,204 -------- -------- -------- Income from Operations........................ 204,246 219,617 200,672 Other Income............................................ 2,064 2,677 3,775 -------- -------- -------- Net Income.................................... $206,310 $222,294 $204,447 ======== ======== ========
The accompanying notes are an integral part of the combined financial statements. F-26 129 DONTECH COMBINED BALANCE SHEETS
DECEMBER 31, -------------------- 1997 1996 -------- -------- (IN THOUSANDS) ASSETS Current Assets: Cash and Cash Equivalents................................. $ 6,824 $ 4,559 Accounts Receivable, Net of Allowance for Doubtful Accounts of $35,581 (1997) and $13,908 (1996).......... 225,240 261,252 Deferred Expenses......................................... 41,513 86,329 Commission Receivable..................................... 43,681 -- Other..................................................... 6,241 3,057 -------- -------- Total Current Assets.............................. 323,499 355,197 Fixed Assets, Net of Accumulated Depreciation and Amortization.............................................. 4,898 6,621 -------- -------- Total Assets...................................... $328,397 $361,818 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Current Liabilities: Accounts Payable.......................................... $ 21,417 $ 23,720 Accrued Liabilities....................................... 5,623 5,106 Deferred Sales Revenue.................................... 162,760 174,105 -------- -------- Total Current Liabilities......................... 189,800 202,931 Partners' Capital........................................... 165,597 158,887 Partnership Contributions Receivable........................ (27,000) -- -------- -------- Total Partners' Capital........................... 138,597 158,887 -------- -------- Total Liabilities and Partners' Capital........... $328,397 $361,818 ======== ========
The accompanying notes are an integral part of the combined financial statements. F-27 130 DONTECH COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 --------- --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income......................................... $ 206,310 $ 222,294 $ 204,447 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization................... 3,246 3,526 2,806 Provision for Uncollectible Accounts............ 32,474 7,105 6,190 Changes in Assets and Liabilities: Increase in Accounts Receivable............... (40,144) (27,791) (28,295) (Increase) Decrease in Deferred Printing and Manufacturing.............................. 20,788 (5,460) (2,476) (Increase) Decrease in Deferred Selling....... 13,076 (1,430) (4,957) Decrease in Deferred Compilation.............. 5,309 255 1,046 Decrease in Deferred Delivery................. 1,895 19 518 Decrease in Deferred Directory Operating Service.................................... 1,468 322 630 (Increase) Decrease in Deferred Other......... 2,280 702 (1,616) (Increase) Decrease in Other Current Assets... (3,184) (1,675) 75 Increase (Decrease) in Accounts Payable....... (2,303) 923 (3,433) Increase (Decrease) in Accrued Liabilities.... 517 (5,420) 712 Increase (Decrease) in Deferred Sales Revenue.................................... (11,345) 5,280 17,920 --------- --------- --------- Total Adjustments.......................... 24,077 (23,644) (10,880) --------- --------- --------- Net Cash Provided by Operating Activities............................... 230,387 198,650 193,567 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Fixed Assets.......................... (1,522) (1,029) (5,850) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Partner Contributions.............................. 2,998 -- -- Distributions to Partners.......................... (229,598) (195,553) (191,200) --------- --------- --------- Net Cash Used in Financing Activities..................... (226,600) (195,553) (191,200) --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents........................................ 2,265 2,068 (3,483) Cash and Cash Equivalents, Beginning of Year......... 4,559 2,491 5,974 --------- --------- --------- Cash and Cash Equivalents, End of Year............... $ 6,824 $ 4,559 $ 2,491 ========= ========= ========= NONCASH FINANCING ACTIVITIES: Partnership Capital Contributions Receivable....... $ 27,000 $ -- $ -- ========= ========= =========
The accompanying notes are an integral part of the combined financial statements. F-28 131 DONTECH COMBINED STATEMENTS OF PARTNERS' CAPITAL THREE YEARS ENDED DECEMBER 31, 1997 (IN THOUSANDS)
THE REUBEN H. AMERITECH DONNELLEY PUBLISHING OF CORPORATION ILLINOIS, INC. TOTAL ----------- -------------- --------- Balance, December 31, 1994........................... $ 67,749 $ 51,150 $ 118,899 Net Income........................................... 112,446 92,001 204,447 Distributions to Partners............................ (107,525) (83,675) (191,200) --------- --------- --------- Balance, December 31, 1995........................... 72,670 59,476 132,146 Net Income........................................... 120,039 102,255 222,294 Distributions to Partners............................ (106,920) (88,633) (195,553) --------- --------- --------- Balance, December 31, 1996........................... 85,789 73,098 158,887 Contributions, Per Agreement......................... 13,500 13,500 27,000 Contributions Receivable............................. (13,500) (13,500) (27,000) Net Income........................................... 118,162 88,148 206,310 Distributions to Partners............................ (121,688) (104,912) (226,600) --------- --------- --------- Balance, December 31, 1997........................... $ 82,263 $ 56,334 $ 138,597 ========= ========= =========
The accompanying notes are an integral part of the combined financial statements. F-29 132 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) 1. FORM OF ORGANIZATION AND NATURE OF BUSINESS AM-DON d.b.a. DonTech ("DonTech") is a general partnership between R.H. Donnelley Inc. ("R.H. Donnelley"), a Delaware corporation, and Ameritech Publishing of Illinois, Inc. ("API/IL"), an Illinois corporation, doing business as Ameritech advertising services ("Aas"). Under a new structure as defined in the "Master Agreement" dated August 19, 1997, the existing partnership is defined as "DonTech I". Concurrently, API/IL and Donnelley formed a new partnership defined as "DonTech II". DonTech I participated in a Directory Agreement with R.H. Donnelley, Illinois Bell Telephone Company ("IBT"), doing business as Ameritech Illinois, API/IL and Aas. DonTech I also participated in a Subcontracting Agreement with API to perform certain of API's obligations under the Publishing Services Contract between API and Indiana Bell Telephone Company, Incorporated ("Indiana Bell"), doing business as Ameritech Indiana. DonTech I published various directories, as identified in the Directory Agreements, solicited advertising, its primary source of revenues, and manufactured and delivered such directories. DonTech I's net income was allocated to each partner based on a predefined percentage as set forth in the amended partnership agreement. In accordance with the Second Amended and Restated AM-Don Partnership Agreement, effective August 19, 1997, the DonTech I partnership ceased publishing directories as of January 1, 1998. The partnership will recognize the deferred revenue and expenses recorded as of December 31, 1997 over the remaining life of those directories published prior to January 1, 1998. Upon completion of the earnings process, the partnership will thereafter wind up in accordance with the agreement. In August 1997, R.H. Donnelley and API/IL reached an agreement regarding a revised partnership structure through which a new DonTech partnership became the exclusive sales agent in perpetuity for the yellow page directories to be published in Illinois and Northwest Indiana by APIL Partners Partnership (the "Publisher"). The new partnership, known as "DonTech II", receives a 27% commission on sales, net of provisions (capped at 6.1%), from the Publisher. DonTech II's cost structure includes only sales, sales operations, office services, finance, facilities and related overhead. DonTech II profits are shared equally between the partners. A Board of Directors (the "Board") was appointed to administer the activities of each partnership. From time to time during the term of the partnerships, the Board may call for additional capital contributions in equal amounts from each of the partners if, in the opinion of the Board, additional capital is required for the operation of the partnerships. The accompanying financial statements of DonTech I and DonTech II are shown on a combined basis. As DonTech II was formed in August 1997, the combined statements of operations for the three years in the period ended December 31, 1997 only include the results of operations of DonTech II for the period from August 1997 through December 1997. All significant affiliated accounts and transactions have been eliminated in preparation of the combined financial statements. 2. SIGNIFICANT ACCOUNTING POLICIES a. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with an initial maturity date of three months or less. The carrying value of cash equivalents estimates fair value due to the short-term nature. F-30 133 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) b. Revenue Recognition Substantially all DonTech I sales made to customers in the cities covered by the directories are recorded as deferred sales revenue and accounts receivable in the month of publication. Revenue related to these sales is recognized over the lives of the directories, generally twelve months. Sales made to customers outside the cities covered by the directories are recognized each quarter. Sales for national accounts are recognized in full in the month of publication. For DonTech II, revenue is comprised of sales commissions and is recognized upon execution of contracts for the sale of advertising. c. Fixed Assets Fixed assets are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. Upon asset retirement or other disposition, cost and the related accumulated depreciation are removed from the accounts, and gain or loss is included in the statement of operations. Amounts for repairs and maintenance are charged to operations as incurred. d. Deferred Expenses The printing, manufacturing, compilation, sales, delivery and administrative costs of DonTech I publications are deferred and recognized in proportion to revenue. e. Postretirement Benefits Other Than Pensions The partnerships are obligated to provide postretirement benefits consisting mainly of life and health insurance to substantially all employees and their dependents. The accrual method of accounting is utilized for postretirement health care and life insurance benefits. f. Income Taxes No provision for income taxes is made as the proportional share of each partnership's income is the responsibility of the individual partners. 3. DEFERRED EXPENSES Deferred expenses consist of the following at December 31:
1997 1996 ------- ------- Printing and manufacturing.................................. $13,932 $34,720 Selling..................................................... 20,331 33,407 Compilation................................................. 3,310 8,619 Delivery.................................................... 1,089 2,984 Directory operating services................................ 750 2,218 Other....................................................... 2,101 4,381 ------- ------- $41,513 $86,329 ======= =======
F-31 134 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) 4. FIXED ASSETS Fixed assets consist of the following at December 31:
1997 1996 ------- ------- Machinery and equipment..................................... $18,816 $17,329 Furniture and fixtures...................................... 3,727 3,712 Leasehold improvements...................................... 995 974 ------- ------- 23,538 22,015 Less accumulated depreciation and amortization.............. 18,640 15,394 ------- ------- $ 4,898 $ 6,621 ======= =======
5. RELATED PARTY TRANSACTIONS DonTech I Under the Directory Agreement, DonTech I is obligated to pay IBT a minimum of $75 million per year in exchange for billing and collection services performed by IBT. The base fee for these services is $75 million for each calendar year until the Directory Agreement is terminated. Under the terms of the recently revised partnership agreement the responsibility for payment of these fees is transferred to Ameritech effective January 1, 1998. In addition to the base fee, DonTech I has agreed to pay IBT an amount equal to 7 1/2% of the increase in total revenue received from certain sources identified in the Directory Agreement over such revenues received in the immediately preceding calendar year. The additional fee due to IBT was $609, $1,122 and $487 in 1997, 1996 and 1995, respectively. IBT also provides directory operations services (white pages compilation) to DonTech I. DonTech I paid approximately $2 million to IBT in 1997, 1996 and 1995 for these services. However, effective January 1, 1998, under the terms of the revised partnership agreement the cost of these services becomes the responsibility of Ameritech. R.H. Donnelley provides compilation, photocomposition, and data processing services to DonTech I. The Dun & Bradstreet Corporation, of which R.H. Donnelley is a wholly owned subsidiary, provides employee benefits and administrative services, and certain business insurance coverages for each partnership. The amount paid for these services is determined at the beginning of each year based upon estimated activity and adjusted to actual at the end of each year. The amount paid for these services was approximately $22 million in each of the years ended December 31, 1997, 1996 and 1995. The amount paid for employee benefits includes the administration of each partnership's Profit Sharing and 401(k) Plans as well as its health care, long and short term disability, dental and pension plans. Effective June 1, 1997, DonTech I became self-insured for health care, long and short term disability and dental plans at which time it terminated its coverages for these plans through The Dun & Bradstreet Corporation. DonTech II will assume the obligations of these plans. DonTech I also entered into subcontracting agreements for the publishing of certain Indiana Bell directories. For the first four months of 1997, under a Directory Fulfillment Memorandum of Understanding, DonTech I was obligated to perform certain directory fulfillment services for Aas. The obligation for these services was transferred to an outside vendor effective May 1, 1997. F-32 135 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) Amended Partnership Allocation In 1997, the partners negotiated a settlement agreement regarding excessive bad debt write-offs incurred by DonTech I during the year ended December 31, 1997. The agreement provided for a special allocation of the excessive bad debts between the partners based upon a negotiated ratio. The effect of this settlement agreement has been included in the allocation of net income as presented in the statement of partners' capital at December 31, 1997. DonTech II Under the terms of the DonTech II partnership agreement, The Dun & Bradstreet Corporation provides certain employee benefits and administrative services. These include the administration of the partnership's profit Sharing and 401(k) Plans, as well as its pension plans. Also, certain business insurance coverages for the partnership will be provided by both The Dun & Bradstreet Corporation and Ameritech. Under the provisions of the "Revenue Participation Agreement" dated August 19, 1997, in exchange for exclusive publishing rights, the Publisher agreed to pay R.H. Donnelley revenue participation interests. The revenue participation interests are based upon gross revenues of DonTech II, net of provisions (capped at 6.1% per annum) and sales commissions paid by DonTech II. The revenue participation interest is as follows: 1997................................................ 43.7% 1998................................................ 34.8% 1999 and thereafter................................. 35.9%
6. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject each partnership to concentration of credit risk consist principally of commercial paper and accounts receivables. The partnerships invest their excess cash in commercial paper with an investment rating of AA or higher and have not experienced any losses on these investments. Each partnership's trade accounts receivable are primarily composed of amounts due from customers whose businesses are in the state of Illinois. Collateral is generally not required from either partnership's customers. 7. PARTNERSHIP CONTRIBUTION RECEIVABLE For DonTech II, the respective partner capital contributions are to be made in equal proportion according to the Initial Capital Schedule as reflected in the DonTech II Partnership Agreement. As of December 31, 1997, the total amount of capital required to be contributed by the partners was $27,000. At December 31, 1997, the respective partnership capital accounts have been credited with the amount of required capital contributions and have been offset by a corresponding contributions receivable as the funds had not been received. 8. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the F-33 136 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. 9. LEASE COMMITMENTS DonTech I leases certain office and warehouse facilities under noncancelable lease arrangements. These leases and the related obligations will be assumed by Don Tech II. Rent expense under these operating leases was approximately $2,603, $2,564 and $2,323 in 1997, 1996 and 1995, respectively. The future minimum lease payments required under noncancelable operating leases that have initial or remaining lease terms in excess of one year as of December 31, 1997 are as follows:
AMOUNT ------ 1998................................................ $1,814 1999................................................ 843 2000................................................ 814 2001................................................ 726 2002................................................ 466 Thereafter.......................................... 831 ------ $5,494 ======
10. EMPLOYEE RETIREMENT AND PROFIT PARTICIPATION PLANS Each partnership participates in a defined benefit pension plan covering substantially all of its respective employees (the "Principal Plan"). The Principal Plan's assets are invested in equity funds, fixed income funds and real estate. The components of net periodic pension costs for the years ended December 31, are as follows:
1997 1996 1995 ------- ------- ------- Service cost................................................ $ 935 $ 909 $ 945 Interest cost............................................... 1,185 1,020 1,093 Actual return on plan assets................................ (3,465) (1,618) 185 Net amortization and deferral............................... 2,465 870 (549) ------- ------- ------- Net periodic pension cost................................... $ 1,120 $ 1,181 $ 1,674 ======= ======= =======
F-34 137 DONTECH NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED (IN THOUSANDS) The reconciliation of the funded status of the Principal Plan at December 31 is as follows:
1997 1996 -------- -------- Fair value of plan assets................................... $ 20,195 $ 13,863 -------- -------- Actuarial present value of benefit obligations: Vested benefits........................................... (12,706) (10,540) Nonvested benefits........................................ (1,086) (1,285) -------- -------- Accumulated benefit obligations............................. (13,792) (11,825) Effect of future salary increases........................... 3,895 3,773 Projected benefit obligations............................... (17,686) (15,598) -------- -------- Plan assets in excess of (less than) projected benefit obligations............................................... 2,509 (1,735) Unrecognized net (gain)/loss................................ (2,093) 43 Unrecognized prior service cost............................. 2,826 2,751 Adjustment to recognize minimum liability................... (148) (189) -------- -------- Prepaid (accrued) pension cost.............................. $ 3,094 $ 870 ======== ========
PRINCIPAL ASSUMPTIONS 1997 1996 1995 --------------------- -------- -------- ------- Weighted average discount rate............................ 7.00% 7.75% 7.50% Weighted average rate of compensation increase............ 3.16% 3.16% 4.16% Long-term rate of return on assets........................ 9.75% 9.75% 9.75%
Additionally, each respective partnership participates in a Profit Participation Plan (the "Profit Plan") that covers substantially all its employees. Employees may voluntarily contribute up to 16% of their salaries to the Profit Plan and are guaranteed a matching contribution of fifty cents per dollar contributed up to 6%. Each partnership also makes contributions to the Profit Plan based on a formula and contingent upon the attainment of financial goals set in advance as defined in the Plan. The contributions made to the plan were $926, $809 and $1,025 in 1997, 1996 and 1995, respectively. 11. VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE AT CHARGED BEGINNING TO BALANCE AT OF COSTS AND END OF DESCRIPTION PERIOD EXPENSES DEDUCTIONS(A) PERIOD ----------- ---------- --------- ------------- ---------- Allowance For Doubtful Accounts For year ended December 31, 1997............ $13,908 $40,230 $18,557 $35,581 For year ended December 31, 1996............ $23,106 $50,202 $59,400 $13,908 For year ended December 31, 1995............ $18,777 $51,076 $46,747 $23,106
- --------------- (a) Includes accounts written off. F-35 138 - ------------------------------------------------------ - ------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 1 Risk Factors.......................... 11 Use of Proceeds....................... 18 Capitalization........................ 19 Selected Financial Data............... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 29 The Exchange Offer.................... 37 Business.............................. 44 Relationship Between Donnelley Corp. and the New Dun and Bradstreet Corporation After the Distribution........................ 55 Management............................ 59 Security Ownership of Certain Beneficial Owners and Management.... 66 Description of New Credit Facility.... 67 Description of Notes.................. 68 Certain United States Tax Consequences........................ 96 Plan of Distribution.................. 96 Validity of Notes..................... 97 Experts............................... 97 Available Information................. 97 Index to Financial Statements......... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ $150,000,000 [LOGO] R.H. DONNELLEY INC. 9 1/8% SENIOR SUBORDINATED NOTES DUE 2008 ----------------------- PROSPECTUS ----------------------- JULY [ ], 1998 - ------------------------------------------------------ - ------------------------------------------------------ 139 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Reference is made to Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a corporation in its original certificate of incorporation or as an amendment thereto to eliminate or limit the personal liability of a director for violations of the director's fiduciary duty, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for the unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit. Section 145 of the DGCL empowers the Company and Donnelley Corp. to indemnify, subject to the standards set forth therein, any person in connection with any action, suit or proceeding brought before or threatened by reason of the fact that the person was a director, officer, employee or agent of such company, or is or was serving as such with respect to another entity at the request of such company. The DGCL also provides that the Company and Donnelley Corp. may purchase insurance on behalf of any such director, officer, employee or agent. Each of the Company's and Donnelley Corp.'s Certificate of Incorporation provides in effect for the indemnification by the such corporation of each director and officer of such corporation to the fullest extent permitted by applicable law. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NO. DOCUMENT - ----------- -------- *3.1 Certificate of Incorporation of the Company 3.2 By-laws of the Company *3.3 Certificate of Incorporation of Donnelley Corp. 3.4 By-laws of Donnelley Corp. 4.1 Indenture dated as of June 5, 1998 between Donnelley, as Issuer, Donnelley Corp., as Guarantor and the Bank of New York, as Trustee, with respect to the 9 1/8% Senior Subordinated Notes due 2008 4.2 Form of the 9 1/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.1) 4.3 Donnelley Corp. Guarantee (included in Exhibit 4.1) 4.4 Exchange and Registration Rights Agreement dated as of June 5, 1998, among the Company, the Parent Company, and Goldman, Sachs & Co. and Chase Securities Inc., as Initial Purchasers *5.1 Legal Opinion 10.1 Form of Distribution Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.2 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998) 10.2 Form of Tax Allocation Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.3 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998)
II-1 140
EXHIBIT NO. DOCUMENT - ----------- -------- 10.3 Form of Employee Benefits Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.4 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998) 10.4 Form of Intellectual Property Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.5 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998) 10.5 Form of Shared Transaction Services Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.6 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998) 10.6 Form of Data Services Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.7 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998) 10.7 Form of Transition Services Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.8 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998) 10.8 Form of Amended and Restated Transition Services Agreement between the Dun & Bradstreet Corporation, the New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation and GartnerGroup, Inc. (incorporated by reference to Exhibit 99.9 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998) 10.9 Credit Agreement among the Company, the Chase Manhattan Bank, Chase Securities Inc. and Goldman Sachs Credit Partners L.P. 12.1 Statement regarding Computation of Earnings Ratio to Fixed Charges 21.1 List of Subsidiaries 23.1 Consent of PricewaterhouseCoopers with respect to R.H. Donnelley Corporation and DonTech 24.1 Power of Attorney (included on the signature page of this Registration Statement) *25.1 Statement of Eligibility of Trustee 27.1 Financial Data Schedule of Donnelley Corp./12-Mos Ended 12/31/1995 27.2 Financial Data Schedule of Donnelly Corp./For 1996 27.3 Financial Data Schedule of Donnelly Corp./For 1997 27.4 Financial Data Schedule of Donnelly Corp./For 3-Mos Ended 3/31/1998 *99.1 Form of Letter of Transmittal to 9 1/8% Senior Subordinated Notes due 2008 of the Company *99.3 Form of Notice of Guaranteed Delivery *99.4 Form of Letter to Record Holders *99.5 Form of Letter to Beneficial Holders *99.6 Form of Instruction from Owner of 9 1/8% Senior Subordinated Notes due 2008 of the Company
- --------------- * to be filed by amendment ITEM 22. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing II-2 141 provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matters has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 142 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Purchase, New York, on this 17th day of July, 1998. R.H. DONNELLEY INC. By: /s/ FRANK R. NOONAN ------------------------------------ The registrant and each person whose signature appears below constitutes and appoints each of Frank R. Noonan, Philip C. Danford and Stephen B. Wiznitzer his true and lawful attorneys-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign and file any and all amendments (including post-effective amendments) to this registration statement, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ FRANK R. NOONAN Director, President and Chief July 17, 1998 - --------------------------------------------------- Executive Officer Frank R. Noonan /s/ PHILIP C. DANFORD Director, Senior Vice President and July 17, 1998 - --------------------------------------------------- Chief Financial Officer Philip C. Danford /s/ STEPHEN B. WIZNITZER Director July 17, 1998 - --------------------------------------------------- Stephen B. Wiznitzer /s/ ANNA PATRUNO Vice President and Controller July 17, 1998 - --------------------------------------------------- Anna Patruno
II-4 143 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Purchase, New York, on this 17th day of July, 1998. R.H. DONNELLEY CORPORATION By: /s/ FRANK R. NOONAN ------------------------------------ The registrant and each person whose signature appears below constitutes and appoints each of Frank R. Noonan, Philip C. Danford and Stephen B. Wiznitzer his true and lawful attorneys-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign and file any and all amendments (including post-effective amendments) to this registration statement, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ FRANK R. NOONAN Chairman of the Board of Directors, July 17, 1998 - --------------------------------------------------- President and Chief Executive Frank R. Noonan Officer /s/ PHILIP C. DANFORD Senior Vice President and Chief July 17, 1998 - --------------------------------------------------- Financial Officer Philip C. Danford /s/ DIANE P. BAKER Director July 17, 1998 - --------------------------------------------------- Diane P. Baker /s/ WILLIAM G. JACOBI Director July 17, 1998 - --------------------------------------------------- William G. Jacobi /s/ ROBERT J. KAMERSCHEN Director July 17, 1998 - --------------------------------------------------- Robert J. Kamerschen /s/ CAROL J. PARRY Director July 17, 1998 - --------------------------------------------------- Carol J. Parry /s/ BARRY LAWSON WILLIAMS Director July 17, 1998 - --------------------------------------------------- Barry Lawson Williams /s/ ANNA PATRUNO Vice President and Controller July 17, 1998 - --------------------------------------------------- Anna Patruno
II-5 144 EXHIBIT INDEX
SEQUENTIALLY NUMBERED EXHIBIT NO. DOCUMENT PAGES - ----------- -------- ------------ *3.1 Certificate of Incorporation of the Company................. 3.2 By-laws of the Company...................................... *3.3 Certificate of Incorporation of Donnelley Corp.............. 3.4 By-laws of Donnelley Corp................................... 4.1 Indenture dated as of June 5, 1998 between Donnelley, as Issuer, Donnelley Corp., as Guarantor and the Bank of New York, as Trustee, with respect to the 9 1/8% Senior Subordinated Notes due 2008................................. 4.2 Form of the 9 1/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.1)................................... 4.3 Donnelley Corp. Guarantee (included in Exhibit 4.1)......... 4.4 Exchange and Registration Rights Agreement dated as of June 5, 1998, among the Company, the Parent Company, and Goldman, Sachs & Co. and Chase Securities Inc., as Initial Purchasers.................................................. *5.1 Legal Opinion............................................... 10.1 Form of Distribution Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.2 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998)....................................................... 10.2 Form of Tax Allocation Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.3 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998).............................................. 10.3 Form of Employee Benefits Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.4 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998).............................................. 10.4 Form of Intellectual Property Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.5 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998).............................................. 10.5 Form of Shared Transaction Services Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.6 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998).............................................. 10.6 Form of Data Services Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.7 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998)....................................................... 10.7 Form of Transition Services Agreement between the Dun & Bradstreet Corporation and the New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.8 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998)..............................................
145
SEQUENTIALLY NUMBERED EXHIBIT NO. DOCUMENT PAGES - ----------- -------- ------------ 10.8 Form of Amended and Restated Transition Services Agreement between the Dun & Bradstreet Corporation, the New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation and GartnerGroup, Inc. (incorporated by reference to Exhibit 99.9 to the Form 8-K of The Dun & Bradstreet Corporation, filed on June 30, 1998)....................................................... 10.9 Credit Agreement among the Company, the Chase Manhattan Bank, Chase Securities Inc. and Goldman Sachs Credit Partners L.P................................................ 12.1 Statement regarding Computation of Earnings Ratio to Fixed Charges..................................................... 21.1 List of Subsidiaries........................................ 23.1 Consent of PricewaterhouseCoopers with respect to R.H. Donnelley Corporation and DonTech........................... 24.1 Power of Attorney (included on the signature page of this Registration Statement)..................................... *25.1 Statement of Eligibility of Trustee......................... 27.1 Financial Data Schedule of Donnelley Corp./12-Mos Ended 12/31/1995.................................................. 27.2 Financial Data Schedule of Donnelly Corp./For 1996.......... 27.3 Financial Data Schedule of Donnelly Corp./For 1997.......... 27.4 Financial Data Schedule of Donnelly Corp./For 3-Mos Ended 3/31/1998................................................... *99.1 Form of Letter of Transmittal to 9 1/8% Senior Subordinated Notes due 2008 of the Company............................... *99.3 Form of Notice of Guaranteed Delivery....................... *99.4 Form of Letter to Record Holders............................ *99.5 Form of Letter to Beneficial Holders........................ *99.6 Form of Instruction from Owner of 9 1/8% Senior Subordinated Notes due 2008 of the Company...............................
- --------------- * to be filed by amendment EX-3.2 2 BY-LAWS OF THE COMPANY 1 Exhibit 3.2 BY-LAWS OF R.H. DONNELLEY INC. April 15, 1998 2 ARTICLE 1 SHAREHOLDERS SECTION 1.01. Annual Meetings. The annual meeting of the shareholders of the Company for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting shall be held at such time and place, within or without the State of Delaware, as may be designated from time to time by the Board of Directors. SECTION 1.02. Special Meetings. Special meetings of the shareholders may be held upon call of the Board of Directors or the President (and shall be called by the President at the request in writing of shareholders owning a majority of the outstanding shares of the Company entitled to vote at the meeting) at such time and place, within or without the State of Delaware, as may be designated by the Board of Directors or the President, as the case may be. SECTION 1.03. Notice of Meetings. Except as otherwise provided by law, notice of the time, place and purpose or purposes of every meeting of shareholders shall be given not earlier than sixty, nor less than ten, days previous thereto to each shareholder of record entitled to vote at the meeting, at the address of such shareholder as it appears on the records of the Company. Notice of any meeting of shareholders need not be given to any shareholder who shall waive notice thereof, before or after such meeting, in writing, or to any shareholder who shall attend such meeting, except when the shareholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 1.04. Quorum. The holders of record of a majority of the issued and outstanding shares of the Company which are entitled to vote at the meeting shall, except as otherwise provided by law, constitute a quorum at any meeting of the shareholders. If there be no such quorum present in person or by proxy, the chairman of the meeting, the secretary of the meeting or the holders of a majority of such shares so present or represented may adjourn the meeting from time to time until a quorum is present. SECTION 1.05. Conduct of Meeting. Meetings of the shareholders shall be presided over by the President or, if he or she is not present, by a Vice President or, if no such officer is present, by a chairman to be chosen at the meeting. The Secretary of the Company or, in his or her absence, an Assistant Secretary shall act as secretary of the meeting or, if neither the Secretary nor an Assistant 2 3 Secretary is present, the chairman shall appoint a secretary for purposes of the meeting. SECTION 1.06. Voting. Except as otherwise provided by law, any matter submitted to shareholders shall be decided by a majority of the votes cast on such matter. Voting need not be by written ballot. SECTION 1.07. Record Date. In order that the Company may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting; or entitled to receive payment of any dividend or other distribution or allotment of any rights; or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall be not more than sixty nor less than ten days before the date of any such meeting, nor more than sixty days prior to any such other action. If for any reason the Board of Directors shall not have fixed a record date for any such purpose, the record date for such purpose shall be determined as provided by law. Only those shareholders of record on the date so fixed or determined shall be entitled to any of the foregoing rights, notwithstanding the transfer of any such stock on the books of the Company after any such record date so fixed or determined. SECTION 1.08. Action by Written Consent. Any action required or permitted to be taken at any annual or special meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing. 3 4 ARTICLE 2 BOARD OF DIRECTORS SECTION 2.01. Number; Qualifications. The Board of Directors shall consist of one or more members, the number thereof to be fixed from time to time by resolution of the Board of Directors. Each director shall hold office until his or her successor is duly elected and qualified or until his or her earlier resignation, death or removal. Directors need not be shareholders. SECTION 2.02. Removal; Vacancies. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except as prohibited by law. Vacancies in the Board of Directors shall be filled by a majority of the remaining directors, though less than a quorum; and in case of an increase in the number of directors, the additional directors shall be elected by a majority of the directors in office at the time of increase, though less than a quorum; and any director so chosen shall hold office until his or her successor shall be duly elected and qualified or until his or her earlier resignation, death or removal. SECTION 2.03. Meetings. Regular Meetings of the Board shall be held at such time and place, within or without the State of Delaware, as may from time to time be designated by the Board or as may be specified in the notice of call of the meeting. Special meetings may be held at any time and place, within or without the State of Delaware, upon the call of the President or any director, by oral or written notice, served on, sent, faxed or mailed to each director not less than twenty-four hours before the meeting. The notice of any meeting need not specify the purposes thereof. Notice need not be given of regular meetings of the Board held at times fixed by resolution of the Board. Notice of any meeting need not be given to any director who shall attend such meeting in person or who shall waive notice thereof, before or after such meeting, in writing. SECTION 2.04. Quorum; Voting; Written Consent. A majority of the whole Board shall constitute a quorum for the transaction of business at all meetings of the Board of Directors. Except as otherwise required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Any action required or permitted to be taken at any meeting of the Board or any committee thereof may be taken without a meeting, if all the members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee. 4 5 SECTION 2.05. Committees. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate a committee or committees consisting of one or more of the directors. To the extent provided in said resolution and except as prohibited by law, any such committee shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Company. A majority of the members of a committee shall constitute a quorum for the transaction of its business. In the absence or disqualification of any member of any such committee, but not in the case of a vacancy therein, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting for all purposes in the place of any such absent or disqualified member. SECTION 2.06. Interested Directors. A director of the Company shall not, in the absence of fraud, be disqualified by virtue of his or her office from dealing or contracting with the Company either as vendor, purchaser or otherwise; nor, in the absence of fraud, shall any transaction or contract of the Company be void or voidable or affected by reason of the fact that any director, or any firm or corporation of which any director is a member, director or shareholder, is in any way interested in such transaction or contract; nor shall any director having such adverse interest be liable to the Company or to any shareholder or creditor thereof, or to any other person, for any loss incurred by it, him or her under or by reason of any such transaction or contract; provided, in each case, that (i) at the meeting of the Board of Directors or of a committee thereof having authority to authorize or confirm said transaction or contract, the interest of such director, firm or corporation therein and the material facts with respect thereto are disclosed or known, and the Board or Committee in good faith authorizes the transaction or contract by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum, or (ii) the material facts with respect thereto are disclosed or known to the shareholders entitled to vote thereon, and the transaction or contract is specifically approved in good faith by the affirmative vote of the shareholders, or (iii) such transaction or contract shall, at the time it was entered into, have been a reasonable one to have been entered into and shall have been upon terms that at the time were fair to the Company. Any director of the Company may vote upon any contract or other transaction between the Company and any subsidiary or affiliated corporation without regard to the fact that he or she is also a director of such subsidiary or affiliated corporation. SECTION 2.07. Ratification. Any contract, transaction or act of the Company or of the Board of Directors which shall be ratified by a majority vote of the shareholders of the Company having voting power at any annual meeting or any special meeting called for such purpose and to whom the material facts with 5 6 respect thereto are disclosed or known, shall be as valid and as binding as though ratified by every shareholder of the Company; provided, however, that any failure of the shareholders to approve or ratify such contract, transaction or act, when and if submitted, shall not be deemed in any way to invalidate the same or to deprive the Company or its directors or officers of their right to proceed with such contract, transaction or action. ARTICLE 3 OFFICERS SECTION 3.01. Election. The Board of Directors shall appoint a President, a Secretary and a Treasurer and may also from time to time appoint such other officers with such titles as it may deem proper. In addition, the President shall be entitled to appoint such officers with such titles (other than President, Secretary or Treasurer) as he or she may deem proper; provided that such appointment is made in a writing filed in the minute book of the Company. SECTION 3.02. Removal. Any officer may be removed from office at any time either with or without cause by the affirmative vote of a majority of the members of the Board then in office. In addition, in the case of an officer appointed by the President, such appointed officer may be removed from office at any time with or without cause by the President. SECTION 3.03. Powers. Each of the officers of the Company shall have the powers and duties prescribed by the Board of Directors and, in the case of an officer appointed by the President, the President. Unless otherwise prescribed by the By-Laws or by the Board of Directors or, in the case of an officer appointed by the President, by the President, each officer shall also have such further powers and duties as ordinarily pertain to his or her office. ARTICLE 4 INDEMNIFICATION SECTION 4.01. Indemnification. To the fullest extent permitted by applicable law, the Company shall indemnify any current or former director or officer of the Company and may, at the discretion of the Board of Directors, indemnify any current or former employee or agent of the Company, in each case against all expenses, judgments, fines and amounts paid in settlement actually and 6 7 reasonably incurred by him or her in connection with any threatened, pending or completed action, suit or proceeding brought by or in the right of the Company or otherwise, to which he or she was or is a party by reason of his or her current or former position with the Company or by reason of the fact that he or she is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnification provided by this Article IV shall not be deemed exclusive of any other rights to which any person indemnified may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be such director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and/or incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Company would have the power to indemnify him or her against such liability under the provisions of this Article IV or otherwise. ARTICLE 5 STOCK SECTION 5.01. Certificates. The interest of each shareholder of the Company shall be evidenced by a certificate or certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The shares in the stock of the Company shall be transferable on the books of the Company by the holder thereof in person or by his or her attorney, upon surrender for cancellation of a certificate or certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the Company or its agents may reasonably require. SECTION 5.02. Signing of Certificates. The certificates of stock shall be signed by such officer or officers as may be permitted by law to sign. Any or all of the signatures on the certificate may be facsimiles. In case any officer who shall have signed, or whose facsimile signature shall have been used, on any such certificate shall cease to be such officer of the Company, whether because of 7 8 death, resignation or otherwise, before such certificate shall have been issued by the Company, such certificate may nevertheless be issued and delivered as though the person who signed such certificate, or whose facsimile signature shall have been used thereon, had not ceased to be such officer of the Company. SECTION 5.03. Lost, Stolen or Destroyed Certificates. No certificate for shares of stock in the Company shall be issued in place of any certificate alleged to have been lost, stolen or destroyed, except upon production of reasonable evidence of such loss, theft or destruction and, if required by the Board or the President in its, his or her discretion, upon delivery to the Company of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors or the President in its, his or her discretion may require. ARTICLE 6 MISCELLANEOUS SECTION 6.01. Corporate Books. The books of the Company may be kept within or outside of the State of Delaware at such place or places as the Board of Directors may from time to time determine. SECTION 6.02. Fiscal Year. The fiscal year of the Company shall be the calendar year or shall begin and end on such other dates as shall be established from time to time by resolution of the Board of Directors. SECTION 6.03. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Company, the state and date of incorporation, and the words "Corporate Seal". In lieu of the corporate seal, when so authorized by the Board of Directors or a duly empowered committee thereof, a facsimile thereof may be impressed or affixed or reproduced. Unless otherwise required by law, no document executed on behalf of the Company shall be required to have the corporate seal affixed thereto and the absence of the corporate seal shall, unless otherwise prescribed by law, in no way affect the validity of any document otherwise properly executed by the Company. SECTION 6.04. Amendments. Subject to any limitations that may be imposed by the shareholders, the Board of Directors may make By-Laws and 8 9 from time to time may alter, amend or repeal any By-Laws, but any By-Laws made by the Board of Directors or the shareholders may be altered, amended or repealed by the shareholders at any annual meeting or at any special meeting duly called or by a written consent signed by all of the shareholders. 9 EX-3.4 3 BY-LAWS OF DONNELLEY CORP. 1 Exhibit 3.4 AMENDED AND RESTATED BY-LAWS OF R.H. DONNELLEY CORPORATION JULY 14, 1998 2 AMENDED AND RESTATED R.H. DONNELLEY CORPORATION BY-LAWS ARTICLE 1. ---------- STOCKHOLDERS. Section 1. The annual meeting of the stockholders of the corporation for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting shall be held on such date, and at such time and place within or without the State of Delaware as may be designated from time to time by the Board of Directors. Section 2. Special meetings of the stockholders may be held upon call of the Board of Directors, the Chairman of the Board or the President (and shall be called by the Chairman of the Board or the President at the request in writing of stockholders owning a majority of the outstanding shares of the corporation entitled to vote at the meeting) at such time and at such place within or without the State of Delaware, as may be fixed by the Board of Directors, the Chairman of the Board or the President or by the stockholders owning a majority of the outstanding shares of the corporation so entitled to vote, as the case may be, and as may be stated in the notice setting forth such call. Section 3. Except as otherwise provided by law, notice of the time, place and purpose or purposes of every meeting of stockholders shall be delivered personally or mailed not earlier than sixty, nor less than ten days previous thereto, to each stockholder of record entitled to vote at the meeting at such address as appears on the record of the corporation. Notice of any meeting of stockholders need not be given to any stockholder who shall waive notice thereof, before or after such meeting, in writing, or to any stockholder who shall attend such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 4. A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders. If there be no such quorum present in person or by proxy, the holders of a majority of such shares so present or represented may adjourn the meeting form time to time. 2 3 Section 5. Meeting of the stockholders shall be presided over by the Chairman of the Board or, if such officer is not present, by the President or a Vice President or, if no such officer is present, by a chairman to be chosen at the meeting. The Secretary of the corporation or, in such officer's absence, an Assistant Secretary shall act as secretary of the meeting. If neither the Secretary nor an Assistant Secretary is present, the chairman shall appoint a secretary. Section 6. Each stockholder entitled to vote at any meeting may vote in person or by proxy for each share of stock held by such stockholder which has voting power upon the mater in question at the time but no proxy shall be voted on after one year from its date. Section 7. All elections of directors shall be by written ballot and shall be determined by a plurality of the voting power present in person or represented by proxy and entitled to vote. All other voting need not be by written ballot, except upon demand therefor by the Board of Directors or the officer of the corporation presiding at the meeting of stockholders where the vote is to be taken. Except as otherwise provided by law, in all matters other than the election of directors, the affirmative vote of the majority of the voting power present in person or represented by proxy and entitled to vote shall be the act of the stockholders. The chairman of each meeting at which directors are to be elected shall appoint at least one inspector of election, unless such appointment shall be unanimously waived by those stockholders present or represented by proxy at the meeting and entitled to vote at the election of directors. No director or candidate for the office of director shall be appointed as such inspector. The duties of inspector at such meeting with strict impartiality and according to the boot of their ability, and shall take charge of the polls and after the balloting shall make a certificate of the result of the vote taken. Section 8. Only persons who are nominated in accordance with the procedures set forth in these bylaws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 10, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 8. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made 3 4 to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedure set forth in this bylaw. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the by-laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 8, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, and the rules and regulations thereunder with respect to the matters set forth in this Section. Section 9. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall be not more than sixty or less than ten days before the date of such meeting, or more than sixty days prior to any other action. If for any reason the Board of Directors shall not have fixed a record date for any such purpose, the record date for such purposes shall be determined as provided by law. Only those stockholders of record on the date so fixed or determined shall be entitled to any of the foregoing rights, notwithstanding the transfer of any such stock on the books of the corporation after any such record date so fixed or determined. 4 5 ARTICLE II. BOARD OF DIRECTORS Section 1. The Board of Directors of the corporation shall consist of such number of directors, not less than three, as shall from time to time be fixed by resolution of the Board of Directors. The directors shall be divided into three classes in the manner set forth in the Certificate of Incorporation of the corporation, each class to be elected for the term set forth therein. A majority of the total number of directors shall constitute a quorum for the transaction of business and, except as otherwise provided by law or by the corporation's Certificate of Incorporation, the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. Directors need not be stockholders. Section 2. Vacancies in the Board of Directors shall be filled by a majority of the remaining directors, though less than a quorum; and in case of an increase in the number of directors, the additional directors shall be elected by a majority of the directors in office at the time of increase, though less than a quorum; and the directors so chosen shall hold office for a term as set forth in the Certificate of Incorporation of the corporation. Section 3. Meetings of the Board of Directors shall be held at such place within or without the State of Delaware as may from time to time be fixed by resolution of the Board or as may be specified in the notice of call of any meeting. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board and special meetings may be held at any time upon the call of the Chairman of the Board or the President, by oral, telegraphic or written notice, duly served on or sent or mailed to each director not less than one day before the meeting. The notice of any meeting need not specify the purpose thereof. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place at which such meeting is held. Notice need not be given of regular meetings of the Board held at times fixed by resolution of the Board. Notice of any meeting need not be given to any director who shall attend such meeting in person or who shall waive notice thereof, before or after such meeting, in writing. Section 4. The Board of Directors may, by resolution or resolutions, passed by a majority of the whole Board, designate one or more committees, each committee to consist of three or more of the Directors of the corporation which, to the extent provided in said resolution or resolutions, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the corporation to be 5 6 affixed to all papers which may require it. A majority of the members of a committee shall constitute a quorum for the transaction of its business. In the absence of disqualification of any member of any such committee or committees, but not in the case of a vacancy therein, the member or members thereof present at any meeting and not disqualified from voting, whether or not the member or members constitute a quorum, may unanimously appoint another member of the Board of Directors, who is not an officer of the corporation or any of its subsidiaries, to act at the meeting for all purposes in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. ARTICLE III. OFFICERS. Section 1. The Board of Directors, as soon as may be after each annual meeting of the stockholders, shall elect officers of the corporation, including a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer. The Board of Directors may also from time to time appoint such other officers (including one or more Assistant Vice Presidents, and one or more Assistant Secretaries and one or more Assistant Treasurers) as it may deem proper or may delegate to any elected officer of the corporation the power so to appoint and remove any such other officers and to prescribe their respective terms of office, authorities and duties. Any Vice President may be designated Executive, Senior or Corporate, or may be given such other designation or combination of designations as the Board of Directors may determine. Any two offices may be held by the same person. The Chairman of the Board and the President shall be chosen from among the Directors. Section 2. All officers of the corporation elected or appointed by the Board of Directors shall hold office until their respective successors are chosen and qualified. Any officer may be removed from office at any time either with or without cause by the affirmative vote of a majority of the members of the Board then in office, or, in the case of appointed officers, by any elected officer upon whom such power of removal shall have been conferred by the Board of Directors. Section 3. Each of the officers of the corporation elected or appointed by the Board of Directors shall have powers and duties prescribed by law, by the ByLaws or by the Board of Directors and, unless otherwise prescribed by the ByLaws or by the Board of Directors, shall have such further powers and duties as ordinarily pertain to that office. The Chairman of the Board or the President, as 6 7 determined by the Board of Directors, shall be the Chief Executive Officer and shall have the general direction of the affairs of the corporation. Any officer, agent, or employee of the corporation may be required to give bond for the faithful discharge of such person's duties in such sum and with such surety or sureties as the Board of Directors may from time to time prescribe. Section 4. There shall be a Controller who shall exercise general supervision of and be responsible for the efficient operation of the Accounting Department of the corporation. The Controller shall be consulted in the preparation of the annual budget of the corporation and shall render to the Chief Executive Officer from time to time and to the Board of Directors at each of the regular meetings of the Board statements necessary to keep them informed of the earnings, expenses and condition of the corporation, and shall bring to their notice any and all matters which the Controller may deem desirable to submit to their attention for the successful conduct of the business. ARTICLE IV. CERTIFICATES OF STOCK Section 1. The interest of each stockholder of the corporation shall be evidenced by a certificate or certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The shares in the stock of the corporation shall be transferable on the books of the corporation by the holder thereof in person or by such holder's attorney, upon surrender for cancellation of a certificate or certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the corporation or its agents may reasonably require. Section 2. The certificates of stock shall be signed by such officer or officers as may be permitted by law to sign (except that where any such certificate is countersigned by a transfer agent other than the corporation or its employee, or by a registrar other than the corporation or its employee, the signatures of any such officer or officers may be facsimiles), and shall be countersigned and registered in such manner, all as the Board of Directors may by resolution prescribe. In case any officer or officers who shall have signed or whose facsimile signature or signatures shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been issued by the corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates, or whose facsimile signature or 7 8 signatures shall have been used thereon, had not ceased to be such officer or officers of the corporation. Section 3. No certificate for shares of stock in the corporation shall be issued in place of any certificate alleged to have been lost, stolen or destroyed, except upon production of such evidence of such loss, theft or destruction and upon delivery to the corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors in its discretion may require. Section 4. As used in these By-Laws, the word "alien" shall be construed to include the following or their representatives: any individual not a citizen of the United States of America; a partnership unless a majority of the partners are citizens of the United States of America and have a majority interest in the partnership profits; a foreign government, a corporation, joint stock company or association organized under the laws of a foreign country; and any other corporation, joint stock company or association controlled directly or indirectly by one or more of the above. Not more than one-fourth of the aggregate number of shares of stock of the corporation outstanding shall at any time be owned of record or voted by or for the account of aliens. If the corporation is at any time controlled directly or indirectly by any other corporation of which any officer or more than one-fourth of the directors are aliens, or of which more than one-fourth of the capital stock is owned of record or voted by or for the account of aliens, then such other corporation shall, so long as such condition continues to exist, have no voting, dividend, or other rights with respect to the shares of this corporation which it owns, except the right to transfer such shares in such manner that such condition will cease to exist. The ownership of record of shares of stock by or for the account of aliens, and the citizenship of transferees, thereof, shall be determined in conformity with regulations prescribed by the Board of Directors. There shall be maintained separate stock records, a domestic record covering citizen stockholders and a foreign record covering alien stockholders. Every certificate representing stock issues or transferred to an alien shall be marked "Foreign Share Certificate," but under no circumstances shall certificates representing more than one-fourth of the aggregate number of shares outstanding at any one time be so marked, nor shall the total amount of stock represented by Foreign Share Certificates, plus the amount of stock owned by or 8 9 for the account of aliens and represented by certificates not so marked, exceed one-fourth of the aggregate number of shares outstanding. Every certificate issued not marked "Foreign Share Certificate" shall be marked "Domestic Share Certificate." All stock represented by Foreign Share Certificates may be transferred to aliens or to citizens. If, and so long as, the stock records of the corporation shall disclose one-fourth alien stock ownership, no transfers of shares of domestic record to aliens shall be made. If, and so long as, the stock records of the corporation shall disclose one-fourth alien stock ownership and shall be found by the corporation that stock of domestic record is, in fact, held by or for the account of an alien, the holder of such stock shall not be entitled to vote, to receive dividends, or to any other rights, except the right to transfer such stock to a citizen of the United States of America. The directors shall be authorized at any time and from time to time to adopt such other provisions as the directors may deem necessary or desirable to avoid violation of the provisions of Section 310(a) of the Federal Communications Act as now in effect or as it may hereafter from time to time be amended, and to carry out the provision of this Article IV, Section 4, and of Article Fifth of the Certificate of Incorporation of the corporation. ARTICLE V. CORPORATE BOOKS. The books of the corporation may be kept outside of the State of Delaware at such place or places as the Board of Directors may from time to time determine. ARTICLE VI. CHECKS, NOTES, PROXIES, ETC. All checks and drafts on the corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers or agent or agents as shall be thereunto authorized from time to time by the Board of Directors. Proxies to vote and consents with respect to securities of other corporations owned by or standing in the name of the corporation may be executed and delivered from time to time on behalf of the corporation by the 9 10 Chairman of the Board, the President, or by such officers as the Board of Directors may from time to time determine. ARTICLE VII. FISCAL YEAR. The fiscal year of the corporation shall begin on the first day of January in each year and shall end on the thirty-first day of December following. ARTICLE VIII. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the corporation. In lieu of the corporate seal, when so authorized by the Board of Directors or a duly empowered committee thereof, a facsimile thereof may be impressed or affixed or reproduced. ARTICLE IX. OFFICES. The corporation and the stockholders and the directors may have offices outside of the State of Delaware at such places as shall be determined form time to time by the Board of Directors. ARTICLE X. AMENDMENTS. Subject to any limitations that may be imposed by the stockholder, the Board of Directors may make the by-laws and from time to time may alter, amend or repeal any by-laws, but any by-laws made by the Board of Directors or the stockholders may be altered, amended or repealed by the stockholders at any annual meeting or at any special meeting, provided that notice of such proposed alteration, amendment or repeal is included in the notice of such meeting. 10 EX-4.1 4 INDENTURE 1 Exhibit 4.1 ------------------------------------------------------------------------------ R.H. DONNELLEY INC., as Issuer and The Guarantors Named Herein as Guarantors TO THE BANK OF NEW YORK As Trustee -------------------------- Indenture Dated as of June 5, 1998 -------------------------- $150,000,000 % Senior Subordinated Notes due 2008 ------------------------------------------------------------------------------ 2 Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of June 5, 1998 Trust Indenture Indenture Act Section Section ----------- ------- ss. 310 (a)(1) ................................... 609 (a)(2) ................................... 609 (a)(3) ................................... Not Applicable (a)(4) ................................... Not Applicable (b) ................................... 608 610 ss. 311 (a) ................................... 613(a) (b) ................................... 613(b) (b)(2) ................................... 703(a)(2) 703(b) ss. 312 (a) ................................... 701 702(a) (b) ................................... 702(b) (c) ................................... 702(c) ss. 313 (a) ................................... 703(a) (b) ................................... 703(b) (c) ................................... 703(a) 703(b) (d) ................................... 703(c) ss. 314 (a) ................................... 704 (b) ................................... Not Applicable (c)(1) ................................... 102 (c)(2) ................................... 102 (c)(3) ................................... Not Applicable (d) ................................... Not Applicable (e) ................................... 102 ss. 315 (a) ................................... 601(a) (b) ................................... 602 703(a)(6) (c) ................................... 601(b) (d) ................................... 601(c) (d)(1) ................................... 601(a)(1) (d)(2) ................................... 601(c)(2) (d)(3) ................................... 601(c)(3) (e) ................................... 514 3 Trust Indenture Indenture Act Section Section ----------- ------- ss. 316 (a) ................................... 101 (a)(1)(A)................................... 502 512 (a)(1)(B)................................... 513 (a)(2) ................................... Not Applicable (b) ................................... 508 ss. 317 (a)(1) ................................... 503 (a)(2) ................................... 504 (b) ................................... 1003 ss. 318 (a) ................................... 107 - ------------ Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. 4 TABLE OF CONTENTS --------------- Page ---- ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions.......................................2 SECTION 1.02. Compliance Certification and Opinions............27 SECTION 1.03. Form of Documents Delivered to Trustee...........28 SECTION 1.04. Acts of Holders; Record Date.....................29 SECTION 1.05. Notices, Etc., to Trustee, Company and Guarantors.......................................30 SECTION 1.06. Notice to Holders; Waiver........................30 SECTION 1.07. Conflict with Trust Indenture Act................31 SECTION 1.08. Effect of Headings and Table of Contents.........31 SECTION 1.09. Successors and Assigns...........................31 SECTION 1.10. Separability Clause..............................31 SECTION 1.11. Benefits of Indenture............................31 SECTION 1.12. Governing Law....................................31 SECTION 1.13. Legal Holidays...................................31 ARTICLE 2 NOTE AND SENIOR SUBORDINATED GUARANTEE FORMS SECTION 2.01. Forms Generally; Initial Forms of Rule 144A and Regulation S Notes...........................32 SECTION 2.02. Form of Face of Note.............................33 SECTION 2.03. Form of Reverse of Note..........................37 SECTION 2.04. Form of Trustee's Certificate of Authentication..42 ARTICLE 3 THE NOTES SECTION 3.01. Title and Terms..................................46 SECTION 3.02. Denominations....................................47 SECTION 3.03. Execution, Authentication, Delivery and Dating...47 SECTION 3.04. Temporary Notes..................................49 SECTION 3.05. Global Notes.....................................49 SECTION 3.06. Registration, Registration of Transfer and Exchange; Securities Act Legends.................51 SECTION 3.07. Mutilated, Destroyed, Lost and Stolen Notes......55 SECTION 3.08. Payment of Interest; Interest Rights Preserved...56 SECTION 3.09. Persons Deemed Owners............................57 i 5 Page ---- SECTION 3.10. Cancellation.....................................58 SECTION 3.11. Computation of Interest..........................58 SECTION 3.12. Cusip Numbers....................................58 ARTICLE 4 SATISFACTION AND DISCHARGE SECTION 4.01. Satisfaction and Discharge of Indenture..........59 SECTION 4.02. Application of Trust Money.......................60 ARTICLE 5 REMEDIES SECTION 5.01. Events of Default................................60 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment........................................63 SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee...........................64 SECTION 5.04. Trustee May File Proofs of Claim.................65 SECTION 5.05. Trustee May Enforce Claims Without Possession of Notes.........................................65 SECTION 5.06. Application of Money Collected...................65 SECTION 5.07. Limitation on Suits..............................66 SECTION 5.08. Unconditional Right of Holders to Receive Principal, Premium and Interest..................66 SECTION 5.09. Restoration of Rights and Remedies...............67 SECTION 5.10. Rights and Remedies Cumulative...................67 SECTION 5.11. Delay or Omission Not Waiver.....................67 SECTION 5.12. Control by Holders...............................67 SECTION 5.13. Waiver of Past Defaults..........................68 SECTION 5.14. Undertaking for Costs............................68 SECTION 5.15. Waiver of Stay or Extension Laws.................68 ARTICLE 6 THE TRUSTEE SECTION 6.01. Certain Duties and Responsibilities..............69 SECTION 6.02. Notice of Defaults...............................69 SECTION 6.03. Certain Rights of Trustee........................69 SECTION 6.04. Not Responsible for Recitals or Issuance of Notes.........................................71 SECTION 6.05. May Hold Notes...................................71 SECTION 6.07. Compensation and Reimbursement...................71 SECTION 6.08. Disqualification; Conflicting Interest...........72 ii 6 Page ---- SECTION 6.09. Corporate Trustee Required; Eligibility..........72 SECTION 6.10. Resignation and Removal; Appointment of Successor........................................73 SECTION 6.11. Acceptance of Appointment by Successor...........74 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business...........................75 SECTION 6.13. Preferential Collection of Claims Against Company..........................................75 ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders.......................................75 SECTION 7.02. Preservation of Information; Communications to Holders.......................................75 SECTION 7.03. Reports by Trustee...............................76 SECTION 7.04. Reports by Company and the Parent Guarantor......76 SECTION 7.05. Officers' Certificate with Respect to Change in Interest Rates................................77 ARTICLE 8 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.01. Mergers, Consolidations and Certain Transfers, Leases and Acquisition of Assets......77 SECTION 8.02. Successor Substituted............................78 ARTICLE 9 SUPPLEMENTAL INDENTURES SECTION 9.01. Supplemental Indentures Without Consent of Holders..........................................78 SECTION 9.02. Supplemental Indentures with Consent of Holders..79 SECTION 9.03. Execution of Supplemental Indentures.............80 SECTION 9.04. Effect of Supplemental Indentures................80 SECTION 9.05. Conformity with Trust Indenture Act..............80 SECTION 9.06. Reference in Notes to Supplemental Indentures....81 ARTICLE 10 COVENANTS SECTION 10.01. Payment of Principal, Premium and Interest......81 SECTION 10.02. Maintenance of Office or Agency.................81 SECTION 10.03. Money for Note Payments to Be Held in Trust.....82 iii 7 Page ---- SECTION 10.04. Existence.......................................83 SECTION 10.05. Maintenance of Properties.......................83 SECTION 10.06. Payment of Taxes and Other Claims...............83 SECTION 10.07. Maintenance of Insurance........................84 SECTION 10.08. Limitation on Consolidated Debt.................84 SECTION 10.09. Limitation on Senior Subordinated Debt..........86 SECTION 10.10. Limitation on Issuance of Guarantees of Subordinated Debt...............................86 SECTION 10.11. Limitation on Liens.............................86 SECTION 10.12. Limitation on Restricted Payments...............86 SECTION 10.13. Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries.............88 SECTION 10.14. Limitation on Asset Disposition.................89 SECTION 10.15. Transactions with Affiliates and Related Persons.........................................90 SECTION 10.16. Change of Control...............................91 SECTION 10.17. Provision of Financial Information..............92 SECTION 10.18. Unrestricted Subsidiaries.......................92 SECTION 10.19. Statement by Officers as to Default; Compliance Certificates.........................93 SECTION 10.20. Waiver of Certain Covenants.....................93 ARTICLE 11 REDEMPTION OF NOTES SECTION 11.01. Right of Redemption.............................94 SECTION 11.02. Applicability of Article........................95 SECTION 11.03. Election to Redeem; Notice to Trustee...........95 SECTION 11.04. Selection by Trustee of Notes to Be Redeemed....95 SECTION 11.05. Notice of Redemption............................95 SECTION 11.06. Deposit of Redemption Price.....................96 SECTION 11.07. Notes Payable on Redemption Date................96 SECTION 11.08. Notes Redeemed in Part..........................97 ARTICLE 12 SENIOR SUBORDINATED GUARANTEE SECTION 12.01. Senior Subordinated Guarantee...................97 SECTION 12.02. Execution and Delivery of Senior Subordinated Guarantees.....................................100 SECTION 12.03. Subsidiary Guarantors May Consolidate, Etc., on Certain Terms...............................101 iv 8 Page ---- SECTION 12.04. Release of Guarantors..........................102 SECTION 12.05. Additional Guarantors..........................102 ARTICLE 13 SUBORDINATION OF NOTES AND SENIOR SUBORDINATED GUARANTEES SECTION 13.01. Notes Subordinate to Senior Debt...............103 SECTION 13.02. Payment over of Proceeds upon Dissolution, Etc............................................103 SECTION 13.03. No Payment When Senior Debt in Default.........105 SECTION 13.04. Payment Permitted If No Default................108 SECTION 13.05. Subrogation to Rights of Holders of Senior Debt...........................................108 SECTION 13.06. Provisions Solely to Define Relative Rights....108 SECTION 13.07. Trustee to Effectuate Subordination............109 SECTION 13.08. No Waiver of Subordination Provisions..........109 SECTION 13.09. Notice to Trustee..............................110 SECTION 13.10. Reliance on Judicial Order or Certificate of Liquidating Agent..............................110 SECTION 13.11. Trustee Not Fiduciary for Holders of Senior Debt....................................111 SECTION 13.12. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights...............111 SECTION 13.13. Article Applicable to Paying Agents............111 SECTION 13.14. Defeasance of this Article ....................111 ARTICLE 14 DEFEASANCE AND COVENANT DEFEASANCE SECTION 14.01. Company's Option to Effect Defeasance or Covenant Defeasance............................112 SECTION 14.02. Defeasance and Discharge.......................112 SECTION 14.03. Covenant Defeasance............................112 SECTION 14.04. Conditions to Defeasance or Covenant Defeasance.....................................113 SECTION 14.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions.......................115 SECTION 14.06. Reinstatement..................................116 v 9 ANNEX A Form of Regulation S Certificate..................A-1 ANNEX B Form of Restricted Securities Certificate.........B-1 ANNEX C Form of Unrestricted Securities Certificate.......C-1 ANNEX D Form of Certification to Be Given by Holders of Beneficial Interest in a Regulation S Temporary Global Note.............................D-1 ANNEX E Form of Certification to Be Given by the Euroclear Operator or Cedel S.A...................E-1 1 10 INDENTURE, dated as of June 5, 1998, between R.H. Donnelley Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at One Manhattanville Road, Purchase, New York 10577, the Guarantor (as hereinafter defined) and The Bank of New York, a New York banking corporation, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY AND THE GUARANTORS The Company has duly authorized the creation of an issue of its % Senior Subordinated Notes due 2008 (the "Notes") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. The Dun & Bradstreet Corporation (the "Parent Company") owns beneficially and of record 100% of the Capital Stock of the Company; the Parent Company and the Company are members of the same consolidated group of companies and are engaged in related businesses and the Parent Company, as Guarantor, will derive direct and indirect economic benefit from the issuance of the Securities. Accordingly, the Guarantor has duly authorized the execution and delivery of this Indenture to provide for its Senior Subordinated Guarantees with respect to the Securities as set forth in this Indenture. All things necessary (i) to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, (ii) to make the Senior Subordinated Guarantees of the Guarantor, when executed by the Guarantor and endorsed on the Securities executed, authenticated and delivered hereunder, the valid obligations of the Guarantor, and (iii) to make this Indenture a valid agreement of the Company and the Guarantor, all in accordance with their respective terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: 2 11 ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles (whether or not such is indicated herein), and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted as consistently applied by the Company at the date of such computation; (d) unless otherwise specifically set forth herein, all calculations or determinations of a Person shall be performed or made on a consolidated basis in accordance with generally accepted accounting principles; and (e) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article 6, are defined in that Article. "Acquired Debt" of any particular Person means Debt of any other Person existing at the time such other Person merged with or into or became a Subsidiary of such particular Person or assumed by such particular Person in connection with the acquisition of assets from any other Person, and not Incurred by such other Person in connection with, or in contemplation of, such other Person merging with or into such particular Person or becoming a Subsidiary of such particular Person or such acquisition. "Act", when used with respect to any Holder, has the meaning specified in Section 1.04. 3 12 "Affiliate" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing; provided however, that, for the purposes of the covenant described in Section 10.15, a joint venture, partnership or similar Person which is engaged in a principal business of The Company and its Restricted Subsidiaries or in a business related thereto and all of the equity interests in which are held by the Company or a Restricted Subsidiary and another Person or Persons that are not Related Persons of the Company or such Restricted Subsidiary shall not be deemed an "Affiliate" of the Company or such Restricted Subsidiary. "Agent Member" means any member of, or participant in, the Depositary. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Note or beneficial interest therein, the rules and procedures of the Depositary for such Note, Euroclear and Cedel, in each case to the extent applicable to such transaction and as in effect at the time of such transfer or transaction. "Asset Disposition" by any Person means any transfer, conveyance, sale, lease or other disposition by such Person or any of its Restricted Subsidiaries (including any issuance or sale by a Restricted Subsidiary of Capital Stock of such Restricted Subsidiary, and including a consolidation or merger or other sale of any such Restricted Subsidiary with, into or to another Person in a transaction in which such Restricted Subsidiary ceases to be a Restricted Subsidiary, but excluding a disposition by a Restricted Subsidiary of such Person to such Person or a Wholly Owned Restricted Subsidiary of such Person or by such Person to a Wholly Owned Restricted Subsidiary of such Person) of (i) shares of Capital Stock (other than directors' qualifying shares) or other ownership interests of a Restricted Subsidiary of such Person, (ii) substantially all of the assets of such Person or any of its Restricted Subsidiaries representing a division or line of business or (iii) other assets or rights of such Person or any of its Restricted Subsidiaries outside of the ordinary course of business, provided in each case that the aggregate consideration for such transfer, conveyance, sale, lease or other disposition is equal to $5.0 million or more. "Average Life" means, as of the date of determination, with respect to any Debt, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled 4 13 principal payment of such Debt multiplied by the amount of such payment by (ii) the sum of all such payments. "Board of Directors" means either the board of directors of the Company or any Guarantor or any duly authorized committee of that board. Except as otherwise provided or unless context otherwise requires, each reference herein to the "Board of Directors" shall mean the Board of Directors of the Company. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company or any Guarantor to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. Except as otherwise expressly provided or unless the context otherwise requires, each reference herein to a "Board Resolution" shall mean a Board Resolution of the Company. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York, New York or in the city in which the Corporate Trust Office is located are authorized or obligated by law or executive order to close. "Capital Lease Obligation" of any Person means the obligation to pay rent or other payment amounts under a lease of (or other Debt arrangements conveying the right to use) real or personal property of such Person which is required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person in accordance with generally accepted accounting principles. The stated maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. The principal amount of such obligation shall be the capitalized amount thereof that would appear on the face of a balance sheet of such Person in accordance with generally accepted accounting principles. "Capital Stock" of any Person means any and all shares, interests, participations or other equivalents (however designated) of corporate stock or other equity participations, including partnership interests, whether general or limited, of such Person. "Cash Equivalents" means (i) direct obligations of the United States of America or any agency thereof having maturities of not more than one year from the date of acquisition, (ii) time deposits and certificates of deposit of any domestic commercial bank of recognized standing having capital and surplus in excess of $500 million, with maturities of not more than one year from the date of acquisition, (iii) repurchase obligations issued by any bank described in clause 5 14 (ii) above with a term not to exceed 30 days; (iv) commercial paper rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's, in each case maturing within one year after the date of acquisition and (v) shares of any money market mutual fund, or similar fund, in each case having excess of $500 million, which invests predominantly in investments of the types describes in clauses (i) through (iv) above. "Cedel" means Cedel Bank, S.A. (or any successor securities clearing agency). "CenDon" means the partnership formed pursuant to the CenDon Partnership Agreement in which the Company and Centel Directory Company each have a 50% interest. "CenDon Partnership Agreement" means the agreement entered into as of May 5, 1988 between the Company and Centel Directory Company. "Closing Date" means June 5, 1998. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" of any Person means Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee. "Consolidated Cash Flow Available for Fixed Charges" means for any period the Consolidated Net Income of the Company and its Restricted Subsidiaries for such period increased by the sum of (i) Consolidated Interest 6 15 Expense of the Company and its Restricted Subsidiaries for such period, plus (ii) Consolidated Income Tax Expense of the Company and its Restricted Subsidiaries for such period, plus (iii) the consolidated depreciation and amortization expense included in the income statement of the Company and its Restricted Subsidiaries for such period, plus (iv) all other non-cash items reducing Consolidated Net Income of the Company and its Restricted Subsidiaries, unless and until such time as cash disbursements are made in respect of such items (at which time the amount of any such disbursements shall be deducted from Consolidated Cash Flow Available for Fixed Charges), and, less all non-cash items increasing Consolidated Net Income of the Company and its Restricted Subsidiaries; provided, however, that there shall be excluded therefrom the Consolidated Cash Flow Available for Fixed Charges (if positive) of any Restricted Subsidiary of the Company (calculated separately for such Restricted Subsidiary in the same manner as provided above for the Company) that is subject to a restriction which prevents the payment of dividends or the making of distributions to the Company or another Restricted Subsidiary of the Company to the extent of such restriction, except to the extent of the amount of dividends or other distributions actually paid by such Restricted Subsidiary to the Company or to a Restricted Subsidiary not subject to such a restriction during such period. Notwithstanding any other provision of the Indenture to the contrary, Consolidated Cash Flow Available for Fixed Charges of the Company for any period will be deemed to include 100% of the cash distributions to The Company or any of its Restricted Subsidiaries not subject to such a restriction in respect of such period from DonTech, CenDon or any similar partnership or joint venture, to the extent not otherwise included in Consolidated Cash Flow Available for Fixed Charges in respect of such period. "Consolidated Cash Flow Coverage Ratio" as of any date of determination means the ratio of (i) Consolidated Cash Flow Available for Fixed Charges of the Company and its Restricted Subsidiaries for the period of the most recently completed four consecutive fiscal quarters for which quarterly or annual financial statements are available to (ii) Consolidated Fixed Charges of the Company and its Restricted Subsidiaries for such period; provided, however, that Consolidated Fixed Charges shall be adjusted to give effect on a pro forma basis to any Debt that has been Incurred by the Company or any Restricted Subsidiary since the beginning of such period that remains outstanding and to any Debt that is proposed to be Incurred by the Company or any Restricted Subsidiary as if in each case such Debt had been Incurred on the first day of such period and as if any Debt that (i) is or will no longer be outstanding as the result of the Incurrence of any such Debt or (ii) had been repaid or retired during such period had not been outstanding as of the first day of such period; provided, however, that in making such computation, the Consolidated Interest Expense of the Company and its Restricted Subsidiaries attributable to interest on any proposed Debt bearing a 7 16 floating interest rate shall be computed on a pro forma basis as if the rate in effect on the date of computation had been the applicable rate for the entire period; and provided further that, in the event the Company or any of its Restricted Subsidiaries has made Asset Dispositions or acquisitions of assets not in the ordinary course of business (including acquisitions of other Persons by merger, consolidation or purchase of Capital Stock) during or after such period, such computation shall be made on a pro forma basis as if the Asset Dispositions or acquisitions had taken place on the first day of such period. "Consolidated Fixed Charges" for any period means the sum of (i) Consolidated Interest Expense and (ii) the consolidated amount of interest capitalized by the Company and its Restricted Subsidiaries during such period calculated in accordance with generally accepted accounting principles. "Consolidated Income Tax Expense" for any period means the consolidated provision for income taxes of the Company and its Restricted Subsidiaries for such period calculated on a consolidated basis in accordance with generally accepted accounting principles. "Consolidated Interest Expense" means for any period the consolidated interest expense included in a consolidated income statement (without deduction of interest income) of the Company and its Restricted Subsidiaries for such period calculated on a consolidated basis in accordance with generally accepted accounting principles, including without limitation or duplication (or, to the extent not so included, with the addition of), (i) the amortization of Debt discounts; (ii) any payments or fees with respect to letters of credit, bankers' acceptances or similar facilities; (iii) fees with respect to interest rate swap or similar agreements or foreign currency hedge, exchange or similar agreements; (iv) Preferred Stock dividends of Restricted Subsidiaries of the Company (other than with respect to Redeemable Stock) declared and paid or payable to persons other than the Company or any Restricted Subsidiary; (v) accrued Redeemable Stock dividends of the Company and its Restricted Subsidiaries payable to persons other than the Company or any Restricted Subsidiary, whether or not declared or paid; (vi) interest on Debt guaranteed by the Company and its Restricted Subsidiaries; and (vii) the portion of any rental obligation allocable to interest expense. "Consolidated Net Income" for any period means the consolidated net income (or loss) of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with generally accepted accounting principles; provided that there shall be excluded therefrom (a) the net income (or loss) of any Person acquired by the Company or a Restricted Subsidiary of the Company in a pooling-of-interests transaction for any period prior to the date of such transaction, (b) the net income (or loss) of any Person that 8 17 is not a Subsidiary of the Company except to the extent of the amount of dividends or other distributions actually paid to the Company or a Subsidiary of the Company by such Person during such period, (c) gains or losses on Asset Dispositions by the Company or its Restricted Subsidiaries, (d) all extraordinary gains and extraordinary losses, (e) the cumulative effect of changes in accounting principles and (f) the tax effect of any of the items described in clauses (a) through (e) above; provided, further, that for purposes of any determination pursuant to the provisions described under Section 10.12 hereof, there shall further be excluded therefrom the net income (but not net loss) of any Restricted Subsidiary of the Company that is subject to a restriction which prevents the payment of dividends or the making of distributions to the Company or another Restricted Subsidiary of the Company to the extent of such restriction, except to the extent of the amount of dividends or other distributions actually paid to The Company or a Restricted Subsidiary not subject to such a restriction by such Restricted Subsidiary during such period. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with generally accepted accounting principles, less amounts attributable to Redeemable Stock of such Person; provided that, with respect to the Company, adjustments following the date of this Indenture to the accounting books and records of the Company in accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting from the acquisition of control of the Company by another Person shall not be given effect to. "Consolidated Tangible Assets" of any Person means, as of any date, the amount which, in accordance with generally accepted accounting principles, would be set forth under the caption "Total Assets" (or any like caption) on a consolidated balance sheet of such Person and its Restricted Subsidiaries, less all intangible assets, including, without limitation, goodwill, organization costs, patents, trademarks, copyrights, franchises, and research and development costs. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which is, at the date as of which this Indenture is dated, located at 101 Barclay Street, Floor 21 West, New York, New York, 10286. "corporation" means a corporation, association, company, joint-stock company, partnership or business trust. "Credit Facility" means, with respect to the Company or any Restricted Subsidiary, one or more debt or commercial paper facilities with banks or other 9 18 institutional lenders (including the New Credit Facility) providing for revolving credit loans, term loans, receivables or inventory financing (including through the sale of receivables or inventory to such lenders or to special purpose, bankruptcy remote entities formed to borrow from such lenders against such receivables or inventory) letters of credit, in each case together with any amendments, supplements, modifications (including by any extension of the maturity thereof), refinancing or replacements thereof by a lender or syndicate of lenders in one or more successive transactions (including any such transaction that changes the amount available thereunder, replaces such agreement or document, or provides for other agents or lenders). "Debt" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations Incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith), (v) every Capital Lease Obligation of such Person, (vi) all Receivables Sales of such Person, together with any obligation of such Person to pay any discount, interest, fees, indemnities, penalties, recourse, expenses or other amounts in connection therewith, (vii) all Redeemable Stock issued by such Person, (viii) Preferred Stock of Restricted Subsidiaries of such Person held by Persons other than such Person or one of its Wholly Owned Restricted Subsidiaries, (ix) every obligation under Interest Rate, Currency or Commodity Price Agreements of such Person and (x) every obligation of the type referred to in clauses (i) through (ix) of another Person and all dividends of another Person the payment of which, in either case, such Person has Guaranteed or is responsible or liable, directly or indirectly, as obligor, Guarantor or otherwise. The "amount" or "principal amount" of Debt at any time of determination as used herein represented by (a) any Receivables Sale, shall be the amount of the unrecovered capital or principal investment of the purchaser (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) thereof, excluding amounts representative of yield or interest earned on such investment and (b) any Redeemable Stock, shall be the maximum fixed redemption or repurchase price in respect thereof. "Depositary" means, with respect to any Notes, a clearing agency that is registered as such under the Exchange Act and is designated by the Company to 10 19 act as Depositary for such Notes (or any successor securities clearing agency so registered). "Distribution" means the separation of the Parent Company into two independent, publicly-traded companies by means of a pro rata tax-free distribution of all of the outstanding common shares of New D&B to holders of the common shares of the Parent Company. "DonTech" means the partnership formed pursuant to the DonTech II Partnership Agreement in which the Company and Ameritech Publishing of Illinois, Inc. each have a 50% interest. "DonTech II Partnership Agreement" means the agreement entered into as of August 19, 1997 between the Company and Ameritech Publishing of Illinois Inc. "DTC" means The Depository Trust Company, a New York corporation. "Equity Offering" means a primary public or private offering of Common Stock of the Company or (if the Parent Company owns all the outstanding Common Stock of the Company) of the Parent Company pursuant to an effective registration statement under the Securities Act or pursuant to an exemption to the registration requirements of the Securities Act. "Euroclear" means the Euroclear Clearance System (or any successor securities clearing agency). "Event of Default" has the meaning specified in Section 5.01. "Exchange and Registration Rights Agreement" means the Exchange and Registration Rights Agreement, dated as of June 5, 1998, among the Company, the Parent Company, Goldman, Sachs & Co. and Chase Securities Inc., as representatives of the Initial Purchasers, and the Holders from time to time as provided therein, as such agreement may be amended from time to time. "Exchange Offer" means an offer made by the Company pursuant to the Exchange and Registration Rights Agreement under the effective registration statement under the Securities Act to exchange securities substantially identical to Outstanding Notes (except for the differences provided for herein) for Outstanding Notes. 11 20 "Exchange Registration Statement" means a registration statement of the Company under the Securities Act registering Exchange Notes for distribution pursuant to the Exchange Offer. "Exchange Act" refers to the Securities Exchange Act of 1934 as it may be amended and any successor act thereto. "Exchange Notes" means the Notes issued pursuant to the Exchange Offer and their Successor Notes. "Global Note" means a Note that is registered in the Security Register in the name of a Depositary or a nominee thereof. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guaranteeing, any Debt of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Debt, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Debt of the payment of such Debt, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings correlative to the foregoing); provided, however, that the Guarantee by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business. "Guarantor Senior Debt" means (i) the principal of (and premium, if any) and interest on Debt of the Guarantor for money borrowed, whether incurred on or prior to the date of original issuance of the Notes or thereafter, and any amendments, renewals, extensions, modifications, refinancings and refundings of any such Debt and (ii) Permitted Interest Rate Agreements and Permitted Currency Agreements entered into with respect to Debt described in clause (i) above; provided, however, that the following shall not constitute Guarantor Senior Debt: (1) any Debt as to which the terms of the instrument creating or evidencing the same provide that such Debt is not superior in right of payment to the applicable Senior Subordinated Guarantee, (2) any Debt which is subordinated in right of payment in any respect to any other Debt of the Company, (3) any Debt owed to a Person when such Person is a Subsidiary of the Company, (4) that portion of any Debt which is Incurred in violation of the Indenture and (5) Debt 12 21 which, when Incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Guarantor. "Guarantors" means the Parent Company and any future Restricted Subsidiary of the Company. "Holder" means a Person in whose name a Note is registered in the Note Register. "Incur" means, with respect to any Debt or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such Debt or other obligation or the recording, as required pursuant to generally accepted accounting principles or otherwise, of any such Debt or other obligation on the balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings correlative to the foregoing); provided, however, that a change in generally accepted accounting principles that results in an obligation of such Person that exists at such time becoming Debt shall not be deemed an Incurrence of such Debt. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Initial Purchasers" means Goldman, Sachs & Co. and Chase Securities Inc., as purchasers of the Notes from the Company pursuant to the Note Purchase Agreement. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes. "Interest Rate, Currency or Commodity Price Agreement" of any Person means any forward contract, futures contract, swap, option or other financial agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements) relating to, or the value of which is dependent upon, interest rates, currency exchange rates or commodity prices or indices (excluding contracts for the purchase or sale of goods in the ordinary course of business). 13 22 "Investment" by any Person means any direct or indirect loan, advance or other extension of credit or capital contribution to (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise) to, or purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidence of Debt issued by any other Person, including any payment on a Guarantee of any obligation of such other Person. "Lien" means, with respect to any property or assets, any mortgage or deed of trust, pledge, hypothecation, assignment, Receivables Sale, deposit arrangement, security interest, lien, charge, easement (other than any easement not materially impairing usefulness or marketability), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing). "Maturity", when used with respect to any Note, means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Moodys" means Moody's Investors Service, Inc. "Net Available Proceeds" from any Asset Disposition by any Person means cash or readily marketable cash equivalents received (including by way of sale or discounting of a note, installment receivable or other receivable, but excluding any other consideration received in the form of assumption by the acquiree of Debt or other obligations relating to such properties or assets) therefrom by such Person, net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses Incurred and all federal, state, provincial, foreign and local taxes required to be accrued as a liability as a consequence of such Asset Disposition, (ii) all payments made by such Person or its Restricted Subsidiaries on any Debt which is secured by such assets in accord ance with the terms of any Lien upon or with respect to such assets or which must by the terms of such Lien, or in order to obtain a necessary consent to such Asset Disposition or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments made to minority interest holders in Restricted Subsidiaries of such Person or joint ventures as a result of such Asset Disposition and (iv) appropriate amounts to be provided by such Person or any Restricted Subsidiary thereof, as the case may be, as a reserve in accordance with generally accepted accounting principles against any liabilities associated with such assets and retained by such Person or any Restricted 14 23 Subsidiary thereof, as the case may be, after such Asset Disposition, including, without limitation, liabilities under any indemnification obligations and severance and other employee termination costs associated with such Asset Disposition, in each case as determined by the Board of Directors, in its reasonable good faith judgment evidenced by a resolution of the Board of Directors filed with the Trustee; provided, however, that any reduction in such reserve following the consummation of such Asset Disposition will be treated for all purposes of the Indenture and the Notes as a new Asset Disposition at the time of such reduction with Net Available Proceeds equal to the amount of such reduction. "New D&B" means The New Dun & Bradstreet Corporation. "Note Purchase Agreement" means the Purchase Agreement, dated as of June 2, 1998, between the Company and the Initial Purchasers and Holdings, as such agreement may be amended from time to time. "Notes" means notes designated in the first paragraph of the RECITALS OF THE COMPANY and includes the Exchange Notes. "Offer to Purchase" means a written offer (the "Offer") sent by the Company by first class mail, postage prepaid, to each Holder at his address appearing in the Note Register on the date of the Offer offering to purchase up to the principal amount of Notes specified in such Offer at the purchase price specified in such Offer (as determined pursuant to this Indenture). Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Offer to Purchase which shall be, subject to any contrary requirements of applicable law, not less than 30 days or more than 60 days after the date of such Offer and a settlement date (the "Purchase Date") for purchase of Notes within five Business Days after the Expiration Date. The Company shall notify the Trustee at least 15 Business Days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain information concerning the business of the Company and its Restricted Subsidiaries which the Company in good faith believes will enable such Holders to make an informed decision with respect to the Offer to Purchase (which at a minimum will include (i) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to Section 10.17 (which requirements may be satisfied by delivery of such documents together with the Offer), (ii) a description of material developments in the Company's business subsequent to the date of the latest of such financial statements referred to in 15 24 clause (i) (including a description of the events requiring the Company to make the Offer to Purchase), (iii) if applicable, appropriate pro forma financial information concerning the Offer to Purchase and the events requiring the Company to make the Offer to Purchase and (iv) any other information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Offer to Purchase. The Offer shall also state: (1) the Section of this Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal amount of the Outstanding Notes offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such has been determined pursuant to the Section hereof requiring the Offer to Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Notes accepted for payment (as specified pursuant to this Indenture) (the "Purchase Price"); (5) that the Holder may tender all or any portion of the Notes registered in the name of such Holder and that any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal amount; (6) the place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase; (7) that interest on any Note not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date the Purchase Price will become due and payable upon each Note accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (9) that each Holder electing to tender a Note pursuant to the Offer to Purchase will be required to surrender such Note at the place or places specified in the Offer prior to the close of business on the 16 25 Expiration Date (such Note being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing); (10) that Holders will be entitled to withdraw all or any portion of Notes tendered if the Company (or their Paying Agent) receives, not later than the close of business on the Expiration Date, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder tendered, the certificate number of the Note the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (11) that (a) if Notes in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Notes and (b) if Notes in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Notes in denominations of $1,000 or integral multiples thereof shall be purchased); and (12) that in the case of any Holder whose Note is purchased only in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Note so tendered. Any Offer to Purchase shall be governed by and effected in accordance with the Offer for such Offer to Purchase. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company or any Guarantor, and delivered to the Trustee. Unless the context otherwise requires, each reference herein to an "Officers' Certificate" shall mean an Officers' Certificate of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. 17 26 "Original Notes" means all Notes other than Exchange Notes. "Outstanding", when used with respect to Notes, means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (i) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Notes for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company or a Guarantor) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Notes; provided that, if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Notes which have been transferred pursuant to Section 3.06 or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, other than any such Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Notes are held by a bona fide purchaser in whose hands such Notes are valid obligations of the Company; and (iv) Notes paid pursuant to Section 3.07; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor. "Parent Company" means The Dun & Bradstreet Corporation (to be renamed as the R.H. Donnelley Corporation) or any successor thereto. 18 27 "Parent Company Senior Debt" means (i) the principal of (and premium, if any) and interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Parent Company whether or not such claim for post-petition interest is allowed in such proceeding) on, and penalties and any obligation of the Parent Company for reimbursement, indemnities and fees relating to, any Credit Facility and (ii) the principal of (and premium, if any) and interest on Debt of the Parent Company for money borrowed, whether incurred on or prior to the date of original issuance of the Notes or thereafter, and any amendments, renewals, extensions, modifications, refinancings and refundings of any such Debt and (iii) Permitted Interest Rate, Currency or Commodity Price Agreements entered into with respect to Debt described in clauses (i) and (ii) above; provided, however, that the following shall not constitute Parent Company Senior Debt: (1) any Debt as to which the terms of the instrument creating or evidencing the same provide that such Debt is not superior in right of payment to the Parent Company Guarantee, (2) any Debt which is subordinated in right of payment in any respect to any other Debt of the Parent Company, (3) any Debt owed to a Person when such Person is a Subsidiary of the Parent Company, (4) any obligation of the Parent Company arising from Redeemable Stock of the Parent Company, and (5) Debt which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Parent Company. "Parent Guarantee" means the unconditional guarantee, on a senior subordinated basis, by the Parent Company of the due and punctual payment of principal (premium, if any,) and interest on the Notes, as provided pursuant to Article 12. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Notes on behalf of the Company. "Permitted Interest Rate, Currency or Commodity Price Agreement" of any Person means any Interest Rate, Currency or Commodity Price Agreement entered into with one or more financial institutions in the ordinary course of business that is designed to protect such Person against fluctuations in interest rates or currency exchange rates with respect to Debt Incurred and which shall have a notional amount no greater than the payments due with respect to the Debt being hedged thereby, or in the case of currency or commodity protection agreements, against currency exchange rate or commodity price fluctuations in the ordinary course of business relating to then existing financial obligations or then existing or sold production and not for purposes of speculation. 19 28 "Permitted Investments" means (i) an investment in the Company or a Wholly-Owned Restricted Subsidiary of the Company; (ii) an Investment in a Person, if such Person or a Subsidiary of such Person will, as a result of the making of such Investment and all other contemporaneous related transactions, become a Wholly-Owned Restricted Subsidiary of the Company or be merged or consolidated with or into or transfer or convey all or substantially all its assets to the Company or a Wholly-Owned Restricted Subsidiary of the Company; (iii) a Temporary Cash Investment; (iv) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with generally accepted accounting principles; (v) stock, obligations or securities received in settlement of debts owing to the Company or a Restricted Subsidiary of the Company as a result of bankruptcy or insolvency proceedings or upon the foreclosure, perfection, enforcement or agreement in lieu of foreclosure of any Lien in favor of the Company of a Restricted Subsidiary of the Company; (vi) Investments in the Notes; (vii) Investments in Permitted Interest Rate, Currency or Commodity Price Agreements and (viii) Investments in an entity which is engaged in a principal business of the Company and its Restricted Subsidiaries or a business related thereto not in excess of $10 million. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Note" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 3.07 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Note. "Preferred Stock", of any Person, means Capital Stock of such Person of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Receivables" means receivables, chattel paper, instruments, documents or intangibles evidencing or relating to the right to payment of money. "Receivables Sale" of any Person means any sale of Receivables of such Person (pursuant to a purchase facility or otherwise), other than in connection with a disposition of the business operations of such Person relating thereto or a 20 29 disposition of defaulted Receivables for purposes of collection and not as a financing arrangement. "Redemption Date", when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Note to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Redeemable Stock" of any Person means any Capital Stock of such Person that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or otherwise (including upon the occurrence of an event) matures or is required to be redeemed (pursuant to any sinking fund obligation or otherwise) or is convertible into or exchangeable for Debt or is redeemable at the option of the holder thereof, in whole or in part, at any time prior to the final Stated Maturity of the Notes; provided that "Redeemable Stock" shall not include any Capital Stock that is payable at maturity, or upon required redemption or redemption at the option of the holder thereof, or that is automatically convertible or exchangeable, solely in or into Common Stock of such Person. "Refinance" means, in respect of any Debt, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Debt in exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Debt" means Debt that Refinances any Debt of the Company or any Restricted Subsidiary existing on the date of original issuance of the Notes or Incurred in compliance with the Indenture, including Debt that Refinances Refinancing Debt; provided, however, that (i) such Refinancing Debt has a Stated Maturity no earlier than the Stated Maturity of the Debt being Refinanced, (ii) in the case of any refinancing of Debt which is pari passu to the Notes, such Refinancing Debt is made pari passu to the Notes or subordinated to the Notes, (iii) such Refinancing Debt constitutes Subordinated Debt in the case of any refinancing of Debt which is subordinated to the Notes, (iv) such Refinancing Debt does not permit redemption or other retirement (including pursuant to an offer to purchase) of such Debt at the option of the holder thereof prior to the Stated Maturity of the Debt being refinanced, other than a redemption or other retirement at the option of the holder of such Debt which is conditioned upon provisions substantially similar to those described under "--Change of Control" and "--Limitation on Asset Dispositions"; (v) such Refinancing Debt has an Average Life at the time such Refinancing Debt is Incurred that is equal to or greater than the Average Life of the Debt being Refinanced and (vi) such 21 30 Refinancing Debt has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus accrued interest and fees and expenses, including any premium and defeasance costs) under the Debt being Refinanced; provided, however, that Refinancing Debt shall not include (x) Debt of a Subsidiary that Refinances Debt of the Company or (y) Debt of the Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary. "Registration Default" means the occurrence of any of the following events: (i) the Company has not filed the Exchange Registration Statement or Shelf Registration Statement on or before the date on which such registration statement is required to be filed pursuant to the Exchange and Registration Rights Agreement, (ii) the Exchange Registration Statement or Shelf Registration Statement has not become effective or been declared effective by the Commission on or before the date on which such registration statement is required to become or be declared effective under the requirements of the Exchange and Registration Rights Agreement or (iii) the Exchange Offer has not been completed within 60 days after the initial effective date of the Exchange Registration Statement relating to the Exchange Offer (if the Exchange Offer is then required to be made under the Exchange and Registration Rights Agreement) or (iv) any Exchange Registration Statement or Shelf Registration Statement required to be filed pursuant the Exchange and Registration Rights Agreement is filed and declared effective but shall thereafter either be withdrawn by the Company or shall become subject to an effective stop order issued pursuant to Section 8(d) of the Securities Act suspending the effectiveness of such registration statement (except as specifically permitted herein) without being succeeded immediately by an additional registration statement filed and declared effective. "Registration Default Period" means any period during which a Registration Default has occurred and is continuing. "Regulation S" means Regulation S under the Securities Act. "Regulation S Certificate" means a certificate substantially in the form set forth in Annex A. "Regulation S Global Note" has the meaning specified in Section 201. "Regulation S Legend" means a legend substantially in the form of the legend required in the form of Note set forth in Section 202 to be placed upon Regulation S Notes. 22 31 "Regulation S Notes" means all Notes required pursuant to Section 3.06(c) to bear a Regulation S Legend. "Related Person" of any Person means any other Person directly or indirectly owning (a) 5% or more of the Outstanding Common Stock of such Person (or in the case of a Person that is not a corporation, 5% or more of the equity interest in such Person) or (b) 5% or more of the combined voting power of the Voting Stock of such Person. "Responsible Officer", when used with respect to the Trustee, means any vice president, any assistant vice president, any assistant secretary, any assistant treasurer, any trust officer or assistant trust officer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Period" means the period of 40 consecutive days beginning on the later of (i) the day on which Notes are first offered to persons other than distributors (as defined in Regulation S) in reliance on Regulation S and (ii) the Closing Date. "Restricted Notes" means all Notes required pursuant to Section 3.06(c) to bear a Restricted Notes Legend. Such term includes the Restricted Global Notes. "Restricted Notes Certificate" means a certificate substantially in for form set forth in Annex B. "Restricted Notes Legend" means a legend substantially in the form of the legend required in the form of Note set forth in Section 202 to be placed upon a Restricted Note. "Restricted Subsidiary" means any Subsidiary, whether existing on or after the date of this Indenture, unless such Subsidiary is an Unrestricted Subsidiary. "Rule 144" means Rule 144 under the Securities Act. "Rule 144A" means Rule 144A under the Securities Act. 23 32 "Rule 144A Notes" means the Notes purchased by the Initial Purchasers from the Company pursuant to the Note Purchase Agreement, other than the Regulation S Notes. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. "Securities Act" means the Securities Act of 1933, as it may be amended and any successor act thereto. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.06(a). "Senior Debt" means (i) the principal of (and premium, if any) and interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding) on, and penalties and any obligation of the Company for reimbursement, indemnities and fees relating to, any Credit Facility and (ii) the principal of (and premium, if any) and interest on Debt of the Company for money borrowed, whether Incurred on or prior to the date of original issuance of the Notes or thereafter, and any amendments, renewals, extensions, modifications, refinancings and refundings of any such Debt and (iii) Permitted Interest Rate Agreements, Currency or Commodity Price Agreements entered into with respect to Debt described in clauses (i) and (ii) above; provided, however, that the following shall not constitute Senior Debt: (1) any Debt as to which the terms of the instrument creating or evidencing the same provide that such Debt is not superior in right of payment to the Notes, (2) any Debt which is subordinated in right of payment in any respect to any other Debt of the Company, (3) Debt evidenced by the Notes, (4) any Debt owed to a Person when such Person is a Subsidiary of the Company, (5) any obligation of the Company arising from Redeemable Stock of the Company, (6) that portion of any Debt which is Incurred in violation of the Indenture and (7) Debt which, when Incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company. "Senior Subordinated Guarantees" means the Parent Company Guarantee and the Subsidiary Guarantees, if any. "Shelf Registration Statement" means a shelf registration statement under the Securities Act filed by the Company, if required by, and meeting the requirements of, the Exchange and Registration Rights Agreement, registering Original Notes for resale. 24 33 "Special Interest Payments" has the meaning specified in the form of Notes set forth in Section 202. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by Trustee pursuant to Section 3.08. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Debt" means Debt of the Company as to which the payment of principal of (and premium, if any) and interest and other payment obligations in respect of such Debt shall be subordinate to the prior payment in full of the Notes to at least the following extent: (i) no payments of principal of (or premium, if any) or interest on or otherwise due in respect of such Debt may be permitted for so long as any default in the payment of principal (or premium, if any) or interest on the Notes exists; (ii) in the event that any other default that with the passing of time or the giving of notice, or both, would constitute an event of default exists with respect to the Notes, upon notice by 25% or more in principal amount of the Notes to the Trustee, the Trustee shall have the right to give notice to the Company and the holders of such Debt (or trustees or agents therefor) of a payment blockage, and thereafter no payments of principal of (or premium, if any) or interest on or otherwise due in respect of such Debt may be made for a period of 179 days from the date of such notice; and (iii) such Debt may not (x) provide for payments of principal of such Debt at the stated maturity thereof or by way of a sinking fund applicable thereto or by way of any mandatory redemption, defeasance, retirement or repurchase thereof by the Company (including any redemption, retirement or repurchase which is contingent upon events or circumstances, but excluding any retirement required by virtue of acceleration of such Debt upon an event of default thereunder), in each case prior to the final Stated Maturity of the Notes or (y) permit redemption or other retirement (including pursuant to an offer to purchase made by the Company) of such other Debt at the option of the holder thereof prior to the final Stated Maturity of the Notes, other than a redemption or other retirement at the option of the holder of such Debt (including pursuant to an offer to purchase made by the Company) which is conditioned upon a change of control of the Company pursuant to provisions substantially similar to those contained in Section 10.16 hereof (and which shall provide that such Debt will not be repurchased pursuant to such provisions prior to the Company's repurchase of the Notes required to be 25 34 repurchased by the Company pursuant to the provisions described under Section 10.16). "Subsidiary" of any Person means (i) a corporation more than 50% of the combined voting power of the outstanding Voting Stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof or (ii) any other Person (other than a corporation) in which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership and power to direct the policies, management and affairs thereof. "Subsidiary Guarantees" means the unconditional guarantees on a senior subordinated basis by the respective Subsidiary Guarantors of the due and punctual payment of principal, premium, if any, and interest on the Notes as provided pursuant to Article 12. "Subsidiary Guarantors", as of any time, each and all of the Restricted Subsidiaries at such time. "Successor Note" of any particular Note means every Note issued after, and evidencing all or a portion of the same debt as that evidenced by, such particular Note; and, for the purpose of this definition, any Note authenticated and delivered under Section 3.07 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Note. "Temporary Cash Investments" means any Investment in the following kinds of instruments: (A) readily marketable obligations issued or unconditionally guaranteed as to principal and interest by the United States of America or by any agency or authority controlled or supervised by and acting as an instrumentality of the United States of America if, on the date of purchase or other acquisition of any such instrument by the Company or any Restricted Subsidiary of the Company, the remaining term to maturity or interest rate adjustment is not more than two years; (B) obligations (including, but not limited to, demand or time deposits, bankers' acceptances and certificates of deposit) issued or guaranteed by a depository institution or trust company incorporated under the laws of the United States of America, any state thereof or the District of Columbia, provided that (1) such instrument has a final maturity not more than one year from the date of purchase thereof by the Company or any Restricted Subsidiary of the Company and (2) such depository institution or trust company has at the time of the Company's or such Restricted Subsidiary's Investment therein or contractual commitment providing for such Investment, (x) capital, 26 35 surplus and undivided profits (as of the date such institution's most recently published financial statements) in excess of $100 million and (y) the long-term unsecured debt obligations (other than such obligations rated on the basis of the credit of a Person other than such institution) of such institution, at the time of the Company's or such Restricted Subsidiary's Investment therein or contractual commitment providing for such Investment, are rated in the highest rating category of both S&P and Moodys; (C) commercial paper issued by any corporation, if such commercial paper has, at the time of the Company's or any Restricted Subsidiary's Investment therein or contractual commitment providing for such Investment credit ratings of at least A-1 by S&P and P-1 by Moody's; (D) money market mutual or similar funds having assets in excess of $100 million; (E) readily marketable debt obligations issued by any corporation, if at the time of the Company's or Restricted Subsidiary's Investment therein or contractual commitment providing for such Investment (1) the remaining term to maturity is not more than two years and (2) such debt obligations are rated in one of the two highest rating categories of both S&P and Moody's; (F) demand or time deposit accounts used in the ordinary course of business with commercial banks the balances in which are at all times fully insured as to principal and interest by the Federal Deposit Insurance Corporation or any successor thereto; and (G) to the extent not otherwise included herein, Cash Equivalents. In the event that either S&P or Moody's ceases to publish ratings of the type provided herein, a replacement rating agency shall be selected by the Company, and in each case the rating of such replacement rating agency most nearly equivalent to the corresponding S&P or Moody's rating, as the case may be, shall be used for purposes hereof. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed, except as provided in Section 9.05; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "U.S. Person" means (i) any individual resident in the United States, (ii) any partnership or corporation organized or incorporated under the laws of the United States, (iii) any estate of which an executor or administrator is a U.S. Person (other than an estate governed by foreign law and of which at least one executor or administrator is a non-U.S. Person who has sole or shared investment discretion with respect to its assets), (iv) any trust of which any trustee is a U.S. 27 36 Person (other than a trust of which at least one trustee is a non-U.S. Person who has sole or shared investment discretion with respect to its assets and no beneficiary of the trust (and no settlor if the Trust is revocable) is a U.S. Person), (v) any agency or branch of a foreign entity located in the United States, (vi) any non-discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. Person, (vii) any discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States (other than such an account held for the benefit or account of a non-U.S. Person), (viii) any partnership or corporation organized or incorporated under the laws of a foreign jurisdiction and formed by a U.S. Person principally for the purpose of investing in securities not registered under the Securities Act (unless it is organized or incorporated, and owned, by accredited investors within the meaning of Rule 501(a) under the Securities Act who are not natural persons, estates or trusts); provided, however, that the term "U.S. Person" does not include (A) a branch or agency of a U.S. Person that is located and operating outside the United States for valid business purposes as a locally regulated branch or agency engaged in the banking or insurance business, (B) any employee benefit plan established and administered in accordance with the law, customary practices and documentation of a foreign country and (C) the international organizations set forth in Section 9.02(o)(7) of Regulation S under the Securities Act and any other similar international organizations, and their agencies, affiliates and pension plans. "Vice President", when used with respect to the Company, any Guarantor or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person or by such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. SECTION 1.02. Compliance Certification and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such 28 37 certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representa tions by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the 29 38 exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. Acts of Holders; Record Date. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 7.01) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on 30 39 such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. (d) The ownership of Notes shall be proved by the Note Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 1.05. Notices, Etc., to Trustee, Company and Guarantors. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company or any Guarantor shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Trustee Administration, or (2) the Company or any Guarantor by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. 31 40 In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 1.07. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act, that is required under such Act to be part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Until such time as this Indenture shall be qualified under the Trust Indenture Act, this Indenture, the Company, the Guarantors and the Trustee shall be deemed for all purposes hereof to be subject to and governed by the Trust Indenture Act to the same extent as would be the case if this Indenture were so qualified on the date hereof. SECTION 1.08. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.09. Successors and Assigns. All covenants and agreements in this Indenture by the Company or any Guarantor shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. Separability Clause. In case any provision in this Indenture or in the Notes or the Senior Subordinated Guarantees shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in the Notes or the Senior Subordinated Guarantees, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Debt (subject to Article 12 hereof) and the Holders of Notes, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. Governing Law. This Indenture and the Notes and the Senior Subordinated Guarantees shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of laws principles thereof. SECTION 1.13. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Purchase Date or Stated Maturity of any Note shall not 32 41 be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes or any Senior Subordinated Guarantee) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, or Purchase Date, or at the Stated Maturity, as the case may be, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Purchase Date or Stated Maturity, as the case may be. ARTICLE 2 NOTE AND SENIOR SUBORDINATED GUARANTEE FORMS SECTION 2.01. Forms Generally; Initial Forms of Rule 144A and Regulation S Notes. The Notes, the Senior Subordinated Guarantees and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Notes or Senior Subordinated Guarantees, as evidenced by their execution of the Notes. The definitive Notes and Senior Subordinated Guarantees to be endorsed thereon shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Notes may be listed, all as determined by the officers executing such Notes or Senior Subordinated Guarantees, as evidenced by their execution thereof. Upon their original issuance, Rule 144A Notes shall be issued in the form of one or more Global Notes without interest coupons registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee, as custodian for DTC, in New York, New York, for credit by DTC to the respective accounts of beneficial owners of the Notes represented thereby (or such other accounts as they may direct). Such Global Notes, together with their Successor Notes which are Global Notes other than the Regulation S Global Note are collectively herein called the "Restricted Global Note". 33 42 Upon their original issuance, Regulation S Notes (herein called the "Regulation S Temporary Global Note") shall be issued in the form of a single temporary Global Note without coupons registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee at its Corporate Trust Office, as custodian for DTC, for credit to Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the Euroclear, and Cedel to the respective accounts of beneficial owners of the Notes represented thereby (or such other accounts as they may direct) in accordance with the rules thereof. Beneficial interests in the Regulation S Temporary Global Note may only be held through Euroclear and Cedel until such interests are exchanged for corresponding interests in an unrestricted Global Note as provided in the next sentence. A holder of a beneficial interest in the Regulation S Temporary Global Note must provide written certification to Euroclear or CEDEL, as the case may be, that the beneficial owner of the interest in such Global Note is not a U.S. Person (an "Owner Securities Certification"), and Euroclear or CEDEL, as the case may be, must provide to the Trustee a similar certificate in the form set form in Annex C (a "Depositary Securities Certification"), prior to (i) the payment of interest with respect to such holder's beneficial interest in the Regulation S Temporary Global Note and (ii) any exchange of such beneficial interest for a beneficial interest in the Regulation S Global Note. SECTION 2.02. Form of Face of Note. [If the Note is a Restricted Note, then insert -- THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL INVESTOR (1) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ACQUIRING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (B) BY SUBSEQUENT INVESTORS, AS SET FORTH IN (A) ABOVE, IN ADDITION, TO INSTITUTIONAL ACCREDITED INVESTORS IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL OTHER APPLICABLE SECURITIES LAWS. 34 43 THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN THE ABOVE PARAGRAPH. THIS NOTE WILL NOT BE ACCEPTED FOR REGISTRATION OF TRANSFER UNLESS THE REGISTRAR OR TRANSFER AGENT IS SATISFIED THAT THE RESTRICTIONS ON TRANSFER SET FORTH ABOVE HAVE BEEN COMPLIED WITH, ALL AS PROVIDED IN THE INDENTURE.] [If the Note is a Global Note, then insert -- THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A NOTE REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.] [If the Note is a Global Note and The Depository Trust Company is to be the Depositary therefor, then insert -- UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] [If the Note is a Regulation S Note, then insert -- THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 , AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR DELIVERED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS THIS NOTE IS 35 44 REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE.] [If the Note is a Regulation S Temporary Global Note, then insert -- THIS NOTE IS A REGULATION S TEMPORARY GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE REFERRED TO HEREINAFTER. INTERESTS IN THIS REGULATION S TEMPORARY GLOBAL NOTE MAY NOT BE OFFERED OR SOLD TO A U.S. PERSON PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD (AS DEFINED IN THE INDENTURE) EXCEPT IN CERTAIN LIMITED CIRCUMSTANCES IN ACCORDANCE WITH THE TERMS OF THE INDENTURE.] R.H. DONNELLEY INC. 9 1/8% SENIOR SUBORDINATED NOTES DUE 2008 GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST BY THE DUN & BRADSTREET CORPORATION [If Restricted Global Note - CUSIP No. 74956EAA6] [If Regulation S Temporary Global Note - CUSIP No. [U76226AA4] [If Regulation S Global Note - ISIN No. [USU76226AA41] No. __________ $__________ R.H. Donnelley Inc., a corporation duly organized and existing under the laws of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ________________, or registered assigns, the principal sum of ______________ Dollars (such amount the "principal amount" of this Note) [if the Note is a Global Note, then insert -- , or such other principal amount (which, when taken together with the principal amounts of all other Outstanding Notes, shall not exceed $150,000,000 in the aggregate at any time) as may be set forth in the records of the Trustee hereinafter referred to in accordance with the Indenture,] on June 1, 2008 and to pay interest thereon from June 5, 1998, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on June 1 and December 1 in each year, commencing December 1, 1998, at the rate of 9 1/8% per annum, until the principal hereof is paid or made available for payment; provided that, if any Registration Default occurs under the Exchange and Registration Rights Agreement, then the per annum interest rate on the Notes will increase for the period from the occurrence of the Registration Default until such time as no Registration Default is in effect (at which time the interest rate will be reduced to its initial rate) at a 36 45 per annum rate of 0.25% for the first 90-day period following the occurrence of such Registration Default, and by an additional 0.25% during each subsequent 90- day period thereafter (up to a maximum of 1.0%), and provided, further, that any amount of interest on this Note which is overdue shall bear interest (to the extent that payment thereof shall be legally enforceable) at the rate per annum then borne by this Note from the date such amount is due to the day it is paid or made available for payment, and such overdue interest shall be payable on demand. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest, which shall be the April 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date [if the Note is an Original Note, then insert --, provided that any accrued and unpaid interest (including Special Interest Payments) on this Note upon the issuance of an Exchange Note in exchange for this Note shall cease to be payable to the Holder hereof and shall be payable on the next Interest Payment Date for such Exchange Note to the Holder thereof on the related Regular Record Date]. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on the relevant Regular Record Date and may either be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Interest on this Note shall be computed on the basis set forth in the Indenture. Payment of the principal of (and premium, if any) and any such interest on this Note will be made at the office or agency of the Company in the Borough of Manhattan, The City of New York, New York, maintained for such purpose and at any other office or agency maintained by the Company for such purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Note Register; provided further that all payments of the principal (and premium, if any) and interest on Notes, the Holders of which have given wire transfer instructions to the Company or its agent at least 10 Business Days prior to the applicable payment date will be required to be made by wire transfer of immediately available funds to the accounts specified by such Holders in such instructions. 37 46 Notwithstanding the foregoing, the final payment of principal shall be payable only upon surrender of this Note to the Paying Agent. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. R.H. DONNELLEY INC. [SEAL] By: ---------------------------- Attest: - -------------------------------- SECTION 2.03. Form of Reverse of Note. This Note is one of a duly authorized issue of Notes of the Company designated as its 9 1/8% Senior Subordinated Notes due June 1, 2008 (herein called the "Notes"), limited in aggregate principal amount to $150,000,000, issued and to be issued under an Indenture, dated as of June 5, 1998 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), among the Company, the Guarantors named therein and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Guarantors, the Trustee and the Holders of the Notes and of the terms upon which the Notes with the Senior 38 47 Subordinated Guarantees endorsed thereon, are, and are to be, authenticated and delivered. The Notes will be subject to redemption, at the option of the Company, in whole or in part, at any time on or after June 1, 2003 and prior to maturity, upon not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at such Holder's address appearing in the Note Register, in amounts of $1,000 or an integral multiple of $1,000, at the following Redemption Prices (expressed as percentages of the principal amount) plus accrued interest to but excluding the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), if redeemed during the 12-month period beginning June 1 of the years indicated:
Redemption Year Price ---- ----- 2003....................................... 104.563% 2004....................................... 103.042% 2005....................................... 101.521% 2006 and thereafter........................
In addition, at any time prior to June 1, 2001 in the event the Parent Company or the Company receives net cash proceeds from the sale of its Common Stock or the Common Stock of the Parent Company in one or more Equity Offerings, the Company (to the extent it receives such proceeds and has not used such proceeds directly or indirectly, to redeem or repurchase other securities pursuant to optional redemption provisions) may, at its option, use all or a portion of any such net proceeds to redeem Notes in an aggregate principal amount of up to 35% of the original aggregate principal amount of the Notes, provided, however, that Notes having a principal amount equal to at least 65% of the original aggregate principal amount of the Notes remain outstanding after such redemption. Such redemption must occur on a Redemption Date within 120 days of such sale and upon not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at such Holder's address appearing in the Note Register, in amounts of $1,000 or an integral multiple of $1,000, at a redemption price of 109.125% of the principal amount of the Notes plus accrued interest to but excluding the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). 39 48 If less than all the Notes are to be redeemed, the Trustee shall select, in such manner as it shall deem fair and appropriate, the particular Notes to be redeemed or any portion thereof that is an integral multiple of $1,000. The Notes do not have the benefit of any sinking fund obligations. The Indenture provides that, subject to certain conditions, if (i) certain Net Available Proceeds are available to the Company as a result of Asset Dispositions or (ii) a Change of Control occurs, the Company shall be required to make an Offer to Purchase for all or a specified portion of the Notes. In the event of redemption or purchase pursuant to an Offer to Purchase of this Note in part only, a new Note or Notes of like tenor for the unredeemed or unpurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture contains provisions for defeasance at any time of (i) the entire indebtedness of this Note having been paid or discharged or (ii) certain restrictive covenants and Events of Default with respect to this Note having occurred, in each case upon compliance with certain conditions set forth therein. As provided in the Indenture and subject to certain limitations therein set forth, the obligations of the Company under the Indenture and this Note are unconditionally guaranteed, jointly and severally on a senior subordinated basis, pursuant to Senior Subordinated Guarantees endorsed hereon as provided in the Indenture. Each Holder, by holding this Note, agrees to all of the terms and provisions of said Senior Subordinated Guarantees. The Indenture provides that a Guarantor shall be released from its Senior Subordinated Guarantee upon compliance with certain conditions. The Notes and the Senior Subordinated Guarantees shall be subordinated in right of payment to Senior Debt of the Company and the Guarantors, respectively, as provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the Guarantors and the rights of the Holders of the Notes under the Indenture at any time by the Company, the Guarantor and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Notes at 40 49 the time Outstanding. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. As provided in and subject to the provisions of the Indenture, the Holder of this Note shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default with respect to the Notes, the Holders of not less than 25% in aggregate principal amount of the Notes at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in aggregate principal amount of Notes at the time Outstanding a direction inconsistent with such request and shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Note for the enforcement of any payment of principal hereof or any premium (if any) or interest hereon on or after the respective due dates expressed herein (or, in the case of redemption, on or after the Redemption Date or, in the case of any purchase of this Note required to be made pursuant to an Offer to Purchase, on the Purchase Date). No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable in the Note Register, upon surrender of this Note for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Note Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of 41 50 authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Notes are issuable only in registered form without coupons in denominations of $1,000 principal amount and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Notes are exchangeable for a like aggregate principal amount of Notes of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Note for registration of transfer, the Company, the Guarantors, the Trustee and any agent of the Company, the Guarantors or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes (subject to the provisions hereof with respect to determination of the Person to whom interest is payable), whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Interest on this Note shall be computed on the basis of a 360-day year of twelve 30-month days. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Indenture, this Note and the Senior Subordinated Guarantees shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of laws principles thereof. 42 51 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased in its entirety by the Company pursuant to Section 10.14 or 10.16 of the Indenture, check the box: |_| If you want to elect to have only a part of this Note purchased by the Company pursuant to Section 10.14 or 10.16 of the Indenture, state the principal amount of this Note you want to elect to have so purchased by the Company: $______________ Dated: Your Signature: -------------- ----------------------------------------- (Sign exactly as name appears on the other side of this Note) Signature Guarantee: -------------------------------------------------------- Notice: Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Trustee, which requirements will include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Trustee in addition to, or in substitution for STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. SECTION 2.04. Form of Trustee's Certificate of Authentication. This is one of the Notes with the Senior Subordinated Guarantees referred to in the within-mentioned Indenture. -------------------------------- as Trustee By: ---------------------------- Authorized Signatory Dated: ---------------- 43 52 SECTION 2.05. Form of Senior Subordinated Guarantee. SENIOR SUBORDINATED GUARANTEE For value received, each of the Guarantors named (or deemed herein to be named) below hereby jointly and severally unconditionally guarantees, on a senior subordinated basis to the Holder of the Note upon which this Senior Subordinated Guarantee is endorsed, and to the Trustee on behalf of such Holder, the due and punctual payment of the principal of (and premium, if any) and interest on such Note when and as the same shall become due and payable, whether at the Stated Maturity, by acceleration, call for redemption, purchase or otherwise, according to the terms thereof and of the Indenture referred to therein. In case of the failure of the Company punctually to make any such payment, each of the Guarantors hereby jointly and severally agrees to cause such payment to be made punctually when and as the same shall become due and payable, whether at the Stated Maturity or by acceleration, call for redemption, purchase or otherwise, and as if such payment were made by the Company. The Senior Subordinated Guarantee of each Guarantor shall be subordinated in right of payment to the Senior Debt of such Guarantor as provided in the Indenture. Each of the Guarantors hereby jointly and severally agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of such Note or the Indenture, the absence of any action to enforce the same, any creation, exchange, release or non-perfection of any Lien on any collateral for, or any release or amendment or waiver of any term of any other Guarantee of, or any consent to departure from any requirement of any other Guarantee of, all or of any of the Securities, the election by the Trustee or any of the Holders in any proceeding under Chapter 11 of the Bankruptcy Code of the application of Section 1111(b)(2) of the Bankruptcy Code, any borrowing or grant of a security interest by the Company, as debtor-in-possession, under Section 364 of the Bankruptcy Code, the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of the claims of the Trustee or any of the Holders for payment of any of the Notes, any waiver or consent by the Holder of such Note or by the Trustee or either of them with respect to any provisions thereof or of the Indenture, the obtaining of any judgment against the Company or any action to enforce the same or any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each of the Guarantors hereby waives the benefits of diligence, presentment, demand of payment, any requirement that the Trustee or any of the Holders protect, secure, perfect or insure any security interest in or other Lien on any property subject thereto or exhaust any right or take any action against the Company or any other 44 53 Person or any collateral, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to such Note or the indebtedness evidenced thereby and all demands whatsoever, and covenants that this Senior Subordinated Guarantee will not be discharged except by complete performance of the obligations contained in such Note and in this Senior Subordinated Guarantee. Each of the Guarantors hereby agrees that, in the event of a default in payment of principal (or premium, if any) or interest on such Note, whether at their Stated Maturity, by acceleration, call for redemption, purchase or otherwise, legal proceedings may be instituted by the Trustee on behalf of, or by, the Holder of such Note, subject to the terms and conditions set forth in the Indenture, directly against each of the Guarantors to enforce this Senior Subordinated Guarantee without first proceeding against the Company. Each Guarantor agrees that if, after the occurrence and during the continuance of an Event of Default, the Trustee or any of the Holders are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Notes, to collect interest on the Notes, or to enforce or exercise any other right or remedy with respect to the Notes, such Guarantor agrees to pay to the Trustee for the account of the Holders, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of the Holders. No reference herein to the Indenture and no provision of this Senior Subordinated Guarantee or of the Indenture shall alter or impair the Senior Subordinated Guarantee of any Guarantor, which is absolute and unconditional, of the due and punctual payment of the principal (and premium, if any) and interest on the Note upon which this Senior Subordinated Guarantee is endorsed. Each Guarantor shall be subrogated to all rights of the Holder of such Note against the Company in respect of any amounts paid by such Guarantor on account of such Note pursuant to the provisions of its Senior Subordinated Guarantee or the Indenture; provided, however, that such Guarantor shall not be entitled to enforce or to receive any payments arising out of, or based upon, such right of subrogation until the principal of (and premium, if any) and interest on this Note and all other Notes issued under the Indenture shall have been paid in full. This Senior Subordinated Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be effective or be 45 54 reinstated, as the case may be, if at any time payment and performance of the Notes are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Notes, whether as a "voidable preference," "fraudulent transfer" or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Notes shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. The Guarantor shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under this Senior Subordinated Guarantee. The Guarantors or any particular Guarantor shall be released from this Senior Subordinated Guarantee upon the terms and subject to certain conditions provided in the Indenture. By delivery of a supplemental indenture to the Trustee in accordance with the terms of the Indenture, each Person that becomes a Subsidiary Guarantor after the date of the Indenture will be deemed to have executed and delivered this Subsidiary Guarantee for the benefit of the Holder of the Note upon which this Subsidiary Guarantee is endorsed, with the same effect as if such Subsidiary Guarantor was named below and had executed and delivered this Subsidiary Guarantee. All terms used in this Senior Subordinated Guarantee which are defined in the Indenture referred to in the Note upon which this Senior Subordinated Guarantee is endorsed shall have the meanings assigned to them in such Indenture. This Senior Subordinated Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Senior Subordinated Guarantee is endorsed shall have been executed by the Trustee under the Indenture by manual signature. Reference is made to Article 13 of the Indenture for further provisions with respect to this Senior Subordinated Guarantee. THIS SENIOR SUBORDINATED GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 46 55 IN WITNESS WHEREOF, each of the Guarantors has caused this Senior Subordinated Guarantee to be duly executed. The Dun & Bradstreet Corporation, As Guarantor By: ---------------------------------- [Officer] Attest: - ------------------------------ [Secretary] [Assistant Secretary] ARTICLE 3 THE NOTES SECTION 3.01. Title and Terms. The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is limited to $150,000,000 except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 3.04, 3.05, 3.05, 9.06 or 11.08 or in connection with an Offer to Purchase pursuant to Sections 10.14 and 10.16. The Notes shall be known and designated as the "___% Senior Subordinated Notes due 2008" of the Company. Their Stated Maturity shall be _________, 2008 and they shall bear interest at the rate of ___% per annum, from _________, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on _____________ and __________, commencing _______________, 1998, until the principal thereof is paid or made available for payment provided, if any Registration Default occurs under the Exchange and Registration Rights Agreement, then the per annum interest rate on the applicable will increase for the period from the occurrence of the Registration Default Period until such time as no Registration Default is in effect (at which time the interest rate will be reduced 47 56 to its initial rate) by a per annum rate of 0.25% for the first 90-day period following the occurrence of such Registration Default, and by an additional 0.25% during each subsequent 90-day period thereafter (up to a maximum of 1.0%). The principal of (and premium, if any) and interest on the Notes shall be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York maintained for such purpose and at any other office or agency maintained by the Company for such purpose; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Note Register. The Notes shall be subject to repurchase by the Company pursuant to an Offer to Purchase as provided in Sections 10.14 and 10.16. The Notes shall be redeemable as provided in Article 11. The Notes shall be Guaranteed by the Guarantors as provided in Article 12. The Notes and the Senior Subordinated Guarantees shall be subordinated in right of payment to Senior Debt of the Company and each of the Guarantors respectively, as provided in Article 13. The Notes shall be subject to defeasance at the option of the Company as provided in Article 14. Unless the context otherwise requires, the Original Notes and the Exchange Notes shall constitute one series for all purposes under the Indenture, including with respect to any amendment, waiver, acceleration or other Act of Holders, redemption or Offer to Purchase. SECTION 3.02. Denominations. The Notes shall be issuable only in regis tered form without coupons and only in denominations of $1000 and integral multiples thereof. SECTION 3.03. Execution, Authentication, Delivery and Dating. The Notes shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Notes may be manual or facsimile. 48 57 Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwith standing that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Notes executed by the Company and having endorsed (by attachment or imprint) thereon the Senior Subordinated Guarantees executed as provided in Article 12 by the Guarantors to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Notes with such Senior Subordinated Guarantees endorsed thereon; and the Trustee in accordance with such Company Order shall authenticate and make available for delivery such Notes with such Senior Subordinated Guarantees endorsed thereon as in this Indenture provided and not otherwise. At any time and from time to time after the execution and delivery of this Indenture and after the effectiveness of a registration statement under the Securities Act with respect thereto, the Company may deliver Exchange Notes executed by the Company, and having endorsed thereon the Senior Subordinated Guarantees executed under Article 12 by the Guarantors, to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Exchange Notes and a like principal amount of Original Notes for cancellation in accordance with Section Twelve of this Indenture, and the Trustee in accordance with the Company Order shall authenticate and make available for delivery such Notes, with the Senior Subordinated Guarantees endorsed thereon. Prior to authenticating such Exchange Notes, and accepting any additional responsibilities under this Indenture in relation to such Notes, the Trustee shall be entitled to receive, if requested, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating in substance. (a) that all conditions hereunder precedent to the authentication and delivery of such Exchange Notes with the Senior Subordinated Guarantees of the Guarantors endorsed thereon have been complied with and that such Exchange Notes and the Senior Subordinated Guarantees of the Guarantors endorsed thereon, when such Notes have been duly authenticated and delivered by the Trustee (and subject to any other conditions specified in such Opinion of Counsel), have been duly issued and delivered and will constitute valid and legally binding obligations of the Company and the Guarantors, respectively, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and 49 58 (b) that the issuance of the Exchange Notes in exchange for Original Notes has been effected in compliance with the Securities Act. Each Note shall be dated the date of its authentication. No Note or Senior Subordinated Guarantee endorsed thereon shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication substan tially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder and that each Senior Subordinated Guarantee endorsed thereon has been duly endorsed thereon and delivered hereunder. SECTION 3.04. Temporary Notes. Pending the preparation of definitive Notes and Senior Subordinated Guarantees, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Notes with temporary Senior Subordinated Guarantees endorsed thereon, which Notes and Senior Subordinated Guarantees are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, sub stantially of the tenor of the definitive Notes and Senior Subordinated Guarantees, respectively, in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes and Senior Subordinated Guarantees may determine, as evidenced by their execution thereof.If temporary Notes are issued, the Company will cause definitive Notes and Senior Subordinated Guarantees to be prepared without unreasonable delay. After the preparation of definitive Notes and Senior Subordinated Guarantees, the temporary Notes shall be exchangeable for definitive Notes with definitive Senior Subordinated Guarantees endorsed thereon, upon surrender of the temporary Notes at any office or agency of the Company designated pursuant to Section 10.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Notes of authorized denominations having endorsed thereon definitive Senior Subordinated Guarantees executed by the Guarantors. Until so exchanged the temporary Notes and Senior Subordinated Guarantees shall in all respects be entitled to the same benefits under this Indenture as definitive Notes and Senior Subordinated Guarantees, respectively. SECTION 3.05. Global Notes. (a) Each Global Note authenticated under this Indenture shall be registered in the name of the Depositary designated by the 50 59 Company for such Global Note or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Note shall constitute a single Note for all purposes of this Indenture. (b) Notwithstanding any other provision in this Indenture, no Global Note may be exchanged in whole or in part for Notes registered, and no transfer of a Global Note in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Note or a nominee thereof unless (i) such Depositary (A) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Note or (B) has ceased to be a clearing agency registered as such under the Exchange Act, and in either case the Company fails to appoint a successor Depositary, (ii) the Company executes and delivers to the Trustee a Company Order stating that it elects to cause the issuance of the Notes in certificated form and that all Global Notes shall be exchanged in whole for Securities that are not Global Notes (in which case such exchange shall be effected by the Trustee) or (iii) there shall have occurred and be continuing an Event of Default with respect to the Note. (c) If any Global Note is to be exchanged for other Notes or cancelled in whole, it shall be surrendered by or on behalf of the Depositary or its nominee to the Trustee, as Security Registrar, for exchange or cancellation as provided in this Article 3. If any Global Note is to be exchanged for other Notes or cancelled in part, or if another Note is to be exchanged in whole or in part for a beneficial interest in any Global Note, then either (i) such Global Note shall be so surrendered for exchange or cancellation as provided in this Article 3 or (ii) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or cancelled, or equal to the principal amount of such other Note to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate adjustment made on the records of the Trustee, as Security Registrar, whereupon the Trustee, in accordance with the Applicable Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender or adjustment of a Global Note, the Trustee shall, subject to Section 3.06(c) and as otherwise provided in this Article 3, authenticate and deliver any Notes issuable in exchange for such Global Note (or any portion thereof) to or upon the order of, and registered in such names as may be directed by, the Depositary or its authorized representative. Upon the request of the Trustee in connection with the occurrence of any of the events specified in the preceding paragraph, the Company shall promptly make available to the Trustee a rea sonable supply of Notes that are not in the form of Global Notes. The Trustee shall be entitled to rely upon any order, direction or request of the Depositary or its authorized representative which is given or made pursuant to this Article 3 if 51 60 such order, direction or request is given or made in accordance with the Applicable Procedures. (d) Every Note authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Note or any portion thereof, whether pursuant to this Article 3 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Note, unless such Note is registered in the name of a Person other than the Depositary for such Global Note or a nominee thereof. (e) The Depositary or its nominee, as registered owner of a Global Note, shall be the Holder of such Global Note for all purposes under the Indenture, the Notes and the Senior Subordinated Guarantees, and owners of beneficial interests in a Global Note shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial interest in a Global Note will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Agent Members. SECTION 3.06. Registration, Registration of Transfer and Exchange; Securities Act Legends. (a) Registration, Registration of Transfer and Exchange Generally. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 10.02 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers and exchanges of Notes. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Notes and transfers and exchanges of Notes as herein provided. Such Security Register shall distinguish between Original Notes and Exchange Notes. Upon surrender for registration of transfer of any Note at an office or agency of the Company designated pursuant to Section 10.02 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations, of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture, each such new Note having endorsed thereon the Senior Subordinated Guarantee executed by each Guarantor. At the option of the Holder, and subject to the other provisions of this Section 3.06, Notes may be exchanged for other Notes of any authorized denominations, of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture, each such new Note having endorsed thereon the Senior Subordinated Guarantee executed by each Guarantor, 52 61 upon surrender of the Notes to be exchanged at any such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Notes which the Holder making the exchange is entitled to receive. All Notes and the Senior Subordinated Guarantees endorsed thereon issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company and the respective Guarantors, evidencing the same debt, and (except for the differences between Original Notes and Exchange Notes provided for herein) entitled to the same benefits under this Indenture, as the Notes and Senior Subordinated Guarantees endorsed thereon, respectively, surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Note Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Sections 3.03, 3.04, 3.05, 3.06, 9.06, 10.16, 3.03 or 11.09 [Please note - this wasn't cross-ref'd because there is no 11.09] not involving any transfer. The Company shall not be required (i) to issue, register the transfer of, or exchange any Note during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Notes selected for redemption under Section 11.05 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Note so selected for redemption, in whole or in part, except the unredeemed portion of any Note being redeemed in part. (b) Certain Transfers and Exchanges. Notwithstanding any other provision of this Indenture or the Notes, transfers and exchanges of Notes and beneficial interests in a Global Note of the kinds specified in this Section 3.06(b) shall be made only in accordance with this Section 3.06(b). (i) Restricted Global Note to Regulation S Temporary Global Note or Regulation S Global Note. If the owner of a beneficial interest in the Restricted Global Note wishes at any time to transfer such interest to a 53 62 Person who wishes to acquire the same in the form of a beneficial interest in the Regulation S Temporary Global Note (if before the expiration of the Restricted Period) or in the Regulation S Global Note (if thereafter), such transfer may be effected only in accordance with the provisions of this Clause (b)(i) subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) an order given by the Depositary or its authorized representative directing that a beneficial interest in the Regulation S Temporary Global Note or Regulation S Temporary Global Note or Regulation S Global Note (as applicable) in a specified principal amount be credited to a specified Agent Member's account and that a beneficial interest in the Restricted Global Note in an equal principal amount be debited from another specified Agent Member's account and (B) a Regulation S Certificate, satisfactory to the Trustee and duly executed by the owner of such beneficial interest in the Restricted Global Note or his attorney duly authorized in writing, then the Trustee, as Security Registrar but subject to Clause (b)(iv) below, shall reduce the principal amount of the Restricted Global Note and increase the principal amount of the Regulation S Temporary Global Note or Regulation S Global Note (as applicable) by such specified principal amount as provided in Section 3.05(c). (ii) Regulation S Temporary Global Note to Restricted Global Note. If the owner of a beneficial interest in the Regulation S Temporary Global Note wishes at any time to transfer such interest to a Person who wishes to acquire the same in the form of a beneficial interest in the Restricted Global Note, such transfer may be effected only in accordance with this Clause (b)(ii) and subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) an order given by the Depositary or its authorized representative directing that a beneficial interest in the Restricted Global Note in a specified principal amount be credited to a specified Agent Member's account and that a beneficial interest in the Regulation S Temporary Global Note in an equal principal amount be debited from another specified Agent Member's account and (B) a Restricted Notes Certificate, satisfactory to the Trustee and duly executed by the owner of such beneficial interest in the Regulation S Temporary Global Note or his attorney duly authorized in writing, then the Trustee, as Security Registrar, shall reduce the principal amount of the Regulation S Temporary Global Note and increase the principal amount of the Restricted Global Note by such specified principal amount as provided in Section 3.05(c). (iii) Exchanges between Global Note and Non-Global Note. A beneficial interest in a Global Note may be exchanged for a Note that is 54 63 not a Global Note as provided in Section 3.05, provided that, if such interest is a beneficial interest in the Restricted Global Note, or if such interest is a beneficial interest in the Regulation S Temporary Global Note, then such interest shall be exchanged for a Restricted Note (subject in each case to Section 3.06(c)). (iv) Regulation S Temporary Global Note to be Held Through Euroclear or Cedel during Restricted Period. The Company shall use its best efforts to cause the Depositary to ensure that beneficial interests in the Regulation S Temporary Global Note may be held only in or through accounts maintained at the Depositary by Euroclear or Cedel (or by Agent Members acting for the account thereof), and no person shall be entitled to effect any transfer or exchange that would result in any such interest being held otherwise than in or through such an account; provided that this Clause (b)(iv) shall not prohibit any transfer or exchange of such an interest in accordance with Clause (b)(ii) above. (c) Securities Act Legends. Rule 144A Notes and their respective Successor Notes shall bear a Restricted Notes Legend, and Regulation S Notes and their Successor Notes shall bear a Regulation S Legend, subject to the following: (i) subject to the following Clauses of this Section 3.06(c), a Note or any portion thereof which is exchanged, upon transfer or otherwise, for a Global Note or any portion thereof shall bear the Securities Act Legend borne by such Global Note while represented thereby; (ii) subject to the following Clauses of this Section 3.06(c), a new Note which is not a Global Note and is issued in exchange for another Note (including a Global Note) or any portion thereof, upon transfer or otherwise, shall bear the Securities Act Legend borne by such other Note, provided that, if such new Note is required pursuant to Section 3.06(b)(iii) to be issued in the form of a Restricted Note, it shall bear a Restricted Notes Legend and, if such new Note is so required to be issued in the form of a Regulation S Note, it shall bear a Regulation S Legend; (iii) Exchange Notes shall not bear a Securities Act Legend; (iv) at any time after the Notes may be freely transferred without registration under the Securities Act or without being subject to transfer restrictions pursuant to the Securities Act, a new Note which does not bear a Securities Act Legend may be issued in exchange for or in lieu of a Note 55 64 (other than a Global Note) or any portion thereof which bears such a legend if the Trustee has received an Unrestricted Notes Certificate, satisfactory to the Trustee and duly executed by the Holder of such legended Note or his attorney duly authorized in writing, and after such date and receipt of such certificate, the Trustee shall authenticate and deliver such a new Note in exchange for or in lieu of such other Note as provided in this Article 3; (v) a new Note which does not bear a Securities Act Legend may be issued in exchange for or in lieu of a Note (other than a Global Note) or any portion thereof which bears such a legend if, in the Company's judgment, placing such a legend upon such new Note is not necessary to ensure compliance with the registration requirements of the Securities Act, and the Trustee, at the direction of the Company, shall authenticate and deliver such a new Note as provided in this Article 3; and (vi) notwithstanding the foregoing provisions of this Section 3.06(c), a Successor Note of a Note that does not bear a particular form of Securities Act Legend shall not bear such form of legend unless the Company has reasonable cause to believe that such Successor Note is a "restricted security" within the meaning of Rule 144, in which case the Trustee, at the direction of the Company, shall authenticate and deliver a new Note bearing a Restricted Notes Legend in exchange for such Successor Note as provided in this Article 3. SECTION 3.07. Mutilated, Destroyed, Lost and Stolen Notes. If any mutilated Note is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Note of like tenor and principal amount, having endorsed thereon the Senior Subordinated Guarantees extended by the Guarantors and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Note and (ii) such security or indemnity as may be required by either of them to save each of them, each Guarantor, and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount, having endorsed thereon the Senior Subordinated Guarantees extended by the Guarantors and bearing a number not contemporaneously outstanding. 56 65 In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Note issued pursuant to this Section in lieu of any destroyed, lost or stolen Note and each Senior Subordinated Guarantee endorsed thereon shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes and Senior Subordinated Guarantees, respectively duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 3.08. Payment of Interest; Interest Rights Preserved. Interest on any Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest 57 66 or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Note Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. SECTION 3.09. Persons Deemed Owners. Prior to due presentment of a Note for registration of transfer, the Company, the Guarantors, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.08) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and neither the Company, the Guarantors, the Trustee nor any agent of the Company, any Guarantor or the Trustee shall be affected by notice to the contrary. 58 67 None of the Company, the Trustee or any agent of the Company or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Note in global form, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Notwithstanding the foregoing, with respect to any Note in global form, nothing herein shall prevent the Company or the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any Depositary (or its nominee), as a Holder, with respect to such Note in global form or impair, as between such Depositary and owners of beneficial interests in such Note in global form, the operation of customary practices governing the exercise of the rights of such Depositary (or its nominee) as Holder of such Note in global form. SECTION 3.10. Cancellation. All Notes surrendered for payment, redemption, registration of transfer or exchange or any Offer to Purchase pursuant to Section 10.14 or 10.16 shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and, together with the Senior Subordinated Guarantees endorsed thereon, shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Notes so delivered shall, together with the Senior Subordinated Guarantees endorsed thereon, be promptly canceled by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Notes held by the Trustee, together with the Senior Subordinated Guarantees endorsed thereon, shall be disposed of by the Trustee in accordance with its customary procedures. SECTION 3.11. Computation of Interest. Interest on the Notes shall be computed on the basis of a 360 day year of twelve 30-day months. SECTION 3.12. Cusip Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. 59 68 ARTICLE 4 SATISFACTION AND DISCHARGE SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to (i) rights of registration of transfer and exchange and the Company's right of optional redemption, (ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of Holders to receive payment of principal and interest on the Notes, (iv) rights, obligations and immunities of the Trustee under the Indenture and (v) rights of the Holders of the Notes as beneficiaries of the Indenture with respect to any property deposited with the Trustee payable to all or any of them), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture (including, but not limited to, Article 12 hereof), when (1) either (A) all Notes theretofore authenticated and delivered (other than (i) Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.07 and (ii) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or (B) all such Notes not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an 60 69 amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for prin cipal (and premium, if any) and interest to the date of such deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company and the Guarantors; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Article 4.01, the obligations of the Company to the Trustee under Section 6.07 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.03 shall survive. SECTION 4.02. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee but such money need not be separated from other funds except to the extent required by law. ARTICLE 5 REMEDIES SECTION 5.01. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article 13 or be voluntary or involuntary or be effected by operation of law or 61 70 pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) failure to pay the principal of (or premium, if any, on) any Note at its Maturity; or (2) failure to pay any interest upon any Note when it becomes due and payable, and continuance of such default for a period of 30 days; or (3) default, on the applicable Purchase Date, in the purchase of Notes required to be purchased by the Company pursuant to an Offer to Purchase as described in Section 10.14 herein and Section 10.16 herein when due and payable; or (4) failure to perform or comply with the provisions of Section 8.01; or (5) failure to perform any other covenant or agreement of the Company in this Indenture or Notes (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Notes a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (6) default under the terms of any instrument evidencing or securing Debt for money borrowed by the Company or any Restricted Subsidiary having an outstanding principal amount of $5.0 million individually or in the aggregate which default results in the acceleration of the payment of such indebtedness or constitutes the failure to pay such indebtedness when due; or (7) a final judgment or judgments (not subject to appeal) for the payment of money are entered against the Company or any Restricted Subsidiary of the Company in an amount in excess of $5.0 million by a court or courts of competent jurisdiction, which judgments remain undischarged or unstayed for a period of 60 days after the right to appeal all such judgments has expired; or 62 71 (8) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or any Restricted Subsidiary of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or any such Restricted Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any such Restricted Subsidiary under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any such Restricted Subsidiary of any substantial part of the property of the Company or any such Restricted Subsidiary, or ordering the winding up or liquidation of the affairs of the Company or any such Subsidiary, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (9) the commencement by the Company or any Restricted Subsidiary of the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company or any such Restricted Subsidiary to the entry of a decree or order for relief in respect of the Company or any Restricted Subsidiary of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company or any Restricted Subsidiary of the Company, or the filing by the Company or any such Restricted Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by the Company or any such Restricted Subsidiary to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary of the Company of any substantial part of the property of the Company or any Restricted Subsidiary of the Company, or the making by the Company or any Restricted Subsidiary of the Company of an assignment for the benefit of creditors, or the admission by the Company or any such Restricted Subsid iary in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any such Restricted Subsidiary in furtherance of any such action. 63 72 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.01(8) or (9)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Notes may declare all of the Notes to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal and any accrued interest, if any, shall become immediately due and payable. If an Event of Default specified in Section 5.01(8) or (9) occurs, the principal and any accrued interest on the Notes then Outstanding shall ipso facto become immediately due and payable without any declaration or other Act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Outstanding Notes, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (i) the Company or any of the Guarantors has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Notes, (B) the principal of (and premium, if any, on) any Notes which have become due otherwise than by such declaration of acceleration (including any Notes required to have been purchased on the Purchase Date pursuant to an Offer to Purchase made by the Company) and, to the extent that payment of such interest is lawful, interest thereon at the rate provided by the Notes, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate provided by the Notes, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and 64 73 (ii) all Events of Default, other than the non-payment of the principal of Notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest on any Note when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Note at the Maturity thereof or, with respect to any Note required to have been purchased pursuant to an Offer to Purchase made by the Company, at the Purchase Date thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate provided by the Notes, if any, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. 65 74 SECTION 5.04. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company, any Guarantor or any other obligor upon the Notes, or upon the property of the Company or its creditors or of any Guarantor or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.05. Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes or any Senior Subordinated Guarantee may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. SECTION 5.06. Application of Money Collected. Subject to Article 12, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.07; and 66 75 SECOND: To the extent provided in Article 12, to the holders of Senior Debt in accordance with Article 12; and THIRD: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal (and premium, if any) and interest, respectively. SECTION 5.07. Limitation on Suits. No Holder of any Note shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Outstanding Notes; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 5.08. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the 67 76 Holder of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.06) interest on such Note on the respective Stated Maturities expressed in such Note (or, in the case of redemption, on the Redemption Date or in the case of an Offer to Purchase made by the Company and required to be accepted as to such Note, on the Purchase Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 3.07, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 5.12. Control by Holders. The Holders of a majority in aggregate principal amount of the Outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that 68 77 (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Outstanding Notes may on behalf of the Holders of all the Notes waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on any Note (including any Note which is required to have been purchased pursuant to an Offer to Purchase which has been made by the Company), or (2) in respect of a covenant or provision hereof which under Article 10 cannot be modified or amended without the consent of the Holder of each Outstanding Note affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, including attorney's fees and expenses in the manner and to the extent provided in the Trust Indenture Act; provided, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Trustee, the Company or any Guarantor or in any suit for the enforcement of the right to convert any Note in accordance with Article 13. SECTION 5.15. Waiver of Stay or Extension Laws. Each of the Company and the Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and each of the Company and the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such 69 78 law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 6 THE TRUSTEE SECTION 6.01. Certain Duties and Responsibilities. Except during the continuance of an Event of Default, the duties and responsibilities of the Trustee shall be as provided by the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 6.02. Notice of Defaults. The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 5.01(4), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 6.03. Certain Rights of Trustee. Subject to the provisions of Section 6.01: (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; 70 79 (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (i) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge 71 80 thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture; and (j) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. SECTION 6.04. Not Responsible for Recitals or Issuance of Notes. The recitals contained herein and in the Notes and the Senior Subordinated Guarantees except the Trustee's certificates of authentication, shall be taken as the statements of the Company or the Guarantors, as the case may be, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes or the Senior Subordinated Guarantees. The Trustee shall not be accountable for the use or application by the Company of Notes or the proceeds thereof. SECTION 6.05. May Hold Notes. The Trustee, any Paying Agent, any Note Registrar or any other agent of the Company, any Guarantor in its individual or any other capacity, may become the owner or pledgee of Notes and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company any Guarantor with the same rights it would have if it were not Trustee, Paying Agent, Note Registrar or such other agent. SECTION 6.06. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company or any Guarantor, as the case may be. SECTION 6.07. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any pro vision of this Indenture (including the reasonable compensation and the 72 81 expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any and all loss, liability damage, claim or expense, including taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim (including any claim by the Company) or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall have a lien prior to the Securities as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 6.07, except with respect to funds held in trust for the benefit of the Holders of particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.01(5) or Section 5.01(6), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the termination of this Indenture. SECTION 6.08. Disqualification; Conflicting Interest. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.09. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000 and its Corporate Trust Office in the Borough of Manhattan, The City of New York. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall 73 82 cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 6.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in aggregate principal amount of the Outstanding Notes, delivered to the Trustee and to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. (d) If at any time: (i) the Trustee shall fail to comply with Section 6.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or (ii) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others 74 83 similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in aggregate principal amount of the Outstanding Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 6.11. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company, the Guarantors and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company and the Guarantors shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. 75 84 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. SECTION 6.13. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Notes or any Senior Subordinated Guarantee), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Note Registrar. SECTION 7.02. Preservation of Information; Communications to Holders. 76 85 (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Note Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Notes and the corresponding rights and duties of the Trustee, shall be provided by the Trust Indenture Act. (c) Every Holder of Notes, by receiving and holding the same, agrees with the Company, the Guarantors and the Trustee that neither the Company, the Guarantors nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to the names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 7.03. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each May 15, following the date of this Indenture deliver to Holders a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Notes are listed, with the Commission and with the Company. The Company will promptly notify the Trustee when the Notes are listed on any stock exchange or of any delisting thereof. SECTION 7.04. Reports by Company and the Parent Guarantor. The Company and each of the Parent Guarantor shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 30 days after the same is so required to be filed with the Commission. 77 86 Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 7.05. Officers' Certificate with Respect to Change in Interest Rates. Within five days after the day on which any Special Interest begins accruing, and within five days after any Special Interest ceases to accrue, the Company shall deliver an Officers' Certificate to the Trustee stating the interest rate thereupon in effect for the Unregistered Notes (if any are Outstanding) and the date on which such rate became effective. ARTICLE 8 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.01. Mergers, Consolidations and Certain Transfers, Leases and Acquisition of Assets. The Company shall not, in a single transaction or a series of related transactions, (i) consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into the Company or (ii) directly or indirectly, transfer, sell, lease or otherwise dispose of all or substantially all of its assets unless: (1) in a transaction in which the Company does not survive or in which the Company sells, leases or otherwise disposes of all or substantially all of its assets, the successor entity to the Company is organized under the laws of the United States of America or any State thereof or the District of Columbia and shall expressly assume, by a supplemental indenture executed and delivered to the Trustee in form satisfactory to the Trustee, all of the Company's obligations under the Indenture; (2) immediately before and after giving effect to such transaction and treating any Debt which becomes an obligation of the Company or a Restricted Subsidiary as a result of such transaction as having been Incurred by the Company or such Restricted Subsidiary at the time of the transaction, no Event of Default or event that with the passing of time or the giving of notice, or both, would constitute an Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, the Consolidated Net Worth of the Company (or other successor entity to the Company) is equal to or greater than that of the Company immediately prior to the transaction; (4) except with respect to a merger of the Company with or into a Wholly Owned Restricted Subsidiary, immediately after giving effect to such transaction and treating any Debt which becomes an 78 87 obligation of the Company or a Restricted Subsidiary as a result of such transaction as having been Incurred by the Company or such Restricted Subsidiary at the time of the transaction, the Company (including any successor entity to the Company) could Incur at least $1.00 of additional Debt pursuant to the provisions of the Indenture described in the first paragraph under Section 10.08 hereof; and (5) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer, lease or acquisition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with, and, with respect to such Officer's Certificate, setting forth the manner of determination of the Consolidated Net Worth and the ability to Incur Debt in accordance with Clause (4) of Section 8.01, the Company or, if applicable, of the Successor Company as required pursuant to the foregoing. SECTION 8.02. Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any transfer, conveyance, sale, lease or other disposition of all or substantially all of the properties and assets of the Company as an entirety in accordance with Section 8.01, the Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Notes. ARTICLE 9 SUPPLEMENTAL INDENTURES SECTION 9.01. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution of the Company, the Guarantors, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Notes; or 79 88 (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to secure the Notes pursuant to the requirements of Section 10.11 or otherwise; or (4) to comply with any requirements of the Commission in order to effect and maintain the qualification of this Indenture under the Trust Indenture Act; or (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided such action pursuant to this Clause (4) shall not adversely affect the interests of the Holders in any material respect. (6) to add new Guarantors pursuant to Section 12.05. SECTION 9.02. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Notes, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution of the Company, the Guarantors, and the Trustee may enter into an indenture or indentures supple mental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby, (1) change the Stated Maturity of the principal of, or any instalment of interest on, any Note, or reduce the principal amount thereof or the rate of interest thereon or any premium payable thereon, or change the place of payment where, or the coin or currency in which, any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of an Offer to Purchase which has been made, on or after the applicable Purchase Date), or (2) reduce the percentage in principal amount of the Outstanding Notes, the consent of whose Holders is required for any such supplemental 80 89 indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 5.13 or Section 10.20, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Note affected thereby, or (4) modify any of the provisions of this Indenture relating to the subordination of the Notes in a manner adverse to the Holders, or (5) following the mailing of an Offer with respect to an Offer to Purchase pursuant to Sections 10.14 and 10.16, modify the provisions of this Indenture with respect to such Offer to Purchase in a manner materially adverse to such Holder. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. 81 90 SECTION 9.06. Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Notes. ARTICLE 10 COVENANTS SECTION 10.01. Payment of Principal, Premium and Interest. The Company will duly and punctually pay the principal of (and premium, if any) and interest on the Notes in accordance with the terms of the Notes and this Indenture. SECTION 10.02. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company or any Guarantor in respect of the Notes, the Senior Subordinated Guarantees and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company and each Guarantor hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. 82 91 SECTION 10.03. Money for Note Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of interest on any of the Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of (and premium, if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Notes) in the making of any payment of principal (and premium, if any) or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. 83 92 Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Note and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.04. Existence. Subject to Article 8, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.05. Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improve ments thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, as determined by the Board of Directors in good faith, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 10.06. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or 84 93 property of the Company or any of its Subsidiaries, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.07. Maintenance of Insurance. The Company shall, and shall cause any of its Subsidiaries to, keep at all times all of their properties which are of an insurable nature insured against loss or damage with insurers believed by the Company to be responsible to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties in accordance with good business practice. The Company shall, and shall cause any of its Subsidiaries to, use the proceeds from any such insurance policy to repair, replace or otherwise restore the property to which such proceeds relate. SECTION 10.08. Limitation on Consolidated Debt. The Company shall not, and shall not permit any Restricted Subsidiary of the Company to, Incur any Debt unless immediately after giving pro forma effect to the Incurrence of such Debt and the receipt and application of the proceeds thereof, the Consolidated Cash Flow Coverage Ratio of the Company would be greater than 2.0 to 1. Notwithstanding the foregoing paragraph, the Company may, and may permit any Restricted Subsidiary, to incur the following Debt: (i) Debt Incurred pursuant to any Credit Facility; provided, however, that after giving effect to any such Incurrence, the aggregate principal amount of all Debt Incurred under this clause (i) then outstanding does not exceed $400 million less the sum of all principal payments with respect to such Debt pursuant to clause (iii) (1) of Section 10.14; (ii) the original issuance by the Company of the Debt evidenced by the Notes (including any Exchange Notes) and any Guarantees of the Notes; (iii) Debt (other than Debt described in another clause of this paragraph) outstanding on the date of original issuance of the Notes after giving effect to the application of the proceeds of the Notes; (iv) Debt owed by the Company to any Wholly Owned Restricted Subsidiary of the Company for which fair value has been received or Debt owed by a Restricted Subsidiary of the Company to the Company or a Wholly Owned Restricted Subsidiary of the Company; provided, however, 85 94 that upon either (1) the transfer or other disposition by such Wholly Owned Restricted Subsidiary or the Company of any Debt so permitted to a Person other than the Company or another Wholly Owned Restricted Subsidiary of the Company or (2) the issuance (other than directors' qualifying shares), sale, lease, transfer or other disposition of shares of Capital Stock (including by consolidation or merger) of such Wholly Owned Restricted Subsidiary to a Person other than the Company or another such Wholly Owned Restricted Subsidiary, the provisions of this clause (iv) shall no longer be applicable to such Debt and such Debt shall be deemed to have been Incurred at the time of such transfer or other disposition; (v) Debt consisting of Permitted Interest Rate, Currency or Commodity Price Agreements; (vi) Debt of a Restricted Subsidiary that does not violate the covenant described under Section 10.13 hereof; (vii) Refinancing Debt in respect of Debt Incurred pursuant to the first paragraph of this covenant or pursuant to clause (ii), (iii) or (vi) or this clause (vii); provided, however, that to the extent such Refinancing Debt directly or indirectly Refinances Debt of a Restricted Subsidiary Incurred pursuant to clause (vi), such Refinancing Debt shall be incurred only by such Subsidiary; and (viii) Debt not otherwise permitted to be Incurred pursuant to Clauses (i) through (vii) above, which, together with any other outstanding Debt Incurred pursuant to this Clause (viii), has an aggregate principal amount not in excess of $5.0 million at any time outstanding. For purposes of determining compliance with the foregoing covenant, (i) in the event that an item of Debt meets the criteria of more than one of the types of Debt described above, the Company, in its sole discretion, will classify such item of Debt and will only be required to include the amount and type of such Debt in one of the above clauses, (ii) an item of Debt may be divided and classified in more than one of the types of Debt described above and (iii) any other obligation of the obligor on any item of Debt (or of any other Person who could have Incurred such Debt under this covenant) arising under any Guarantee, Lien or letter of credit supporting such Debt shall be disregarded to the extent that it secures the principal amount of such Debt. 86 95 SECTION 10.09. Limitation on Senior Subordinated Debt. The Company shall not Incur any Debt which by its terms is both (i) subordinated in right of payment to any Senior Debt and (ii) senior in right of payment to the Notes. SECTION 10.10. Limitation on Issuance of Guarantees of Subordinated Debt. The Company shall not permit any Restricted Subsidiary, directly or indirectly, to assume, guarantee or in any other manner become liable with respect to any Debt of the Company that by its terms is subordinate or junior in right of payment to the Notes. SECTION 10.11. Limitation on Liens. The Company shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any Lien on or with respect to any property or assets of the Company or any such Restricted Subsidiary now owned or hereafter acquired to secure Debt which is pari passu with or subordinated in right of payment to the Notes without making, or causing such Restricted Subsidiary to make, effective provision for securing the Notes (and, if the Company shall so determine, any other Debt of the Company which is not subordinate to the Notes or of such Restricted Subsidiary) (x) equally and ratably with such Debt as to such property or asset for so long as such Debt shall be so secured or (y) in the event such Debt is Debt of the Company which is subordinate in right of payment to the Notes, prior to such Debt as to such property for so long as such Debt will be so secured. SECTION 10.12. Limitation on Restricted Payments. The Company (i) shall not, directly or indirectly, declare or pay any dividend or make any distribution (including any payment in connection with any merger or consolidation derived from assets of the Company or any Restricted Subsidiary) in respect of its Capital Stock, excluding any dividends or distributions by the Company payable solely in shares of its Capital Stock (other than Redeemable Stock) or in options, warrants or other rights to acquire its Capital Stock (other than Redeemable Stock), (ii) shall not, and shall not permit any Restricted Subsidiary to, purchase, redeem, or otherwise acquire or retire for value (a) any Capital Stock of the Company or any Related Person of the Company or (b) any options, warrants or other rights to acquire shares of Capital Stock of the Company or any Related Person of the Company or any securities convertible or exchangeable into shares of Capital Stock of the Company or any Related Person of the Company, (iii) shall not make, or permit any Restricted Subsidiary to make, any Investment other than a Permitted Investment, and (iv) shall not, and shall not permit any Restricted Subsidiary to, redeem, repurchase, defease or otherwise acquire or retire for value prior to any scheduled maturity, repayment or sinking fund payment Debt of the Company which is subordinate in right of payment to the Notes (each of clauses (i) through (iv) being a "Restricted Payment") if: (1) an Event of Default, or an event that with the passing of time or the giving of 87 96 notice, or both, would constitute an Event of Default, shall have occurred and is continuing or would result from such Restricted Payment, or (2) after giving effect to such Restricted Payment, the Company could not Incur at least $1.00 of additional Debt pursuant to the terms of the Indenture described in the first paragraph of Section hereof, or (3) upon giving effect to such Restricted Payment, the aggregate of all Restricted Payments from the date of issuance of the Notes exceeds the sum of: (a) 50% of cumulative Consolidated Net Income (or, in the case Consolidated Net Income shall be negative, less 100% of such deficit) of the Company since the first day of the first full fiscal quarter commencing immediately following the date of issuance of the Notes through the last day of the last full fiscal quarter ending immediately preceding the date of such Restricted Payment for which quarterly or annual financial statements are available (taken as a single accounting period); plus (b) 100% of the aggregate net proceeds received by the Company after the date of original issuance of the Notes, including the fair market value of property other than cash (determined in good faith by the Board of Directors as evidenced by a resolution of the Board of Directors filed with the Trustee), from contributions of capital or the issuance and sale (other than to a Restricted Subsidiary) of Capital Stock (other than Redeemable Stock) of the Company, options, warrants or other rights to acquire Capital Stock (other than Redeemable Stock) of the Company and Debt of the Company that has been converted into or exchanged for Capital Stock (other than Redeemable Stock and other than by or from a Restricted Subsidiary) of the Company after the date of original issuance of the Notes, provided that any such net proceeds received by the Company from an employee stock ownership plan financed by loans from the Company or a Restricted Subsidiary of the Company shall be included only to the extent such loans have been repaid with cash on or prior to the date of determination; plus (c) an amount equal to the sum of (i) the net reduction in Investments in any Person resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary from such Person, and (ii) the portion (proportionate to The Company's equity interest in any Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any Person, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person; plus (d) $25 million. Prior to the making of any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate setting forth the computations by which the determinations required by clauses (2) and (3) above were made and stating that no Event of Default, or event that with the passing of time or the giving of notice, or both, would constitute an Event of Default, has occurred and is continuing or will result from such Restricted Payment. 88 97 Notwithstanding the foregoing, so long as no Event of Default, or event that with the passing of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and is continuing or would result therefrom, (i) the Company may pay any dividend on Capital Stock of any class within 60 days after the declaration thereof if, on the date when the dividend was declared, the Company could have paid such dividend in accordance with the foregoing provisions; (ii) the Company may refinance any Debt otherwise permitted by clause (vi) of the second paragraph under Section 10.08 above or solely in exchange for or out of the net proceeds of the substantially concurrent sale (other than from or to a Restricted Subsidiary or from or to an employee stock ownership plan financed by loans from the Company or a Restricted Subsidiary of the Company) of shares of Capital Stock (other than Redeemable Stock) of the Company, provided that the amount of net proceeds from such exchange or sale shall be excluded from the calculation of the amount available for Restricted Payments pursuant to the preceding paragraph; (iii) the Company may purchase, redeem, acquire or retire any shares of Capital Stock of the Company solely in exchange for or out of the net proceeds of the substantially concurrent sale (other than from or to a Restricted Subsidiary or from or to an employee stock ownership plan financed by loans from the Company or a Restricted Subsidiary of the Company) of shares of Capital Stock (other than Redeemable Stock) of the Company; (iv) the Company may dividend to the Parent Company the net proceeds from the issuance of the Notes and the proceeds of the initial borrowings under the New Credit Facility in an aggregate amount not in excess of $500 million; (v) the Company may dividend to the Parent Company up to all its cash on the date prior to and on the date of the Distribution. Any payment made pursuant to clause (i) or (iii) of this paragraph shall be a Restricted Payment for purposes of calculating aggregate Restricted Payments pursuant to the preceding paragraph and any payment made pursuant to clause (ii), (iv) or (v) of this paragraph shall be excluded from Restricted Payments for purposes of such calculation. SECTION 10.13. Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company (i) to pay dividends (in cash or otherwise) or make any other distributions in respect of its Capital Stock or pay any Debt or other obligation owed to the Company or any other Restricted Subsidiary; (ii) to make loans or advances to the Company or any other Restricted Subsidiary; or (iii) to transfer any of its property or assets to the Company or any other Restricted Subsidiary. Notwithstanding the foregoing, the Company may, and may permit any Restricted Subsidiary to, suffer to exist any such encumbrance or restriction (a) pursuant to any agreement in effect on the date of original issuance 89 98 of the Notes; (b) pursuant to an agreement relating to any Debt Incurred by a Person (other than a Restricted Subsidiary of the Company existing on the date of original issuance of the Notes or any Restricted Subsidiary carrying on any of the businesses of any such Restricted Subsidiary) prior to the date on which such Person became a Restricted Subsidiary of the Company and outstanding on such date and not Incurred in anticipation of becoming a Restricted Subsidiary, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person so acquired; (c) pursuant to an agreement effecting a renewal, refunding or extension of Debt Incurred pursuant to an agreement referred to in clause (a) or (b) above, provided, however, that the provisions contained in such renewal, refunding or extension agreement relating to such encumbrance or restriction are no more restrictive in any material respect than the provisions contained in the agreement the subject thereof, as determined in good faith by the Board of Directors and evidenced by a resolution of the Board of Directors filed with the Trustee; (d) in the case of clause (iii) above, restrictions contained in any security agreement (including a capital lease) securing Debt of a Restricted Subsidiary otherwise permitted under this Indenture, but only to the extent such restrictions restrict the transfer of the property subject to such security agreement; (e) in the case of clause (iii) above, customary nonassignment provisions entered into in the ordinary course of business consistent with past practices in leases and other contracts to the extent such provisions restrict the transfer or subletting of any such lease or the assignment of rights under any such contract; (f) any restriction with respect to a Restricted Subsidiary of the Company imposed pursuant to an agreement which has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary, provided that consummation of such transaction would not result in an Event of Default or an event that, with the passing of time or the giving of notice or both, would constitute an Event of Default, that such restriction terminates if such transaction is closed or abandoned and that the closing or abandonment of such transaction occurs within one year of the date such agreement was entered into; or (g) such encumbrance or restriction is the result of applicable corporate law or regulation relating to the payment of dividends or distributions. SECTION 10.14. Limitation on Asset Disposition. The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Disposition in one or more related transactions unless: (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration for such disposition at least equal to the fair market value for the assets sold or disposed of as determined by the Board of Directors in good faith and evidenced by a resolution of the Board of Directors filed with the Trustee; (ii) at least 75% of the consideration for such disposition consists of cash or readily marketable cash equivalents or the assumption of Debt (other than Debt that is subordinated to the Notes) relating to 90 99 such assets and release from all liability on the Debt assumed; and (iii) all Net Available Proceeds, less any amounts invested within 360 days of such disposition in assets related to the business of the Company, are applied within 360 days of such disposition (1) first, to the permanent repayment or reduction of Senior Debt then outstanding under any agreements or instruments which would require such application or prohibit payments pursuant to clause (2) following, (2) second, to the extent of remaining Net Available Proceeds, to make an Offer to Purchase outstanding Notes at 100% of their principal amount plus accrued interest to the date of purchase and, to the extent required by the terms thereof, any other Debt of the Company that is pari passu with the Notes at a price no greater than 100% of the principal amount thereof plus accrued interest to the date of purchase, (3) third, to the extent of any remaining Net Available Proceeds to any other use as determined by the Company which is not otherwise prohibited by the Indenture. SECTION 10.15. Transactions with Affiliates and Related Persons. The Company shall not, and shall not permit any Restricted Subsidiary of the Company to, enter into any transaction (or series of related transactions) with an Affiliate or Related Person of the Company (other than the Company or a Wholly Owned Restricted Subsidiary of the Company), including any Investment, either directly or indirectly, unless such transaction is in the best interests of the Company or such Restricted Subsidiary and is on terms no less favorable to the Company or such Restricted Subsidiary than those that could be obtained in a comparable arm's-length transaction with an entity that is not an Affiliate or Related Person (or, in the event that there are no comparable transactions involving persons who are not Affiliates or Related Persons of the Company or the relevant Restricted Subsidiary to apply for comparative purposes, is otherwise on terms that, taken as a whole, the Company has determined to be fair to the Company or the relevant Restricted Subsidiary). For any transaction that involves in excess of $1,000,000, a majority of the disinterested members of the Board of Directors shall determine that the transaction satisfies the above criteria and shall evidence such a determination by a Board Resolution filed with the Trustee. For any transaction that involves in excess of $5,000,000, the Company shall also obtain an opinion from a nationally recognized expert with experience in appraising the terms and conditions of the type of transaction (or series of related transactions) for which the opinion is required stating that such transaction (or series of related transactions) is on terms no less favorable to the Company or such Restricted Subsidiary than those that could be obtained in a comparable arm's-length transaction with an entity that is not an Affiliate or Related Person of the Company, which opinion shall be filed with the Trustee. Notwithstanding anything to the contrary contained in the Indenture, the foregoing provisions shall not apply to (i) transactions with DonTech, CenDon 91 100 and any similar joint venture or partnership with a Person that is not a Related Person that are pursuant to the agreements between the Company and DonTech and CenDon in effect on the date of original issuance of The Notes or any other substantially similar agreements, as the same may be amended or modified in a manner not materially adverse to the interests of the holders of the Notes, (ii) transactions between the Company and its Subsidiaries and New D&B and its Subsidiaries pursuant to agreements in effect on the date of the Distribution and any similar arrangements approved by the Board of Directors of the Company or the Parent Company, as the same may be amended or modified in a manner not materially adverse to the interests of the holders of the Notes, or (iii) any Restricted Payment permitted to be made pursuant to Section 10.12 hereof. SECTION 10.16. Change of Control. Within 30 days following the date on which a Person files with the Commission a Schedule 13D under the Exchange Act, evidencing of the occurrence of a Change of Control, the Company will be required to make an Offer to Purchase all Outstanding Notes at a purchase price equal to 101% of their principal amount plus accrued interest to the date of purchase. A "Change of Control" will be deemed to have occurred at such time as either (a) any Person or any Persons acting together that would constitute a "group" (a "Group") for purposes of Section 13(d) of the Exchange Act, or any successor provision thereto, together with any Affiliates or Related Persons thereof, shall beneficially own (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision thereto), directly or indirectly, at least 50% of the aggregate voting power of all classes of Voting Stock of the Company (for the purposes of this clause (a) a person shall be deemed to beneficially own the Voting Stock of a corporation that is beneficially owned (as defined above) by another corporation (a "parent corporation"), if such person beneficially owns (as defined above) at least 50% of the aggregate voting power of all classes of Voting Stock of such parent corporation); or (b) any Person or Group, together with any Affiliates or Related Persons thereof, shall succeed in having a sufficient number of its nominees elected to the Board of Directors of the Company such that such nominees, when added to any existing director remaining on the Board of Directors of the Company after such election who was a nominee of or is an Affiliate or Related Person of such Person or Group, will constitute a majority of the Board of Directors of the Company; or (c) the Company shall, directly or indirectly, transfer, sell, lease or otherwise dispose of all or substantially all of its assets; or (d) there shall be adopted a plan of liquidation or dissolution of the Company, provided, however, that a transaction effected to create a holding company of the Company or the Parent Company, (i) pursuant to which the Company or the Parent Company becomes a wholly owned Subsidiary of such holding company, and (ii) as a result of which the holders of Capital Stock of the Company or the Parent Company immediately prior to such transactions, shall not be deemed to involve a "Change of Control". 92 101 In the event that the Company makes an Offer to Purchase the Notes, the Company intends to comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act. SECTION 10.17. Provision of Financial Information. Prior to the time the Company becomes subject to Section 13(a) or 15(d) of the Exchange Act, the Company shall provide to all Holders and file with the Trustee copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) or any successor provision thereto if the Company were so required, such documents to be mailed to Holders and filed with the Trustee on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so required. After the Company commences filing such reports, and so long as any of the Notes are outstanding, the Company shall file with the Commission the annual reports, quarterly reports and other documents which the Company is required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or any successor provisions thereto. SECTION 10.18. Unrestricted Subsidiaries. The Company may designate any Subsidiary of the Company to be an "Unrestricted Subsidiary" as provided below in which event such Subsidiary and each other Person that is then or thereafter becomes a Subsidiary of such Subsidiary will be deemed to be an Unrestricted Subsidiary. "Unrestricted Subsidiary" means (1) any Subsidiary designated as such by the Board of Directors as set forth below where (a) neither the Company nor any of its other Subsidiaries (other than another Unrestricted Subsidiary) (i) provides credit support for, or any Guarantee of, any Debt of such Subsidiary or any Subsidiary of such Subsidiary (including any undertaking, agreement or instrument evidencing such Debt) or (ii) is directly or indirectly liable for any Debt of such Subsidiary or any Subsidiary of such Subsidiary, and (b) no default with respect to any Debt of such Subsidiary or any Subsidiary of such Subsidiary (including any right which the holders thereof may have to take enforcement action against such Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Debt of the Company and its Subsidiaries (other than another Unrestricted Subsidiary) to declare a default on such other Debt or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary, provided that either (x) the Subsidiary to be so designated has total assets of 93 102 $1,000 or less or (y) immediately after giving effect to such designation, the Company could Incur at least $1.00 of additional Debt pursuant to the first paragraph under Section 10.08 hereof and provided, further, that the Company could make a Restricted Payment in an amount equal to the greater of the fair market value and book value of such Subsidiary pursuant to Section 10.12 hereof and such amount is thereafter treated as a Restricted Payment for the purpose of calculating the aggregate amount available for Restricted Payments thereunder. SECTION 10.19. Statement by Officers as to Default; Compliance Certificates. (a) The Company will deliver to the Trustee, within 90 days after the end of each fiscal quarter of the Company ending after the date hereof an Officers' Certificate, one of the signers of which shall be the principal executive officer, principal financial officer or principal accounting officer of the Company, stating whether or not to the best knowledge of the signers thereof the Company or any Guarantor is in default in the performance and observance of any of the terms, provisions and conditions of Section 8.01 or Sections 10.04 to 10.18, inclusive, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. Such determination shall be made without regard to notice requirements or periods of grace. (b) The Company shall deliver to the Trustee, as soon as possible and in any event within 10 days after the Company becomes aware or should reasonably become aware of the occurrence of an Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, an Officers' Certificate setting forth the details of such Event of Default or default, and the action which the Company proposes to take with respect thereto. (c) The Company shall deliver to the Trustee within 90 days after the end of each fiscal year a written statement by the Company's independent public accountants stating (A) that their audit examination has included a review of the terms of this Indenture and the Notes as they relate to accounting matters, and (B) whether, in connection with their audit examination, any event which, with notice or the lapse of time or both, would constitute an Event of Default has come to their attention and, if such a default has come to their attention, specifying the nature and period of the existence thereof. SECTION 10.20. Waiver of Certain Covenants. The Company or any Guarantor may omit in any particular instance to comply with any covenant or condition set forth in Section 8.01 and Sections 10.04 to 10.18, if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Notes shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but 94 103 no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and each of the Guarantors and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect; provided, however, with respect to an Offer to Purchase as to which an Offer has been mailed, no such waiver may be made or shall be effective against any Holder tendering Notes pursuant to such Offer, and the Company may not omit to comply with the terms of such Offer as to such Holder. ARTICLE 11 REDEMPTION OF NOTES SECTION 11.01. Right of Redemption. The Notes may be redeemed at the option of the Company, in whole or in part, at any time on or after ___________, 2003, and prior to maturity, at the Redemption Prices specified in the form of Note hereinbefore set forth together with accrued interest to, but excluding, the Redemption Date. In addition, at any time prior to ____________, 2001 in the event the Parent Company or the Company receives net cash proceeds from the sale of its Common Stock or the Common Stock of the Parent Company in one or more Equity Offerings, the Company (to the extent it receives such proceeds and has not used such proceeds, directly or indirectly, to redeem or repurchase other securities pursuant to optional redemption provisions) may, at its option, use all or a portion of any such net proceeds to redeem, from time to time, Notes in an aggregate principal amount of up to 35% of the original aggregate principal amount of the Notes, provided, however, that Notes having a principal amount equal to at least 65% of the original aggregate principal amount of the Notes remain outstanding after such redemption. Such redemption must occur on a Redemption Date within 120 days of such sale and upon not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at such Holder's address appearing in the Note Register, in amounts of $1,000 or an integral multiple of $1,000, at a redemption price of _______% of the principal amount of the Notes plus accrued interest to but excluding the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). 95 104 If less than all the Notes are to be redeemed, the Trustee shall select, in such manner as it shall deem fair and appropriate, the particular Notes to be redeemed or any portion thereof that is an integral multiple of $1,000. The Note will not have the benefit of any sinking fund. SECTION 11.02. Applicability of Article. Redemption of Notes at the election of the Company, as permitted by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 11.03. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Notes pursuant to Section 11.01 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Notes to be redeemed. SECTION 11.04. Selection by Trustee of Notes to Be Redeemed. If less than all the Notes are to be redeemed, the particular Notes to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Notes not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Notes of a denomination larger than $1,000. The Trustee shall promptly notify the Company and each Note Registrar in writing of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Notes shall relate, in the case of any Notes redeemed or to be redeemed only in part, to the portion of the principal amount of such Notes which has been or is to be redeemed. SECTION 11.05. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Notes to be redeemed, at his address appearing in the Note Register. All notices of redemption shall state: (1) the Redemption Date, 96 105 (2) the Redemption Price, (3) if less than all the Outstanding Notes are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Notes to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Note to be redeemed and that interest thereon will cease to accrue on and after said date, (5) the place or places where such Notes are to be surrendered for payment of the Redemption Price, and (6) CUSIP numbers of the Notes to be redeemed (if any). Notice of redemption of Notes to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.06. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Notes which are to be redeemed on that date. SECTION 11.07. Notes Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price plus accrued interest) such Notes shall cease to bear interest. Upon surrender of any such Note for redemption in accordance with said notice, such Note shall be paid by the Company at the Redemption Price together with accrued interest to the Redemption Date; provided, however, that instalments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Notes, or one or more Predecessor Notes, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate provided by the Note. 97 106 SECTION 11.08. Notes Redeemed in Part. Any Note which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 10.02 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Note so surrendered. ARTICLE 12 SENIOR SUBORDINATED GUARANTEE SECTION 12.01. Senior Subordinated Guarantee. The Guarantor hereby unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee, and to the Trustee on behalf of such Holder, the due and punctual payment of the principal of (and premium, if any) and interest and all other amounts due hereunder on such Note when and as the same shall become due and payable, whether at the Stated Maturity or by acceleration, call for redemption, purchase or otherwise, in accordance with the terms of such Note and of this Indenture. In case of the failure of the Company punctually to make any such payment, the Guarantor hereby jointly and severally agrees to cause such payment to be made punctually when and as the same shall become due and payable, whether at the Stated Maturity or by acceleration, call for redemption, purchase or otherwise, and as if such payment were made by the Company. Each of the Guarantors hereby jointly and severally agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of any Note or this Indenture, the absence of any action to enforce the same, any creation, exchange, release or non-perfection of any Lien on any collateral for, or any release or amendment or waiver of any term of any other Guarantee of, or any consent to departure from any requirement of any other Guarantee, of all or any of the Notes, the election by the Trustee or any of the Holders in any proceeding under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") of the application of Section 1111(b)(2) of the Bankruptcy Code, any borrowing or grant of a security interest by the Company, as debtor-in-possession, under Section 364 of the Bankruptcy Code, the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of 98 107 the claims of the Trustee or any of the Holders for payment of any of the Notes, any waiver or consent by the Holder of any Note or by the Trustee with respect to any provisions thereof or of this Indenture, the obtaining of any judgment against the Company or any action to enforce the same or any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each of the Guarantors hereby waives the benefits of diligence, presentment, demand of payment, any requirement that the Trustee or any of the Holders protect, secure, perfect or insure any security interest in or other Lien on any property subject thereto or exhaust any right or take any action against the Company or any other Person or any collateral, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to any Note or the indebtedness evidenced thereby and all demands whatsoever, and covenants, that this Senior Subordinated Guarantee will not be discharged in respect of any Note except by complete performance of the obligations contained in such Note and in this Senior Subordinated Guarantee. Each of the Guarantors hereby agrees that, in the event of a default in payment of principal (or premium, if any) or interest on any Note, whether at its Stated Maturity or by acceleration, call for redemption, purchase or otherwise, legal proceedings may be instituted by the Trustee on behalf of, or by, the Holder of such Note, subject to the terms and conditions set forth in this Indenture, directly against each of the Guarantors to enforce its Senior Subordinated Guarantee without first proceeding against the Company. Each Guarantor agrees that if, after the occurrence and during the continuance of an Event of Default, the Trustee or any of the Holders are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Notes, to collect interest on the Notes or to enforce or exercise any other right or remedy with respect to the Notes, or the Trustee or the Holders are prevented from taking any action to realize on any collateral, such Guarantor agrees to pay to the Trustee for the account of the Holders, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of the Holders. No provision of any Senior Subordinated Guarantee or Note or of the Indenture shall alter or impair the Senior Subordinated Guarantee of any Guarantor, which is absolute and unconditional, of the due and punctual payment of the principal (and premium, if any) and interest on the Note upon which such Senior Subordinated Guarantee is endorsed. Each Guarantor shall be subrogated to all rights of the Holders of the Notes upon which its Senior Subordinated Guarantee is endorsed against the Company in respect of any amounts paid by such Guarantor on account of such Note pursuant to the provisions of its Senior Subordinated Guarantee or this Indenture; provided, however, that no Guarantor shall be entitled to enforce or to 99 108 receive any payments arising out of, or based upon, such right of subrogation until the principal of (and premium, if any) and interest on all Notes issued hereunder shall have been paid in full. Each Senior Subordinated Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the assets of the Company and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Notes are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Notes, whether as a "voidable preference," "fraudulent transfer" or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Notes shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. No stockholder, officer, director, employer or incorporator, past, present or future, of Guarantor, as such, shall have any personal liability under any Senior Subordinated Guarantee by reason of his, her or its status as such stockholder, officer, director, employer or incorporator. Notwithstanding any provision in this Article to the contrary, each Guarantor, and by its acceptance hereof each Holder of the Notes, hereby confirms that it is the intention of all such parties that the Guarantee by such Guarantor not constitute a fraudulent transfer or conveyance for purposes of any federal or state law. To effectuate the foregoing intention, the Holders of the Notes and each Guarantor hereby irrevocably agree that the obligations of each Guarantor under its Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities (including, but not limited to, Guarantor Senior Debt) of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to the next succeeding paragraph hereof, result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. This paragraph is for the benefit of the creditors of each Guarantor. To the extent that any Subsidiary Guarantor shall be required to pay any amounts on account of the Notes pursuant to its Senior Subordinated Guarantee in excess of the greater of (i) the amount of the economic benefit actually received 100 109 by such Subsidiary Guarantor from the issuance of the Notes and (ii) an amount calculated as the product of (A) the aggregate amount payable by the Subsidiary Guarantors on account of the Notes pursuant to their Senior Subordinated Guarantees times (B) the proportion (expressed as a fraction) that such Subsidiary Guarantor's net worth at the date enforcement of its Senior Subordinated Guarantee is sought bears to the aggregate net worth of all Subsidiary Guarantors at such date, then such Subsidiary Guarantor shall be reimbursed by the other Subsidiary Guarantors for the amount of such excess, pro rata, based upon the respective net worth of such other Subsidiary Guarantors at the date enforcement of its Senior Subordinated Guarantees is sought. This paragraph is intended only to define the relative rights of the Subsidiary Guarantors as among themselves, and nothing set forth in this paragraph is intended to or shall impair the joint and several obligations of the Guarantors under their respective Senior Subordinated Guarantees. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise or such right does not impair the rights of the Holders under any Senior Subordinated Guarantee. SECTION 12.02. Execution and Delivery of Senior Subordinated Guarantees. The Senior Subordinated Guarantees to be endorsed on the Notes shall include the terms of the Senior Subordinated Guarantee set forth in Section 12.01 and any other terms that may be set forth in the form established pursuant to Section 2.05 [Section 2.05 not cross-ref'd because there is no section 2.05]. Each of the Guarantors hereby agrees to execute its Senior Subordinated Guarantee, in a form established pursuant to Section 2.05 [Section 2.05 not cross-ref'd because there is no section 2.05], to be endorsed on each Note authenticated and delivered by the Trustee. The Senior Subordinated Guarantee shall be executed on behalf of each respective Guarantor by any one of such Guarantor's Chairman of the Board, Vice Chairman of the Board, President or Vice Presidents, attested by its Secretary or Assistant Secretary. The signature of any or all of these officers on the Senior Subordinated Guarantee may be manual or facsimile and may be pursuant to a duly executed power of attorney. A Senior Subordinated Guarantee bearing the manual or facsimile signatures of individuals who were at any time the proper officers of a Guarantor shall bind such Guarantor, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of the Note on which such Senior Subordinated Guarantee is endorsed or did not hold such offices at the date of such Senior Subordinated Guarantee. 101 110 The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Senior Subordinated Guarantee endorsed thereon on behalf of the Guarantors. Each of the Guarantors hereby jointly and severally agrees that its Senior Subordinated Guarantee set forth in Section 12.01 shall remain in full force and effect notwithstanding any failure to endorse a Senior Subordinated Guarantee on any Note. SECTION 12.03. Subsidiary Guarantors May Consolidate, Etc., on Certain Terms. (a) Except as may be provided in Section 12.04 and in Articles 8 and 10, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or a Guarantor or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or a Guarantor. (b) Except as set forth in Article 8 hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into a corporation or corporations other than the Company or a Guarantor (whether or not affiliated with the Guarantor), or successive consolidations or mergers in which a Guarantor or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety, to a corporation other than the Company or another Guarantor (whether or not affiliated with the Guarantor) authorized to acquire and operate the same; provided, however, that, subject to Sections 12.03(a) and 12.04 hereof, (i) immediately after such transaction, and giving effect thereto, no Default or Event of Default shall have occurred as a result of such transaction and be continuing, such transaction shall not violate any of the covenants in Article 10 hereof, and each Guarantor hereby covenants and agrees that, upon any such consolidation, merger, sale or conveyance, such Guarantor's Guarantee set forth in this Article 12 and in an endorsement on the Notes, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by such Guarantor, shall be expressly assumed (in the event that the Guarantor is not the surviving corporation in the merger), by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by such corporation formed by such consolidation, or into which the Guarantor shall have merged, or by the corporation that shall have acquired such property (except to the extent the following Section 12.04 would result in the release of such Subsidiary Guarantee in which case such surviving corporation does not have to execute any such supplemental indenture). In the case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture executed and delivered to the Trustee and satisfactory in form to the Trustee of the due and punctual performance of all of the covenants 102 111 and conditions of this Indenture to be performed by the Subsidiary Guarantor, such successor corporation shall succeed to and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor. SECTION 12.04. Release of Guarantors. (a) Concurrently with any consolidation or merger of a Subsidiary Guarantor or any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety, in each case as permitted by Section 12.03, and upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such consolidation, merger, sale or conveyance was made in accordance with Section 12.03, the Trustee shall execute any documents reasonably required in order to evidence the release of such Subsidiary Guarantor from its obligations under its Subsidiary Guarantees endorsed on the Notes and under this Article 12. Any Subsidiary Guarantor not released from its obligations under its Subsidiary Guarantees endorsed on the Notes and under this Article 12 shall remain liable for the full amount of principal of (and premium, if any) and interest on the Notes and for the other obligations of a Subsidiary Guarantor under its Subsidiary Guarantees endorsed on the Notes and under this Article 12. (b) Concurrently with the defeasance of the Notes under Section 13.02 or the covenant defeasance of the Notes under Section 13.03, the Guarantors shall be released from all of their obligations under their Senior Subordinated Guarantees endorsed on the Notes and under this Article 12. (c) Upon the consummation of any transaction (whether involving a sale or other disposition of securities, a merger, a designation as an Unrestricted Subsidiary or otherwise) whereby any Subsidiary Guarantor ceases to be a Restricted Subsidiary and which transaction is otherwise in compliance with the provisions of this Indenture, such Subsidiary Guarantor shall automatically be released from all obligations under its Subsidiary Guarantees endorsed on the Notes and under this Article 12. SECTION 12.05. Additional Guarantors. The Company shall cause each Person that becomes a Restricted Subsidiary after the date of this Indenture, upon becoming a Restricted Subsidiary, to become a Subsidiary Guarantor with respect to the Notes. Any such Person shall become a Subsidiary Guarantor by executing and delivering to the Trustee (a) a supplemental indenture, in form and substance satisfactory to the Trustee, which subjects such Person to the provisions of this Indenture as a Subsidiary Guarantor and (b) an Opinion of Counsel to the effect that such supplemental indenture has been duly authorized and executed by such Person and constitutes the legal, valid, binding and enforceable obligation of such 103 112 Person (subject to such customary exceptions concerning creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion). ARTICLE 13 SUBORDINATION OF NOTES AND SENIOR SUBORDINATED GUARANTEES SECTION 13.01. Notes Subordinate to Senior Debt. The Company covenants and agrees, and each Holder of a Note, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article (subject to the provisions of Article 4.01 and Article 14), (i) the payment of the principal of (and premium, if any) and interest on each and all of the Notes are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Debt of the Company, and (ii) the payment of each Guarantor's obligations in respect of its Senior Subordinated Guarantee is hereby expressly made subordinate and subject in right of payment to the prior payment in full of all the obligations of such Guarantor under all Guarantor Senior Debt of such Guarantor. SECTION 13.02. Payment over of Proceeds upon Dissolution, Etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company, then and in any such event specified in (a), (b) or (c) above (each such event, if any, herein sometimes referred to as a "Proceeding") the holders of Senior Debt shall be entitled to receive or retain payment in full of all amounts due or to become due on or in respect of all Senior Debt, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, before the Holders of the Notes are entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities, on account of principal of (or premium, if any) or interest on or other obligations in respect of the Notes or on account of any purchase or other acquisition of Notes by the Company or any Subsidiary of the Company (all such payments, distributions, purchases and acquisitions herein referred to, individually and collectively, as a "Notes Payment"), and to that end the holders of Senior Debt shall be entitled to receive, for application to the payment thereof, any Notes Payment which may be payable or deliverable in respect of the Notes in any such Proceeding. 104 113 In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to any Guarantor or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of any Guarantor, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Guarantor, then and in any such event specified in (a), (b) or (c) above (each such event, if any, herein sometimes referred to as a "Guarantor Proceeding"; the Company Proceeding and the Guarantor Proceeding each may be referred to as a "Proceeding") the holders of all Guarantor Senior Debt of such Guarantor shall first be entitled to receive payment in full of all amounts due or to become due on or in respect of all such Guarantor Senior Debt, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of such Guarantor Senior Debt, before the Holders of the Notes are entitled to receive or retain any payment or distribution of any kind or character from such Guarantor, whether in cash, property or securities (including any payment or distribution which may be payable or deliverable by reason of the payment of any other Debt of such Guarantor subordinated to the payment of its Senior Subordinated Guarantee by such Guarantor) on account of its Senior Subordinated Guarantee (all such payments and distributions herein referred to, individually and collec tively, as a "Guarantor Notes Payment"; any of the Company Notes Payment and the Guarantor Notes Payment each may be referred to as a "Notes Payment"), and to that end the holders of Guarantor Senior Debt of such Guarantor shall be entitled to receive, for application to the payment thereof, any Guarantor Notes Payment which may be payable or deliverable in respect of the Senior Subordinated Guarantee by such Guarantor in any such Guarantor Proceeding. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Note shall have received any Notes Payment before all Senior Debt of the Company or Guarantor Senior Debt of the Guarantor, as applicable, is paid in full or payment thereof provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of such Debt, and if such fact shall, at or prior to the time of such Notes Payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such Notes Payment shall be paid over or delivered forthwith to the trustee in bankruptcy or other person making payment or distribution of assets of the Company for the application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay the Senior Debt in full. For purposes of this Article only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include a payment or distribution of stock or securities of the Company 105 114 or any Guarantor provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Senior Debt or Guarantor Senior Debt to substantially the same extent as the Notes or Senior Subordinated Guarantors are so subordinated as provided in this Article. The consolidation of the Company or any Guarantor with, or the merger of the Company or any Guarantor into, another Person or the liquidation or dissolution of the Company or any Guarantor following the conveyance or transfer of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article 8 shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Company or any Guarantor is merged or the Person which acquires by conveyance or transfer such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article 8. SECTION 13.03. No Payment When Senior Debt in Default. In the event that any Company Senior Payment Default (as defined below) shall have occurred and be continuing, then no Company Notes Payment shall be made unless and until such Company Senior Payment Default shall have been cured or waived or shall have ceased to exist or all amounts then due and payable in respect of Senior Debt shall have been paid in full, or provision shall have been made for such pay ment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt. "Company Senior Payment Default" means any default in the payment of principal of (or premium, if any) or interest on Designated Senior Debt when due, whether at the Stated Maturity of any such payment or by declaration of acceleration, call for redemption or otherwise. In the event that any Guarantor Senior Payment Default (as defined below) shall have occurred and be continuing, then no Guarantor Notes Payment shall be made unless and until such Guarantor Senior Payment Default shall have been cured or waived or shall have ceased to exist or all amounts then due and payable in respect of Guarantor Senior Debt shall have been paid in full, or provision shall have been made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt. "Guarantor Senior Payment Default" means any default in the payment of principal of (or premium, if any) or interest on Guarantor Senior Debt when due, whether at the Stated Maturity of any such payment or by declamation of acceleration, call for redemption or otherwise. Any Company Senior Payment Default or Guarantor Senior Payment Default may be referred to herein as a "Senior Payment Default". 106 115 Upon the occurrence of a Company Senior Nonmonetary Default and receipt of written notice by the Company and the Trustee of the occurrence of such Company Senior Nonmonetary Default from any holder of Senior Debt (or any trustee, agent or other representative for such holder) which is the subject of such Company Senior Nonmonetary Default, no payments on account of principal of, premium, if any, or interest on, or in respect of the purchase or other acquisition of, the Notes, and no defeasance of the Notes, may be made for a period (the "Company Payment Blockage Period") commencing on the date of the receipt of such notice and ending the earlier of (i) the date on which such Senior Nonmonetary Default shall have been cured or waived or ceased to exist or all Senior Debt the subject of such Senior Nonmonetary Default shall have been discharged and (ii) the 179th day after the date of the receipt of such notice. In any event, no more than one Company Payment Blockage Period may be commenced during any 360-day period and there shall be a period of at least 181 days during each 360-day period when no Company Payment Blockage Period is in effect. In addition, no Senior Nonmonetary Default that existed or was continuing on the date of the commencement of a Company Payment Blockage Period may be made the basis of the commencement of a subsequent Company Payment Blockage Period whether or not within a period of 360 consecutive days, unless such Senior Nonmonetary Default shall have been cured for a period of not less than 90 consecutive days. "Company Senior Nonmonetary Default" means the occurrence or existence and continuance of an event of default with respect to Company Senior Debt, other than a Senior Payment Default, permitting the holders of the Senior Debt (or a trustee or other agent on behalf of the holders thereof) then to declare such Senior Debt due and payable prior to the date on which it would otherwise become due and payable. Upon the occurrence of a Guarantor Senior Nonmonetary Default and receipt of written notice by the Company and the Trustee of the occurrence of such Guarantor Senior Nonmonetary Default from any holder of Guarantor Senior Debt (or any trustee, agent or other representative for such holder), which is the subject of such Guarantor Senior Nonmonetary Default, no payments on account of principal of, premium, if any, or interest on, or in respect of the purchase or other acquisition of, the Notes, and no defeasance of the Notes, in each case by the Guarantor may be made for a period (the "Guarantor Payment Blockage Period") commencing on the date of the receipt of such notice and ending the earlier of (i) the date on which such Guarantor Senior Nonmonetary Default shall have been cured or waived or ceased to exist or all Guarantor Senior Debt the subject of such Senior Nonmonetary Default shall have been discharged and (ii) the 179th day after the date of the receipt of such notice. In any event, no more than one Guarantor Payment Blockage Period may be commenced during any 360-day period and there shall be a period of at least 181 days during each 360-day period when no Guarantor Payment Blockage Period is in effect. In 107 116 addition, no Guarantor Senior Nonmonetary Default that existed or was continuing on the date of the commencement of a Guarantor Payment Blockage Period may be made the basis of the commencement of a subsequent Guarantor Payment Blockage Period whether or not within a period of 360 consecutive days, unless such Guarantor Senior Nonmonetary Default shall have been cured for a period of not less than 90 consecutive days. "Guarantor Senior Nonmonetary Default" means the occurrence or existence and continuance of an event of default with respect to Guarantor Senior Debt, other than a Guarantor Senior Payment Default, permitting the holders of the Guarantor Senior Debt (or a trustee or other agent on behalf of the holders thereof) then to declare such Guarantor Senior Debt due and payable prior to the date on which it would otherwise become due and payable. Any of the Company Senior Nonmonetary Defaults and the Guarantor Senior Nonmonetary Defaults may be referred to herein as a "Senior Nonmonetary Default". The failure to make any payment on the Notes by reason of the provisions of the Indenture described under this Article 13 will not be construed as preventing the occurrence of an Event of Default with respect to the Notes arising from any such failure to make payment. Upon termination of any period of payment blockage the Company shall resume making any and all required payments in respect of the Notes, including any missed payments. In the event that, notwithstanding the foregoing, the Company or any Guarantor shall make any Company Notes Payment or Guarantor Notes Payment to the Trustee or any Holder prohibited by the foregoing of this Section, and if such fact shall, at or prior to the time of such Notes Payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such Notes Payment shall be paid over and delivered forthwith to the holders of the Senior Debt of the Company or of the Guarantor Senior Debt of the Guarantor, as the case may be. By reason of such subordination, in the event of insolvency, creditors of the Company who are not holders of Senior Debt or of the Notes may recover less, ratably, than holders of Senior Debt and more, ratably, than Holders of the Notes. The subordination provisions described above will not be applicable to payments in respect of the Notes from a defeasance trust established in connection with any defeasance or covenant defeasance of the Notes as described under Article 14. The provisions of this Section shall not apply to any Notes Payment with respect to which Section 13.02 would be applicable. 108 117 SECTION 13.04. Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Notes shall prevent (a) the Company, at any time except during the pendency of any Proceeding referred to in Section 13.02 or under the conditions described in Section 13.03, from making Notes Payments, or (b) the application by the Trustee of any money deposited with it hereunder to Notes Payments or the retention of such Notes Payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such Notes Payment would have been prohibited by the provisions of this Article. SECTION 13.05. Subrogation to Rights of Holders of Senior Debt. Subject to the payment in full of all amounts due or to become due on or in respect of Senior Debt of the Company or Guarantor Senior Debt of a Guarantor, as the case may be, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, the Holders of the Notes shall be subrogated to the rights of the holders of such Debt to receive payments and distributions of cash, property and securities applicable to such Debt until the principal of (and premium, if any) and interest on the Notes or the obligation under such Guarantor's Senior Subordinated Guarantee, as the case may be, shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of the Company or Guarantor Senior Debt of a Guarantor, as the case may be, of any cash, property or securities to which the Holders of the Notes or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Debt or Guarantor Senior Debt by Holders of the Notes or the Trustee, shall, as among the Company or such Guarantor, as the case may be, its creditors other than holders of Senior Debt or Guarantor Senior Debt, as the case may be, and the Holders of the Notes, be deemed to be a payment or distribution by the Company or such Guarantor, as the case may be, to or on account of the Senior Debt of the Company or Guarantor Senior Debt of such Guarantor, as the case may be. SECTION 13.06. Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Debt and Guarantor Senior Debt on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Notes is intended to or shall (a) impair, as among the Company or any Guarantor, as applicable, its creditors other than holders of Senior Debt or Guarantor Senior Debt and the Holders of the Notes as the Guarantees endorsed thereon, the obligation of the Company or any Guarantor, as applicable, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Debt, is intended to rank equally with all other general obligations of the Company), to pay to the Holders 109 118 of the Notes with the Guarantees endorsed thereon the principal of (and premium, if any) and interest on the Notes as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company or any Guarantor, as applicable, of the Holders of the Notes with the Guarantees endorsed thereon and creditors of the Company or any Guarantor, as applicable, other than the holders of Senior Debt, and Guarantor Senior Debt; or (c) prevent the Trustee or the Holder of any Note as the Guarantees endorsed thereon from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Debt and Guarantor Senior Debt and Guarantor Senior Debt to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 13.07. Trustee to Effectuate Subordination. Each Holder of a Note by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 13.08. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Debt or Guarantor Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any Guarantor or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company or any Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt or Guarantor Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Notes, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Notes to the holders of Senior Debt and Guarantor Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt or Guarantor Senior Debt, or otherwise amend or supplement in any manner Senior Debt or Guarantor Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt or Guarantor Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt or Guarantor Senior Debt; (iii) release any Person liable in any manner for the collection of Senior Debt or 110 119 Guarantor Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company, the Guarantors and any other Person. SECTION 13.09. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Notes or any of the Senior Subordinated Guarantees. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Notes or any of the Senior Subordinated Guarantees, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder of Senior Debt or Guarantor Senior Debt or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.01, shall be entitled in all respects to assume that no such facts exist. Subject to the provisions of Section 6.01, the Trustee shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Debt or Guarantor Senior Debt (or a trustee therefor) to establish that such notice has been given by a holder of Senior Debt or Guarantor Senior Debt (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt or Guarantor Senior Debt to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt or Guarantor Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 13.10. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets or securities of the Company or any Guarantor referred to in this Article, the Trustee, subject to the provisions of Section 6.01, and the Holders of the Notes shall be entitled to conclusively rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Notes, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt or Guarantor Senior Debt and other indebtedness of the Company or any Guarantor, 111 120 as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 13.11. Trustee Not Fiduciary for Holders of Senior Debt. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt or Guarantor Senior Debt and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Notes or to the Company or any Guarantor or to any other Person cash, property or securities to which any holders of Senior Debt or Guarantor Senior Debt shall be entitled by virtue of this Article or otherwise. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article and no implied covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee. SECTION 13.12. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Debt or Guarantor Senior Debt which may at any time be held by it, to the same extent as any other holder of Senior Debt or Guarantor Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.07. SECTION 13.13. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 13.12 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 13.14. Defeasance of this Article 13. The subordination of the Notes and the Senior Subordinated Guarantees provided by this Article 13 is expressly made subject to the provisions for defeasance or covenant defeasance in Article 14 hereof and, anything herein to the contrary notwithstanding, upon the effectiveness of any such defeasance or covenant defeasance, the Notes then outstanding and the Senior Subordinated Guarantees related thereto shall thereupon cease to be subordinated pursuant to this Article 13. 112 121 ARTICLE 14 DEFEASANCE AND COVENANT DEFEASANCE SECTION 14.01. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may at its option by Board Resolution, at any time, in accordance with the Exchange and Registration Rights Agreement, elect to have either Section 14.02 or Section 14.03 applied to the Outstanding Notes upon compliance with the conditions set forth below in this Article 14. SECTION 14.02. Defeasance and Discharge. Upon the Company's exercise of the option provided in Section 14.01 applicable to this Section, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Notes, and the provisions of Article 12 and Thirteen hereof shall cease to be effective, on the date the conditions set forth below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Notes and to have satisfied all its other obligations under such Notes and this Indenture insofar as such Notes are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), and (ii) the Guarantors shall be released from all of their obligations under their Senior Subordinated Guarantees and under Article 12 of this Indenture except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Notes to receive, solely from the trust fund described in Section 14.04 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any) and interest on such Notes when such payments are due, (B) the Company's obligations with respect to such Notes under Sections 3.04, 3.05, 3.06, 10.02 and 10.03, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article 14. Subject to compliance with this Article 14, the Company may exercise its option under this Section 14.02 notwithstanding the prior exercise of its option under Section 14.03. SECTION 14.03. Covenant Defeasance. Upon the Company's exercise of the option provided in Section 14.01 applicable to this Section, (i) the Company shall be released from its obligations under Sections 10.05 through 10.18, inclusive, and Clauses (3), (4) and (5) of Section 8.01, (ii) the occurrence of an event specified in Sections 5.01(3), 5.01(4) (with respect to Clauses (1), (3), (4) or (5) of Section 8.01), 5.01(5) (with respect to any of Sections 10.05 through 10.18, inclusive), 5.01(6) and 5.01(7) shall not be deemed to be an Event of Default and (iii) the provisions of Article 13 hereof shall cease to be effective on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that 113 122 the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section, Clause or Article, whether directly or indirectly by reason of any reference elsewhere herein to any such Section, Clause or Article or by reason of any reference in any such Section, Clause or Article to any other provision herein or in any other document, but the remainder of this Indenture and such Notes shall be unaffected thereby. SECTION 14.04. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 14.02 or Section 14.03 to the then Outstanding Notes: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.09 who shall agree to comply with the provisions of this Article 14 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Notes, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combi nation thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of (, premium, if any,) and each instalment of interest on the Notes on the Stated Maturity of such principal or instalment of interest in accordance with the terms of this Indenture and of such Notes. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any such U.S. Government Obliga tion or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount 114 123 received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (2) In the case of an election under Section 14.02, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Notes will not recognize gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred. (3) In the case of an election under Section 14.03, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Notes will not recognize gain or loss for Federal income tax purposes as a result of such deposit and covenant defeasance and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred. (4) The Company shall have delivered to the Trustee an Officers' Certificate to the effect that the Notes, if then listed on any securities exchange, will not be delisted as a result of such deposit. (5) Such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest as defined in Section 6.08 and for purposes of the Trust Indenture Act with respect to any securities of the Company. (6) At the time of such deposit: (A) no default in the payment of all or a portion of principal of (or premium, if any) or interest on or other obligations in respect of any Senior Debt shall have occurred and be continuing, and no event of default with respect to any Senior Debt shall have occurred and be continuing and shall have resulted in such Senior Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable and (B) no other event of default with respect to any Senior Debt shall have occurred and be continuing permitting (after notice or the lapse of time, or both) the holders of such Senior Debt (or a trustee on behalf of the holders thereof) 115 124 to declare such Senior Debt due and payable prior to the date on which it would otherwise have become due and payable, or, in the case of either Clause (A) or Clause (B) above, each such default or event of default shall have been cured or waived or shall have ceased to exist. (7) No Event of Default or event which with notice or lapse of time or both would become an Event of Default shall have occurred and be continuing. (8) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (9) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 14.02 or the covenant defeasance under Section 14.03 (as the case may be) have been complied with. (10) Such defeasance or covenant defeasance shall not result in the trust arising from such deposit constituting an investment company as defined in the Investment Company Act of 1940, as amended, or such trust shall be qualified under such act or exempt from regulation thereunder. SECTION 14.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 10.03, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee--collectively, for purposes of this Section 14.05, the "Trustee") pursuant to Section 13.04 in respect of the Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Notes, of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. Money so held in trust shall not be subject to the provisions of Article 12. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 14.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Notes. 116 125 Anything in this Article 14 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 14.04 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance. SECTION 14.06. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 14.02 or 14.03 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to this Article 13 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 14.02 or 14.03; provided, however, that if the Company makes any payment of principal of (and premium, if any) or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Note to receive such payment from the money held by the Trustee or the Paying Agent. ----------------------------- 117 126 This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. R.H. DONNELLEY INC. By: /s/ Philip C. Danford ---------------------------------- Name: Philip C. Danford Title: Senior Vice President and Chief Financial Officer Attest: - ---------------------------------- THE DUN & BRADSTREET CORPORATION By: /s/ Chester J. Geveda, Jr. ---------------------------------- Name: Chester J. Geveda, Jr. Title: Vice President and Controller Attest: - ---------------------------------- THE BANK OF NEW YORK By: /s/ Lucille Firrincieli ---------------------------------- Name: Lucille Firrincieli Title: Vice President Attest: - ---------------------------------- 118 127 [Pages 119 and 120 were intentionally left blank.] 119 128 ANNEX A -- Form of Regulation S Certificate REGULATION S CERTIFICATE (For transfers pursuant to ss. 3.06(b)(i) of the Indenture) The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attn: Corporate Trust Trustee Administration Re: 9 1/8% Senior Subordinated Notes due June 1, 2008 of R.H. Donnelley Inc. (the "Securities") Reference is made to the Indenture, dated as of June 5, 1998 (the "Indenture"), from R.H. Donnelley Inc. (the "Company"), the Guarantors named therein, The Bank of New York, as Trustee. Terms used herein and defined in the Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. A-1 129 The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Regulation S Security. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, it is being effected in accordance with Rule 904 or Rule 144 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: 1. Rule 904 Transfers. If the transfer is being effected in accordance with Rule 904: (a) the Owner is not a distributor of the Securities, an affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; (b) the offer of the Specified Securities was not made to a person in the United States; (c) either: (i) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States, or (ii) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; (d) no directed selling efforts have been made in the United States by or on behalf of the Owner or any affiliate thereof; (e) if the Owner is a dealer in securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted Period, then the requirements of Rule 904(b)(1) or (b)(3) have been satisfied; and (f) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. A-2 130 2. Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (a) the transfer is occurring after a holding period of at least two years (computed in accordance with paragraph (d) of Rule 144) has elapsed since the Specified Securities were last acquired from the Company or from an affiliate of the Company, whichever is later, and is being effected in accordance with the applicable amount, manner of sale and notice requirements of Rule 144; or (b) the transfer is occurring after a holding period of at least three years has elapsed since the Specified Securities were last acquired from the Company or from an affiliate of the Company, whichever is later, and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. This certificate and the statements contained herein are made for your benefit and the benefit of the Company, the Guarantors and the Initial Purchasers. Dated: __________________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) ____________________________________________ By: Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) A-3 131 ANNEX B -- Form of Restricted Securities Certificate RESTRICTED SECURITIES CERTIFICATE (For transfers pursuant to ss. 3.06(b)(ii) of the Indenture) The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attn: Corporate Trust Trustee Administration Re: 9 1/8% Senior Subordinated Notes due June 1, 2008 of R.H. Donnelley Inc. (the "Securities") Reference is made to the Indenture, dated as of June 5, 1998 (the "Indenture"), from R.H. Donnelley Inc. (the "Company"), the Guarantors named therein and The Bank of New York, as Trustee. Terms used herein and defined in the Indenture or in Rule 144A or Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $_____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ ISIN No(s), If any. ____________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. B-1 132 The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Restricted Security. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, (i) the Owner is not a U.S. Person (as defined in the Indenture) and (ii) such transfer is being effected in accordance with Rule 144A or Rule 144 under the Securities Act and all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as: 1. Rule 144A Transfers. If the transfer is being effected in accordance with Rule 144A: (a) the Specified Securities are being transferred to a person that the Owner and any person acting on its behalf reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A, acquiring for its own account or for the account of a qualified institutional buyer; and (b) the Owner and any person acting on its behalf have taken reasonable steps to ensure that the Transferee is aware that the Owner may be relying on Rule 144A in connection with the transfer; and 2. Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (a) the transfer is occurring after a holding period of at least two years (computed in accordance with paragraph (d) of Rule 144) has elapsed since the Specified Securities were last acquired from the Company or from an affiliate of the Company, whichever is later, and is being effected in accordance with the applicable amount, manner of sale and notice requirements of Rule 144; or (b) the transfer is occurring after a holding period of at least three years has elapsed since the Specified Securities were last acquired from the Company or from an affiliate of the Company, whichever is later, and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. B-2 133 This certificate and the statements contained herein are made for your benefit and the benefit of the Company, the Guarantors and the Initial Purchasers. Dated: __________________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) ____________________________________________ By: Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) B-3 134 ANNEX C -- Form of Unrestricted Securities Certificate UNRESTRICTED SECURITIES CERTIFICATE (For removal of Securities Act Legends pursuant to ss. 3.06(c)) The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attn: Corporate Trust Trustee Administration Re: 9 1/8% Senior Subordinated Notes due June 1, 2008 of R.H. Donnelley Inc. (the "Securities") Reference is made to the Indenture, dated as of June 5, 1998 (the "Indenture"), from R.H. Donnelley Inc. (the "Company"), the Guarantors named therein and The Bank of New York, as Trustee. Terms used herein and defined in the Indenture or in Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $_____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. C-1 135 The Owner has requested that the Specified Securities be exchanged for Securities bearing no Securities Act Legend pursuant to Section 3.06(c) of the Indenture. In connection with such exchange, the Owner hereby certifies that the exchange is occurring after a holding period of at least three years (computed in accordance with paragraph (d) of Rule 144) has elapsed since the Specified Securities were last acquired from the Company or from an affiliate of the Company, whichever is later, and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. The Owner also acknowledges that any future transfers of the Specified Securities must comply with all applicable securities laws of the states of the United States and other jurisdictions. This certificate and the statements contained herein are made for your benefit and the benefit of the Company, the Guarantors and the Initial Purchasers. Dated: __________________________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) ____________________________________________ By: Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) C-2 136 ANNEX D -- Form of Certification to Be Given by Holders of Beneficial Interest in a Regulation S Temporary Global Note OWNER SECURITIES CERTIFICATION R.H. DONNELLEY INC. 9-1/8% Senior Subordinated Notes due 2008 This is to certify that, as of the date hereof, $________ of the above-captioned Notes are beneficially owned by non-U.S. person(s). As used in this paragraph, the term "U.S. person" has the meaning given to it by Regulation S under the Securities Act of 1933, as amended. We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the Notes held by you for our account in accordance with your operating procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certification applies as of such date. We understand that this certificate is required in connection with certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate to any interested party in such proceedings. Dated:______________, ____ By:____________________________________ As, or as agent for, the beneficial owner(s) of the Notes to which this certificate relates. D-1 137 ANNEX E -- Form of Certification to Be Given by the Euroclear Operator or Cedel S.A. DEPOSITARY SECURITIES CERTIFICATION R.H. DONNELLEY INC. 9-1/8% Senior Subordinated Notes due 2008 This is to certify that, with respect to U.S.$___________ principal amount of the above-captioned Notes, except as set forth below, we have received in writing, by tested telex or by electronic transmission, from member organizations appearing in our records as persons being entitled to a portion of the principal amount of Notes set forth above (our "Member Organizations"), certifications with respect to such portion, substantially to the effect set forth in the Indenture. We further certify (i) that we are not making available herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) any portion of the Regulation S Temporary Global Note (as defined in the Indenture) excepted in such certifications and (ii) that as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with respect to any portion of the part submitted herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) are no longer true and cannot be relied upon as of the date hereof. We understand that this certification is required in connection with certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this E-1 138 certification is or would be relevant, we irrevocably authorize you to produce this certification to any interested party in such proceedings. Dated: _____________, _______ Yours faithfully, [MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Brussels office, as operator of the Euroclear System] or [CEDEL S.A.] By ____________________________ E-2 EX-4.4 5 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.4 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of June 5,1998, among R.H. Donnelley Inc., a Delaware corporation (the "Company"), The Dun & Bradstreet Corporation, a Delaware corporation and parent to the Company ("Parent Company"), Goldman, Sachs & Co., and Chase Securities Inc., as initial purchasers (collectively, the "Purchasers") of the 9-1/8% Senior Subordinated Notes due June 1, 2008 (the "Notes"), of the Company, which are guaranteed on a senior subordinated basis by the Parent Company and will be guaranteed by any future Restricted Subsidiary of the Company. The Company proposes to issue and sell to the Purchasers upon the terms set forth in the Purchase Agreement (as defined herein) the Notes. As an inducement to the Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchasers thereunder, the Company agrees with the Purchasers for the benefit of holders (as defined herein) from time to time of the Registrable Notes (as defined herein) as follows: 1. Certain Definitions. For purposes of this Exchange and Registration Rights Agreement, the following terms shall have the following respective meanings: "Base Interest" shall mean the interest that would otherwise accrue on the Notes under the terms thereof and the Indenture, without giving effect to the provisions of this Agreement. The term "broker-dealer" shall mean any broker or dealer registered with the Commission under the Exchange Act. "Closing Date" shall mean June 5, 1998. "Commission" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose. "Effective Date," in the case of (i) an Exchange Registration, shall mean the time and date as of which the Commission declares the Exchange Offer Registration Statement effective or as of which the Exchange Offer Registration Statement otherwise becomes effective and (ii) a Shelf Registration, shall mean the time and date as of which the Commission declares the Shelf Registration Statement effective or as of which the Shelf Registration Statement otherwise becomes effective. "Electing Holder" shall mean any holder of Registrable Notes that has returned a 2 completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(ii) or 3(d)(iii) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, or any successor thereto, as the same shall be amended from time to time. "Exchange Notes" shall have the meaning assigned thereto in Section 2(a) hereof "Exchange Offer" shall have the meaning assigned thereto in Section 2(a) hereof "Exchange Offer Registration Statement" shall have the meaning assigned thereto in Section 2(a) hereof. "Exchange Registration" shall have the meaning assigned thereto in Section 3(c) hereof. "Guarantors" shall have the meaning assigned thereto in the Indenture. The term "holder" shall mean each of the Purchasers and other persons who acquire Registrable Notes from time to time (including any successors or assigns), in each case for so long as such person owns any Registrable Notes. "Indenture" shall mean the Indenture, dated as of June 5, 1998, between the Company and The Bank of New York, as Trustee, as the same shall be amended from time to time. "Notes" shall mean, collectively, the 9-1/8% Senior Subordinated Notes due June 1, 2008 of the Company to be issued and sold to the Purchasers, and securities issued in exchange therefor or in lieu thereof pursuant to the Indenture. Each Note is entitled to the benefit of the guarantees provided for in the Indenture (the "Guarantees") and, unless the context otherwise requires, any reference herein to a "Note," an "Exchange Note" or a "Registrable Note" shall include a reference to the related Guarantees. "Notice and Questionnaire" shall mean a Notice of Registration Statement and Selling Securityholder Questionnaire substantially in the form of Exhibit A hereto. The term "person" shall mean a corporation, association, partnership, organization, business, individual, government or political subdivision thereof or governmental agency. "Purchase Agreement" shall mean the Purchase Agreement, dated as of June 2, 1998, between the Purchasers and the Company relating to the Notes. "Registrable Notes" shall mean the Notes; provided, however, that a Note shall cease to be a Registrable Note when (i) in the circumstances contemplated by Section 2(a) hereof, the 3 Note has been exchanged for an Exchange Note in an Exchange Offer as contemplated in Section 2(a) (provided that any Exchange Note received by a broker-dealer in an Exchange Offer in, exchange for a Registrable Note that was not acquired by the broker-dealer directly from the Company will also be a Registrable Note through and including the earlier of the 180th day after the Exchange Offer is completed or such time as such broker-dealer no longer owns such Note); (ii) in the circumstances contemplated by Section 2(b) hereof, a Shelf Registration Statement registering such Note under the Securities Act has been declared or becomes effective and such Note has been sold or otherwise transferred by the holder thereof pursuant to and in a manner contemplated by such effective Shelf Registration Statement; (iii) such Note is sold pursuant to Rule 144 under circumstances in which any legend borne by such Note relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed by the Company or pursuant to the Indenture; (iv) such Note is eligible to be sold pursuant to paragraph (k) of Rule 144; or (v) such Note shall cease to be outstanding. "Registration Default" shall have the meaning assigned thereto in Section 2(c) hereof. "Registration Expenses" shall have the meaning assigned thereto in Section 4 hereof. "Resale Period" shall have the meaning assigned thereto in Section 2(a) hereof "Restricted Holder" shall mean (i) a holder that is an affiliate of the Company within the meaning of Rule 405, (ii) a holder who acquires Exchange Notes outside the ordinary course of such holder's business, (iii) a holder who has arrangements or understandings with any person to participate in the Exchange Offer for the purpose of distributing Exchange Notes and (iv) a holder that is a broker-dealer, but only with respect to Exchange Notes received by such brokerdealer pursuant to an Exchange Offer in exchange for Registrable Notes acquired by the brokerdealer directly from the Company. "Restricted Subsidiary" shall have the meaning assigned thereto in the Indenture. "Rule 144," "Rule 405" and "Rule 415" shall mean, in each case, such rule promulgated under the Securities Act (or any successor provision), as the same shall be amended from time to time. "Securities Act" shall mean the Securities Act of 1933, or any successor thereto, as the same shall be amended from time to time. "Shelf Registration" shall have the meaning assigned thereto in Section 2(b) hereof. "Shelf Registration Statement" shall have the meaning assigned thereto in Section 2(b) hereof. 4 "Special Interest" shall have the meaning assigned thereto in Section 2(c) hereof. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, or any successor thereto, and the rules, regulations and forms promulgated thereunder, all as the same shall be amended from time to time. Unless the context otherwise requires, any reference herein to a "Section" or "clause" refers to a Section or clause, as the case may be, of this Exchange and Registration Rights Agreement, and the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Exchange and Registration Rights Agreement as a whole and not to any particular Section or other subdivision. 2. Registration Under the Securities Act. (a) Except as set forth in Section 2(b) below, the Company agrees to use its reasonable best efforts to file with the Commission under the Securities Act, within 60 days after the Closing Date, a registration statement relating to an offer to exchange (such registration statement, the "Exchange Offer Registration Statement", and such offer, the "Exchange Offer") any and all of the Notes for a like aggregate principal amount of debt securities issued by the Company and guaranteed by the Guarantors, which debt securities and guarantees are substantially identical to the Notes and the related Guarantees, respectively (and are entitled to the benefits of a trust indenture which is substantially identical to the Indenture or is the Indenture and which has been qualified under the Trust Indenture Act), except that they have been registered pursuant to an effective registration statement under the Securities Act and do not contain provisions for the Special Interest payments contemplated in Section 2(c) below (such new debt securities hereinafter called "Exchange Notes"). The Company agrees to use its reasonable best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act as soon as practicable, but no later than 120 days after the Closing Date. The Exchange Offer will be registered under the Securities Act on the appropriate form and will comply with all applicable tender offer rules and regulations under the Exchange Act. The Company further agrees to use its reasonable best efforts to commence and complete the Exchange Offer promptly after such registration statement has become effective, hold the Exchange Offer open for at least 30 days and issue Exchange Notes for all Registrable Notes that have been properly tendered and not withdrawn on or prior to the expiration of the Exchange Offer. The Exchange Offer will be deemed to have been "completed" only if the debt securities and related guarantees received by holders other than Restricted Holders in the Exchange Offer for Registrable Notes are, upon receipt, transferable by each such holder without need for further compliance with Section 5 of the Securities Act and the Exchange Act (except for the requirement to deliver a prospectus included in the Exchange Offer Registration Statement applicable to resales by brokerdealers of Exchange Notes received by such broker-dealer 5 pursuant to an Exchange Offer in exchange for Registrable Notes other than those acquired by the broker-dealer directly from the Company), and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the United States of America. The Exchange Offer shall be deemed to have been completed upon the earlier to occur of (i) the Company having exchanged the Exchange Notes for all outstanding Registrable Notes pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant to the Exchange Offer, Exchange Notes for all Registrable Notes that have been properly tendered and not withdrawn before the expiration of the Exchange Offer, which shall be on a date that is at least 30 days following the commencement of the Exchange Offer. The Company agrees (x) to include in the Exchange Offer Registration Statement a prospectus for use in connection with any resales of Exchange Notes by a broker-dealer, other than resales of Exchange Notes received by a broker-dealer pursuant to an Exchange Offer in exchange for Registrable Notes acquired by the broker-dealer directly from the Company, and (y) to use its reasonable best efforts to keep such Exchange Offer Registration Statement effective for a period (the "Resale Period") beginning when Exchange Notes are first issued in the Exchange Offer and ending upon the earlier of the expiration of the 180th day after the Exchange Offer has been consummated or such time as such broker-dealers no longer own any Registrable Notes. With respect to such Exchange Offer Registration Statement, each broker-dealer that holds Exchange Notes received in an Exchange Offer in exchange for Registrable Notes not acquired by it directly from the Company shall have the benefit of the rights of indemnification and contribution set forth in Sections 6(a), (c), (d) and (e) hereof. (b) If (i) on or prior to the date of consummation of the Exchange Offer, existing Commission interpretations are changed such that the debt securities or any related guarantees received by holders other than Restricted Holders in the Exchange Offer for Registrable Notes are not or would not be, upon receipt, freely transferable by each such holder without need for further compliance with Section 5 of the Securities Act (except for the requirement to deliver a prospectus included in the Exchange Offer Registration Statement applicable to resales by broker-dealers of Exchange Notes received by such broker-dealer pursuant to an Exchange Offer in exchange for Registrable Notes other than those acquired by the broker-dealer directly from the Company), (ii) the Exchange Offer has not been consummated within 210 days following the Closing Date or (iii) the Initial Purchasers so request within 60 days after the consummation of the Exchange Offer, in lieu of (or, in the case of clause (iii), in addition to) conducting the Exchange Offer contemplated by Section 2(a) the Company shall use its reasonable best efforts to file under the Securities Act as soon as practicable, but no later than 60 days, or 270 days with respect to the event referenced in clause (ii) above, after the Closing Date, a "shelf" registration statement providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Registrable Notes, or in the case of clause (iii), of Notes held by a holder of Notes for resale by such holder, pursuant to Rule 415 or any 6 similar rule that may be adopted by the Commission (such filing, the "Shelf Registration" and such registration statement, the "Shelf Registration Statement"). The Company agrees (i) to use its reasonable best efforts to cause such Shelf Registration Statement be declared effective within 180 days, or 390 days with respect to the event referenced in clause (ii) above, of the Closing Date and to remain effective for two years following the effective date of the Shelf Registration Statement or such shorter period that will terminate when all the securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement, provided, however, that no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement or to use the prospectus forming a part thereof for resales of Registrable Notes unless such holder is an Electing Holder, and (ii) after the Effective Date of the Shelf Registration Statement, promptly upon the request of any holder of Registrable Notes that is not then an Electing Holder, to take any action reasonably necessary to enable such holder to use the prospectus forming a part thereof for resales of Registrable Notes, including, without limitation, any action necessary to identify such holder as a selling securityholder in the Shelf Registration Statement, provided, however, that nothing in this clause (ii) shall relieve any such holder of the obligation to return a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(iii) hereof. Notwithstanding clause (i) of the previous sentence, the Company shall not be obligated to keep the Shelf Registration Statement effective if (A) the Company determines, in its reasonable judgment, upon advice of counsel, that the continued effectiveness and usability of the Shelf Registration Statement would (x) require the disclosure of confidential information, which the Company has a bona fide business reason for preserving as confidential, or (y) interfere with any financing, acquisition, corporate reorganization or other material transaction involving the Company or any affiliate, and provided further, that the failure to keep the Shelf Registration Statement effective and usable for offers and sales of Registrable Notes for such reasons shall last no longer than 45 days in any 12-month period. Any such period during which the Company is excused from keeping the Shelf Registration Statement effective and usable for offers and sales of Registrable Notes is referred to herein as a "Suspension Period"; a Suspension Period shall commence and include the date that the Company gives notice to the Electing Holders that the Shelf Registration Statement is no longer effective or the prospectus included therein is no longer usable for offers and sales of Registrable Notes as a result of the application of the proviso of the foregoing sentence and shall end on the earlier to occur of (1) the date on which each seller of Registrable Notes covered by the Shelf Registration Statement either receives copies of the supplemented or amended prospectus or is advised in writing by the Company that use of the prospectus may be resumed or (2) the expiration of 45 days in any 12-month period during which one or more Suspension Periods has been in effect. (c) In the event that (i) the Company has not filed the Exchange Offer Registration Statement (or, if applicable, the Shelf Registration Statement) within 60 days 7 following the Closing Date, or (ii) such Exchange Offer Registration Statement or Shelf Registration Statement has not become effective or been declared effective by the Commission within 120 days following the Closing Date, or (iii) the Exchange Offer has not been consummated within 60 business days after the Effective Date or (iv) any Exchange Offer Registration Statement or Shelf Registration Statement required by Section 2(a) or 2(b) hereof is filed and declared effective but shall thereafter either be withdrawn by the Company or shall become subject to an effective stop order issued pursuant to Section 8(d) of the Securities Act suspending the effectiveness of such registration statement (except as specifically permitted herein) without being succeeded immediately by an additional registration statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default" and each period during which a Registration Default has occurred and is continuing, a "Registration Default Period"), then, the per annum interest rate on the applicable Notes will increase (such increase referred to herein as the "Special Interest"), for the period from the occurrence of the Registration Default until such time as no Registration Default is in effect (at which time the interest rate will be reduced to its initial rate) by 0.25% during the first 90-day period following the occurrence of such Registration Default, and by an additional 0.25% during each subsequent 90-day period thereafter (up to a maximum of 1.0%). (d) The Company shall take, and shall cause each Guarantor to take, all action necessary or advisable to be taken by it to ensure that the transactions contemplated herein are effected as so contemplated, including all action necessary or desirable to register the Guarantees under the registration statement contemplated in Section 2(a) or 2(b) hereof, as applicable. (e) Any reference herein to a registration statement as of any time shall be deemed to include any document incorporated therein by reference as of such time and any reference herein to any post-effective amendment to a registration statement as of any time shall be deemed to include any document incorporated therein by reference as of such time. 3. Registration Procedures. If the Company files a registration statement pursuant to Section 2(a) or Section 2(b), the following provisions shall apply: (a) At or before the Effective Date of the Exchange Offer or the Shelf Registration, as the case may be, the Company shall qualify the Indenture under the Trust Indenture Act of 1939. (b) In the event that such qualification would require the appointment of a new 8 trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (c) In connection with the Company's obligations with respect to the registration of Exchange Securities as contemplated by Section 2(a) (the "Exchange Registration"), if applicable, the Company shall, as soon as practicable (or as otherwise specified): (i) prepare and file with the Commission, as soon as practicable but no later than 60 days after the Closing Date, an Exchange Offer Registration Statement on any form which may be utilized by the Company and which shall permit the Exchange Offer and resales of Exchange Notes by broker-dealers during the Resale Period to be effected as contemplated by Section 2(a), and use its best efforts to cause such Exchange Offer Registration Statement to become effective as soon as practicable thereafter, but no later than 120 days after the Closing Date; (ii) as soon as practicable prepare and file with the Commission such amendments and supplements to such Exchange Offer Registration Statement and the prospectus included therein as may be necessary to use its reasonable best efforts to effect and maintain the effectiveness of such Exchange Offer Registration Statement for the periods and purposes contemplated in Section 2(a) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Exchange Offer Registration Statement, and promptly provide each broker-dealer holding Exchange Notes with such number of copies of the prospectus included therein (as then amended or supplemented), in conformity in all material respects with the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, as such broker-dealer reasonably may request prior to the expiration of the Resale Period, for use in connection with resales of Exchange Notes; (iii) promptly notify Goldman, Sachs & Co., on behalf of each broker-dealer that has requested or received copies of the prospectus included in such registration statement for use in consummating resales during the Resale Period (and which has provided in writing to the Company a telephone or facsimile number and address for notices), and confirm such advice in writing, (A) when such Exchange Offer Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Exchange Offer Registration Statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission or any request by the Commission for amendments or supplements to such Exchange Offer Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop 9 order suspending the effectiveness of such Exchange Offer Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Exchange Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) at any time during the Resale Period when a prospectus is required to be delivered under the Securities Act, that such Exchange Offer Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder or contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (iv) in the event that the Company would be required, pursuant to Section 3(e)(iii)(F) above, to notify any broker-dealers holding Exchange Notes, prepare and furnish as promptly as practicable to each such holder a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of such Exchange Notes during the Resale Period, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (v) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of such Exchange Offer Registration Statement or any post-effective amendment thereto as promptly as practicable; (vi) use its reasonable best efforts to (A) register or qualify the Exchange Notes under the securities laws or blue sky laws of such jurisdictions as are contemplated by Section 2(a) no later than the commencement of the Exchange Offer, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions until the expiration of the Resale Period and (C) take any and all other actions as may be reasonably necessary or advisable to enable each broker-dealer holding Exchange Notes to consummate the disposition thereof in such jurisdictions; provided, however, that neither the Company nor any Guarantor shall be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the 10 requirements of this Section 3(c)(vi), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (vii) use its reasonable best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Exchange Registration, the Exchange Offer and the offering and sale of Exchange Notes by broker-dealers during the Resale Period; (viii) provide a CUSIP number for all Exchange Notes, not later than the applicable Effective Date; (ix) use its reasonable best efforts to comply with all applicable rules and regulations of the Commission; and make generally available to its securityholders as soon as practicable but no later than eighteen months after the effective date of such Exchange Offer Registration Statement, an earnings statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (d) In connection with the Company's obligations with respect to the Shelf Registration, if applicable, the Company shall, as soon as practicable (or as otherwise specified): (i) prepare and file with the Commission, as soon as practicable but in any case within the time period specified in Section 2(b), a Shelf Registration Statement on any form which may be utilized by the Company and which shall register all of the Registrable Notes for resale by the holders thereof in accordance with such method or methods of disposition as may be specified by such of the holders as, from time to time, may be Electing Holders and use its reasonable best efforts to cause such Shelf Registration Statement to become effective as soon as practicable but in any case within the time period specified in Section 2(b); (ii) not less than 30 calendar days prior to the Effective Date of the Shelf Registration Statement, mail the Notice and Questionnaire to the holders of Registrable Notes; no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement as of the Effective Date, and no holder shall be entitled to use the prospectus forming a part thereof for resales of Registrable Notes at any time, unless such holder has returned a completed and signed Notice and Questionnaire to the Company by the deadline for response set forth therein; provided, however, holders of Registrable Notes shall have at least 21 calendar days from the date on which the Notice and Questionnaire is first mailed to such holders to return a completed and signed Notice and Questionnaire 11 to the Company; (iii) after the Effective Date of the Shelf Registration Statement, upon the request of any holder of Registrable Notes that is not then an Electing Holder, promptly send a Notice and Questionnaire to such holder; provided that the Company shall not be required to take any action to name such holder as a selling securityholder in the Shelf Registration Statement or to enable such holder to use the prospectus forming a part thereof for resales of Registrable Notes until such holder has returned a completed and signed Notice and Questionnaire to the Company; (iv) as soon as reasonably practicable prepare and file with the Commission such amendments and supplements to such Shelf Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Shelf Registration Statement for the period specified in Section 2(b) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Shelf Registration Statement, and furnish to the Electing Holders copies of any such supplement or amendment simultaneously with or prior to its being used or filed with the Commission; (v) comply with the provisions of the Securities Act with respect to the disposition of all of the Registrable Notes covered by such Shelf Registration Statement in accordance with the intended methods of disposition by the Electing Holders provided for in such Shelf Registration Statement; (vi) provide (A) the Electing Holders, (B) the underwriters (which term, for purposes of this Exchange and Registration Rights Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, thereof, (C) any sales or placement agent therefor, (D) counsel for any such underwriter or agent and (E) not more than one counsel for all the Electing Holders the opportunity to participate in the preparation of such Shelf Registration Statement each prospectus included therein or filed with the Commission and each amendment or supplement thereto; (vii) for a reasonable period prior to the filing of such Shelf Registration Statement, and throughout the period specified in Section 2(b), make available at reasonable times at the Company's principal place of business or such other reasonable place for inspection by the persons referred to in Section 3(d)(vi) who shall certify to the Company that they have a current intention to sell the Registrable Notes pursuant to the Shelf Registration such financial and other information and books and records of the Company, and cause the officers, 12 employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be reasonably necessary, in the reasonable judgment of the respective counsel referred to in such Section, to conduct a reasonable investigation within the meaning of Section I I of the Securities Act; provided, however, that each such party shall be required to maintain in confidence and not to disclose to any other person any information or records reasonably designated by the Company as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such registration statement or otherwise), or (B) such person shall be required so to disclose such information pursuant to a subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice of such requirement), or (C) subject to the provisions of Section 2(b) relating to Suspension Periods, such information is required to be set forth in such Shelf Registration Statement or the prospectus included therein or in an amendment to such Shelf Registration Statement or an amendment or supplement to such prospectus in order that such Shelf Registration Statement, prospectus, amendment or supplement, as the case may be, complies with applicable requirements of the federal securities laws and the rules and regulations of the Commission and does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (viii) promptly notify each of the Electing Holders, any sales or placement agent therefor and any underwriter thereof (which notification may be made through any managing underwriter that is a representative of such underwriter for such purpose) and confirm such advice in writing, (A) when such Shelf Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Shelf Registration Statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission with respect thereto or any request by the Commission for amendments or supplements to such Shelf Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Shelf Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 3(d)(xvii) or Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) if at any time when a 13 prospectus is required to be delivered under the Securities Act, such Shelf Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (ix) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto as promptly as practicable; (x) if requested by any managing underwriter or underwriters, any placement or sales agent or Electing Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such Electing Holder specifies should be included therein relating to the terms of the sale of such Registrable Notes, including information with respect to the principal amount of Registrable Notes being sold by such Electing Holder or agent or to any underwriters, the name and description of such Electing Holder, agent or underwriter, the offering price of such Registrable Notes and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Notes to be sold by such Electing Holder or agent or to such underwriters; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; (xi) furnish to each Electing Holder, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 3(d)(vi) an executed copy (or, in the case of an Electing Holder, a conformed copy) of such Shelf Registration Statement, each such amendment and supplement thereto (in each case including all exhibits thereto (in the case of an Electing Holder, upon request) and documents incorporated by reference therein) and such number of copies of such Shelf Registration Statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such Electing Holder, agent or underwriter, as the case may be) and of the prospectus included in such Shelf Registration Statement (including each preliminary prospectus and any summary prospectus), and such other documents, as such Electing Holder, agent, if any, and underwriter, if any, 14 may reasonably request in order to facilitate the offering and disposition of the Registrable Notes owned by such Electing Holder, offered or sold by such agent or underwritten by such underwriter and to permit such Electing Holder, agent and underwriter to satisfy the prospectus delivery requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Electing Holder and by any such agent and underwriter, in each case in the form most recently provided to such person by the Company, in connection with the offering and sale of the Registrable Notes covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (xii) use its reasonable best efforts to (A) register or qualify the Registrable Notes to be included in such Shelf Registration Statement under such securities laws or blue sky laws of such jurisdictions as any Electing Holder and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the period the Shelf Registration is required to remain effective under Section 2(b) above and for so long as may be necessary to enable any Electing Holder, agent or underwriter to complete its distribution of Notes pursuant to such Shelf Registration Statement and (C) take any and all other actions as may be reasonably necessary or advisable to enable each such Electing Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Notes; provided, however, that neither the Company nor any Guarantor shall be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(d)(xii), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (xiii) use its reasonable best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Shelf Registration or the offering or sale in connection therewith or to enable the selling Electing Holder or Electing Holders to offer, or to consummate the disposition of, their Registrable Notes; (xiv) cooperate with the Electing Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall be printed, lithographed or engraved, or produced by any combination of such methods, and which shall not 15 bear any restrictive legends; and, in the case of an underwritten offering, enable such Registrable Notes to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of the Registrable Notes; (xv) provide a CUSIP number for all Registrable Notes, not later than the applicable Effective Date; (xvi) enter into one or more underwriting agreements, engagement letters, agency agreements, "best efforts" underwriting agreements or similar agreements, as appropriate, including customary provisions relating to indemnification and contribution, and take such other actions in connection therewith as any Electing Holders aggregating at least 25% in aggregate principal amount of the Registrable Notes at the time outstanding shall reasonably request in order to expedite or facilitate the disposition of such Registrable Notes; (xvii) if any portion of the offering contemplated by the Shelf Registration is an underwritten offering or is made through a placement or sales agent or any other entity, (A) make such representations and warranties to the Electing Holders covered by such Shelf Registration and the placement or sales agent, if any, therefor and the underwriters, if any, thereof in form, substance and scope as are customarily made in connection with an underwritten offering of debt securities; (B) obtain an opinion of counsel to the Company in customary form and covering such matters, of the type customarily covered by such an opinion, as the managing underwriters, if any, or as any Electing Holders of at least 25% in aggregate principal amount of the Registrable Notes at the time outstanding may reasonably request, addressed to such Electing Holder or Electing Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof and dated the effective date of such Shelf Registration Statement (and if such Shelf Registration Statement contemplates an underwritten offering of a part or all of the Registrable Notes, dated the date of the closing under the underwriting agreement relating thereto) (it being agreed that the matters to be covered by such opinion shall include the due incorporation and good standing of the Company and its subsidiaries; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(d)(xvi) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the Notes; the absence of material legal or governmental proceedings involving the Company; the absence of a breach by the Company or any of its subsidiaries of, or a default under, material agreements binding upon the Company or any subsidiary of the Company; the absence of governmental approvals required to be obtained in connection with the Shelf Registration, the offering and sale of the Registrable Notes, this Exchange and Registration Rights 16 Agreement or any agreement of the type referred to in Section 3(d)(xvi) hereof, except such approvals as may be required under state securities or blue sky laws; the material compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, respectively; and, as of the date of the opinion and of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from the documents incorporated by reference therein (in each case other than the financial statements and other financial information contained therein) of an untrue statement of a material fact or the omission to state therein a material fact necessary to make the statements therein not misleading (in the case of such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act)); (C) obtain a "cold comfort" letter or letters from the independent certified public accountants of the Company addressed to the Electing Holders, the placement or sales agent, if any, therefor or the underwriters, if any, thereof, dated (i) the effective date of such Shelf Registration Statement and (ii) the effective date of any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus (and, if such Shelf Registration Statement contemplates an underwritten offering pursuant to any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus, dated the date of the closing under the underwriting agreement relating thereto), such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type; (D) deliver such documents and certificates, including officers' certificates, as may be reasonably requested by any Electing Holders of at least 25% in aggregate principal amount of the Registrable Notes at the time outstanding or the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof to evidence the accuracy of the representations and warranties made pursuant to clause (A) above or those contained in Section 5(a) hereof and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement; and (E) undertake such obligations relating to expense reimbursement, indemnification and contribution as are no less favorable than those provided in Section 6 hereof; (xviii) notify in writing each holder of Registrable Notes of any proposal by 17 the Company to amend or waive any provision of this Exchange and Registration Rights Agreement pursuant to Section 9(h) hereof and of any amendment or waiver effected pursuant thereto, each of which notices shall contain the text of the amendment or waiver proposed or effected, as the case may be; (xix) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Notes or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc. ("NASD") or any successor thereto, as amended from time to time) thereof, whether as an Electing Holder or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including by providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Fair Practice of the NASD; and (xx) use its reasonable best efforts to comply with all applicable rules and regulations of the Commission; and make generally available to its securityholders as soon as practicable but in any event not later than eighteen months after the effective date of such Shelf Registration Statement, an earning statement of the Company and its subsidiaries complying with Section I I (a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (e) In the event that the Company would be required, pursuant to Section 3(d)(viii)(F) above, to notify the selling Electing Holders, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall prepare and furnish as promptly as practicable to each of the Electing Holders, to each placement or sales agent, if any, and to each such underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of Registrable Notes, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each Electing Holder and-agent therefor or underwriter thereof agrees that upon receipt of any notice from the Company pursuant to Section 3(d)(viii)(F) hereof, such Electing Holder, agent or underwriter shall forthwith discontinue the disposition of Registrable Notes pursuant to the Shelf Registration Statement applicable to such Registrable Notes until such Electing Holder, agent or underwriter shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Electing Holder, agent or underwriter shall deliver to the Company (at the Company's expense) all 18 copies, other than permanent file copies; then in their possession of the prospectus covering such Registrable Notes at the time of receipt of such notice. (f) In the event of a Shelf Registration, in addition to the information required to be provided by each Electing Holder in its Notice Questionnaire, the Company may require each Electing Holder as to which any Shelf Registration pursuant to Section 2(b) is being effected to furnish to the Company such additional information regarding such Electing Holder and such Electing Holder's intended method of distribution of such Registrable Notes as may be required in order to comply with the Securities Act. Each such Electing Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Electing Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such Shelf Registration contains or would contain an untrue statement of a material fact regarding such Electing Holder or such Electing Holder's intended method of disposition of such Registrable Notes or omits to state any material fact regarding such Electing Holder or such Electing Holder's intended method of disposition of such Registrable Notes required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Electing Holder or the disposition of such Registrable Notes, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. 4. Registration Expenses. The Company agrees to bear and to pay or cause to be paid promptly all expenses incident to the Company's performance of or compliance with this Exchange and Registration Rights Agreement, including (a) all Commission and any NASD registration, filing and review fees and expenses including reasonable fees and disbursements of counsel for the placement or sales agent or underwriters in connection with such registration, filing and review, (b) all fees and expenses in connection with the qualification of the Notes for offering and sale under the State securities and blue sky laws referred to in Section 3(d)(xii) hereof, including reasonable fees and disbursements of counsel for the Electing Holders (subject to the limitation of clause (i) below) or underwriters in connection with such qualification and determination, (c) all expenses relating to the preparation, printing, production, distribution and reproduction of each registration statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the expenses of preparing the Notes for delivery and blue sky or legal investment memoranda and certificates representing the Notes, (d) fees and expenses of the Trustee under the Indenture, any agent of the Trustee and any counsel for the Trustee and of any collateral agent or custodian, (e) fees, disbursements and 19 expenses of counsel and independent certified public accountants of the Company (including the expenses of any opinions or "cold comfort" letters required by or incident to such performance and compliance), (f) fees, disbursements and expenses of one counsel for the Electing Holders retained in connection with a Shelf Registration, as selected by the Electing Holders of at least a majority in aggregate principal amount of the Registrable Notes held by Electing Holders (which counsel shall be reasonably satisfactory to the Company) and (g) any fees charged by securities rating services for rating the Notes (collectively, the "Registration Expenses"). To the extent that any Registration Expenses are incurred, assumed or paid by any holder of Registrable Notes or any placement or sales agent therefor or underwriter thereof, the Company shall reimburse such person for the full amount of the Registration Expenses so incurred, assumed or paid promptly after receipt of a request therefor. Notwithstanding the foregoing, the holders of the Registrable Notes being registered shall pay all agency fees and commissions and underwriting discounts and commissions attributable to the sale of such Registrable Notes and the fees and disbursements of any counsel or other advisors or experts retained by such holders (severally or jointly), other than the counsel and experts specifically referred to above, and shall bear all out-of-pocket expenses of such holders incurred in connection with the registration of the Registrable Notes. 5. Representations and Warranties. The Company represents and warrants to, and agrees with, each Purchaser and each of the holders from time to time of Registrable Notes that: (a) Each registration statement covering Registrable Notes and each prospectus (including any preliminary or summary prospectus) contained therein or furnished pursuant to Section 3(d) or Section 3(c) hereof and any further amendments or supplements to any such registration statement or prospectus, when it becomes effective or is filed with the Commission, as the case may be, and, in the case of an underwritten offering of Registrable Notes, at the time of the closing under the underwriting agreement relating thereto, will conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at all times subsequent to the Effective Date when a prospectus would be required to be delivered under the Securities Act, other than (A) from (i) such time as a notice has been given to holders of Registrable Notes pursuant to Section 3(d)(viii)(F) or Section 3(c)(iii)(F) hereof until (ii) such time as the Company furnishes an amended or supplemented prospectus pursuant to Section 3(e) or Section 3(c)(iv) hereof and (B) during a Suspension Period, each such registration statement, and each prospectus (including any summary prospectus) contained therein or furnished pursuant to Section 3(d) or Section 3(c) hereof, as then amended or supplemented, will conform in all material respects to the applicable requirements of the Securities Act and 20 the Trust Indenture Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Notes expressly for use therein. (b) Any documents incorporated by reference in any prospectus referred to in Section 5(a) hereof, when they become or became effective or are or were filed with the Commission, as the case may be, will conform or conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and none of such documents will contain or contained an untrue statement of a material fact or will omit or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Notes expressly for use therein. (c) The compliance by the Company with all of the provisions of this Exchange and Registration Rights Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any subsidiary of the Company is a party or by which the Company or any subsidiary of the Company is bound or to which any of the property or assets of the Company or any subsidiary of the Company is subject, nor will such action result in any violation of the provisions of the certificate of incorporation, as amended, or the by-laws of the Company or any Guarantor or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any subsidiary of the Company or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the consummation by the Company and the Guarantors of the transactions contemplated by this Exchange and Registration Rights Agreement, except the registration under the Securities Act of the Notes, qualification of the Indenture under the Trust indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under State securities or blue sky laws in connection with the offering and distribution of the Notes. (d) This Exchange and Registration Rights Agreement has been duly authorized, executed and delivered by the Company. 6. Indemnification. 21 (a) Indemnification by the Company. The Company shall indemnify and hold harmless each of the holders of Registrable Notes included in an Exchange Offer Registration Statement, each of the Electing Holders of Registrable Notes included in a Shelf Registration Statement, and each person who participates as a placement or sales agent or as an underwriter in any offering or sale of such Registrable Notes against any losses, claims, damages or liabilities, joint or several, to which such holder, agent or underwriter may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Exchange Offer Registration Statement or Shelf Registration Statement, as the case may be, under which such Registrable Notes were registered under the Securities Act, or any preliminary, final or summary prospectus contained therein or furnished by the Company to any such Electing Holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company shall, and it hereby agrees to, reimburse such holder, such Electing Holder, such agent and such underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable to any such person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary, final or summary prospectus, or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such person expressly for use therein; (b) Indemnification by the Electing Holders and any, agents and Underwriters. The Company may require, as a condition to including any Registrable Notes in any registration statement filed pursuant to Section 2(b) hereof and to entering into any underwriting agreement with respect thereto, that the Company shall have received an undertaking reasonably satisfactory to it from the Electing Holder of such Registrable Notes and from each underwriter named in any such underwriting agreement, severally and not jointly, to (i) indemnify and hold harmless the Company, and all other holders of Registrable Notes, against any losses, claims, damages or liabilities to which the Company or such other holders of Registrable Notes may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary, final or summary prospectus contained therein or furnished by the Company to any such Electing Holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to 22 be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Electing Holder or underwriter expressly for use therein, and (ii) reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that no such Electing Holder shall be required to undertake liability to any person under this Section 6(b) for any amounts in excess of the dollar amount of the proceeds to be received by such Electing Holder from the sale of such Electing Holder's Registrable Notes pursuant to such registration. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party pursuant to the indemnification provisions of or contemplated by this Section 6, notify such indemnifying party in writing of the commencement of such action; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under the indemnification provisions of or contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Contribution. If for any reason the indemnification provisions contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in 23 respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were determined by pro rata allocation (even if the holders or any agents or underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(d), no holder shall be required to contribute any amount in excess of the amount by which the dollar amount of the proceeds received by such holder from the sale of any Registrable Notes (after deducting any fees, discounts and commissions applicable thereto) exceeds the amount of any damages which such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Notes underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The holders' and any underwriters' obligations in this Section 6(d) to contribute shall be several in proportion to the principal amount of Registrable Notes registered or underwritten, as the case may be, by them and not joint. (e) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of each holder, agent and underwriter and each person, if any, who controls any holder, agent or underwriter within the meaning of the Securities Act; and the obligations of the holders and any agents or underwriters contemplated by this Section 6 shall be in addition to any liability which the 24 respective holder, agent or underwriter may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his consent, is named in any registration statement as about to become a director of the Company) and to each person, if any, who controls the Company within the meaning of the Securities Act. 7. Underwritten Offerings. (a) Selection of Underwriters. If any of the Registrable Notes covered by the Shelf Registration are to be sold pursuant to an underwritten offering, the managing underwriter or underwriters thereof shall be designated by Electing Holder's holding at least a majority in aggregate principal amount of the Registrable Notes to be included in such offering, provided that such designated managing underwriter or underwriters is or are reasonably acceptable to the Company. (b) Participation by Holders. Each holder of Registrable Notes hereby agrees with each other such holder that no such holder may participate in any underwritten offering hereunder unless such holder (i) agrees to sell such holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 8. Rule 144. The Company covenants to the holders of Registrable Notes that to the extent it shall be required to do so under the Exchange Act, the Company shall timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including the reports under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder, and shall take such further action as any holder of Registrable Notes may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Notes without registration under the Securities Act within the limitations of the exemption provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar or successor rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Notes in connection with that holder's sale pursuant to Rule 144, the Company shall deliver to such holder a written statement as to whether it has complied with such requirements. 9. Miscellaneous. (a) No Inconsistent Agreements. The Company represents, warrants, covenants 25 and agrees that it has not granted, and shall not grant, registration rights with respect to Registrable Notes or any other securities which would be inconsistent with the terms contained in this Exchange and Registration Rights Agreement. (b) Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if the Company fails to perform any of their respective obligations hereunder and that the Purchasers and the holders from time to time of the Registrable Notes may be irreparably harmed by any such failure, and accordingly agree that the Purchasers and such holders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of the respective obligations of the Company and Allied under this Exchange and Registration Rights Agreement in accordance with the terms and conditions of this Exchange and Registration Rights Agreement, in any court of the United States or any State thereof having jurisdiction. (c) Notices. All notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally or by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) as follows: If to the Company, to it at One Manhattanville Road, Purchase, New York 10577, Attention: Chief Financial Officer, with a copy to Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, Attention: Thomas R. Brome, and if to a holder, to the address of such holder set forth in the security register or other records of the Company, or to such other address as the Company or any such holder may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) Parties in Interest. All the terms and provisions of this Exchange and Registration Rights Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and the holders from time to time of the Registrable Notes and the respective successors and assigns of the parties hereto and such holders. In the event that any transferee of any holder of Registrable Notes shall acquire Registrable Notes, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing or action of any kind, be deemed a beneficiary hereof for all purposes and such Registrable Notes shall be held subject to all of the terms of this Exchange and Registration Rights Agreement, and by taking and holding such Registrable Notes such transferee shall be entitled to receive the benefits of, and be conclusively deemed to have agreed to be bound by all of the applicable terms and provisions of this Exchange and Registration Rights Agreement. If the Company shall so request, any such successor, assign or transferee shall agree in writing to acquire and hold the Registrable Notes subject to all of the applicable terms hereof. 26 (e) Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Exchange and Registration Rights Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of any holder of Registrable Notes, any director, officer or partner of such holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive delivery of and payment for the Registrable Notes pursuant to the Purchase Agreement and the transfer and registration of Registrable Notes by such holder and the consummation of an Exchange Offer. (f) LAW GOVERNING. THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. (g) Headings. The descriptive headings of the several Sections and paragraphs of this Exchange and Registration Rights Agreement are inserted for convenience only, do not constitute a part of this Exchange and Registration Rights Agreement and shall not affect in any way the meaning or interpretation of this Exchange and Registration Rights Agreement. (h) Entire Agreement; Amendments. This Exchange and Registration Rights Agreement and the other writings referred to herein (including the Indenture and the form of Notes) or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Exchange and Registration Rights Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Exchange and Registration Rights Agreement may be amended and the observance of any term of this Exchange and Registration Rights Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument duly executed by the Company and the holders of at least 50 percent in aggregate principal amount of the Registrable Notes at the time outstanding. Each holder of any Registrable Notes at the time or thereafter outstanding shall be bound by any amendment or waiver effected pursuant to this Section 9(h), whether or not any notice, writing or marking indicating such amendment or waiver appears on such Registrable Notes or is delivered to such holder. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of the holders whose Registrable Notes are being sold, tendered or registered and that does not affect the rights of other holders, may be given by at least a majority of such holders, determined on the basis of Registrable Notes sold, tendered or registered. (i) Inspection. For so long as this Exchange and Registration Rights Agreement shall be in effect, this Exchange and Registration Rights Agreement and a complete list of 27 the names and addresses of all the holders of Registrable Notes shall be made available for inspection and copying on any business day by any holder of Registrable Notes for proper purposes only (which shall include any purpose related to the rights of the holders of Registrable Notes under the Notes, the Indenture and this Agreement) at the offices of the Company at the address thereof set forth in Section 9(c) above and at the office of the Trustee under the Indenture. (j) Counterparts. This agreement may be executed by the parties in counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. Agreed to and accepted as of the date referred to above. R.H. DONNELLEY INC. By: /s/ Phillip C. Danford ------------------------------------- Name: Philip C. Danford Title: Senior Vice President and Chief Financial Officer THE DUN & BRADSTREET CORPORATION By: /s/ Frank Sowinski ------------------------------------- Name: Frank Sowinski Title: Senior Vice President and Chief Financial Officer GOLDMAN, SACHS & CO. CHASE SECURITIES INC. By: /s/ Goldman Sachs & Co. ------------------------------------- (Goldman, Sachs & Co.) 28 Exhibit A R.H. DONNELLEY INC. INSTRUCTION TO DTC PARTICIPANTS (Date of Mailing) URGENT - IMMEDIATE ATTENTION REQUESTED DEADLINE FOR RESPONSE: [DATE](1) The Depository Trust Company ("DTC") has identified you as a DTC Participant through which beneficial interests in R.H. Donnelley Inc. (the "Company") 9 1/8% Senior Subordinated Notes due June 1, 2008 (the "Securities") are held. The Company is in the process of registering the Securities under the Securities Act of 1933 for resale by the beneficial owners thereof. In order to have their Securities included in the registration statement, beneficial owners must complete and return the enclosed Notice of Registration Statement and Selling Securityholder Questionnaire (the "Notice and Questionnaire"). It is important that beneficial owners of the Securities receive a copy of the enclosed materials as soon as possible as their rights to have the Securities included in the registration statement depend upon their returning the Notice and Questionnaire by [DEADLINE FOR RESPONSE]. Please forward a copy of the enclosed documents to each beneficial owner that holds interests in the Securities through you. If you require more copies of the enclosed materials or have any questions pertaining to this matter, please contact R.H. Donnelley Inc., One Manhattanville Road, Purchase, New York 10577, Attention: Stephen B. Wiznitzer. - -------- (1) Not less than 21 calendar days from date of mailing. 29 R.H. Donnelley Inc. Notice of Registration Statement and Selling Securityholder Questionnaire [Date] Reference is hereby made to the Exchange and Registration Rights Agreement (the "Exchange and Registration Rights Agreement") by and between R.H. Donnelley Inc. (the "Company"), The Dun & Bradstreet Corporation and the Purchasers named therein. Pursuant to the Exchange and Registration Rights Agreement, the Company has filed with the United States Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (the "Shelf Registration Statement") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the Company's 9 1/8% Senior Subordinated Notes due June 1, 2008 (the "Securities"). A copy of the Exchange and Registration Rights Agreement is attached hereto. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Exchange and Registration Rights Agreement. Each beneficial owner of Registrable Securities is entitled to have the Registrable Securities beneficially owned by it included in the Shelf Registration Statement. In order to have Registrable Securities included in the Shelf Registration Statement, this Notice of Registration Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire") must be completed, executed and delivered to the Company's counsel at the address set forth herein for receipt ON OR BEFORE [DEADLINE FOR RESPONSE]. Beneficial owners of Registrable Securities who do not complete, execute and return this Notice and Questionnaire by such date (i) will not be named as selling securityholders in the Shelf Registration Statement and (ii) may not use the Prospectus forming a part thereof for resales of Registrable Securities. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. 30 ELECTION The undersigned holder (the "Selling Securityholder") of Registrable Securities hereby elects to include in the Shelf Registration Statement the Registrable Securities beneficially owned by it and listed below in Item (3). The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Registrable Securities by the terms and conditions of this Notice and Questionnaire and the Exchange and Registration Rights Agreement, including, without limitation, Section 6 of the Exchange and Registration Rights Agreement, as if the undersigned Selling Securityholder were an original party thereto. Upon any sale of Registrable Securities pursuant to the Shelf Registration Statement, the Selling Securityholder will be required to deliver to the Company and Trustee the Notice of Transfer set forth in Appendix A to the Prospectus and as Exhibit B to the Exchange and Registration Rights Agreement. The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: 31 QUESTIONNAIRE (a) Full Legal Name of Selling Securityholder: - -------------------------------------------------------------------------------- (i) Full Legal Name of Registered Holder (if not the same as in (a) above) of Registrable Securities Listed in Item (3) below: - -------------------------------------------------------------------------------- (ii) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) Through Which Registrable Securities Listed in Item (3) below are Held: - -------------------------------------------------------------------------------- (b) Address for Notices to Selling Securityholder: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Telephone: ________________ Fax: ________________ Contact Person: ____________ (c) Beneficial Ownership of Securities: Except as set forth below in this Item (3), the undersigned does not beneficially own any Securities. (i) Principal amount at maturity of Registrable Securities beneficially owned:___________________________________________ CUSIP No(s). of such Registrable Securities:______________________________ (ii) Principal amount at maturity of Securities other than Registrable Securities beneficially owned:____________________ 32 CUSIP No(s). of such other Securities: (iii) Principal amount at maturity of Registrable Securities which the undersigned wishes to be included in the Shelf Registration Statement:_______________________________________ CUSIP No(s). of such Registrable Securities to be included in the Shelf Registration Statement:___________________________________________________ (d) Beneficial Ownership of Other Securities of the Company: Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any other securities of the Company, other than the Securities listed above in Item (3). State any exceptions here: (e) Relationships with the Company: Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: (f) Plan of Distribution: Except as set forth below, the undersigned Selling Securityholder intends to distribute the Registrable Securities listed above in Item (3) only as follows (if at all): Such Registrable Securities may be sold from time to time directly by the undersigned Selling Securityholder or, alternatively, through underwriters, broker-dealers or agents. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the Registrable Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn 33 engage in short sales of the Registrable Securities in the course of hedging the positions they assume. The Selling Securityholder may also sell Registrable Securities short and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. State any exceptions here: (g) Whether you are a corporation or not, the following three questions should be answered. If you are a corporation these questions should also be answered with respect to your officers, directors and holders of 5% or more of your equity securities; if you are a partnership such questions should also be answered with respect to your general partners. (i) Except as set forth below in this Item (7)(a), neither the undersigned nor any of its affiliates(2) is a - --------- (2) NASD Rule 2720 defines the term "affiliate" to mean a company which controls, is controlled by or is under common control with a member. The term affiliate is presumed to include the following: (i) a company will be presumed to control a member if the company beneficially owns 10 percent or more of the outstanding voting securities of a member which is a corporation, or beneficially owns a partnership interest in 10 percent or more of the distributable profits or losses of a member which is a partnership; (ii) a member will be presumed to control a company if the member and persons associated with the member beneficially own 10 percent or more of the outstanding voting securities of a company which is a corporation, or beneficially own a partnership interest in 10 percent or more of the distributable profits or losses of a company which is a partnership; (iii) a company will be presumed to be under common control with a member if: (1) the same natural person or company controls both the member and company by beneficially owning 10 percent or more of the outstanding voting securities of a member or company which is a corporation, or by beneficially owning a partnership interest in 10 percent or more of the distributable profits or losses of a member or company which is a partnership; or (2) a person having the power to direct or cause the direction of the management or policies of the member or the company also has the power to direct or cause the direction of the management or policies of the other entity in question. 34 member(3) of the National Association of Securities Dealers, Inc. (the "NASD") or a person associated with a member(3) of the NASD. State any exceptions here: (ii) Except as set forth below in this Item (7) (b), the undersigned does not own stock or other securities of any NASD member not purchased in the open market. State any exceptions here: (iii) Except as set forth below in this Item (7)(c), the undersigned has not made any outstanding subordinated loans to any NASD member. State any exceptions here: By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Exchange Act and the rules and regulations thereunder, particularly Regulation M (which governs manipulation, stabilization and trading activity during a distribution of securities). In the event that the Selling Securityholder transfers all or any portion of the Registrable Securities listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Exchange and Registration Rights Agreement. By signing below, the Selling Securityholder consents to the disclosure of the information - -------- (3) Article I of the NASD's By-Laws defines the term "member " to mean any broker or dealer admitted to membership in the NASD and defines the term "person associated with a member" to mean every sole proprietor, partner, officer, director or branch manager of any member, or any natural person occupying a similar status or performing similar functions, or any natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by such member (for example, any employee), whether or not such person is registered or exempt from registration with the NASD. 35 contained herein in its answers to Items (1) through (7) above and the inclusion of such information in the Shelf Registration Statement and related Prospectus. The Selling Securityholder understands that such information will be relied upon by the Company, and any underwriters in an underwritten offering of such Selling Securityholder's Registrable Securities listed in Item(3) above, in connection with the preparation of the Shelf Registration Statement and related Prospectus. In accordance with the Selling Securityholder's obligation under Section 3(d) of the Exchange and Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect. All notices hereunder and pursuant to the Exchange and Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery as follows: (i) To the Company: R.H. Donnelley Inc. One Manhattanville Road Purchase, New York 10577 Attention: Stephen B. Wiznitzer (914) 933-1000 (ii) With a copy to: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, New York 10019 Attention: Thomas R. Brome (212) 474-1000 Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company's counsel, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company and the Selling Securityholder (with respect to the Registrable Securities beneficially owned by such Selling Securityholder and listed in Item (3) above). This Agreement shall be governed in all respects by the laws of the State of New York. 36 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: ------------- -------------------------------------------------- Selling Securityholder (Print/type full legal name of beneficial owner of Registrable Securities) By: ----------------------------------------------- Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY'S COUNSEL AT: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, New York 10019 Attention: Thomas R. Brome (212) 474-1000 37 Exhibit B NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT The Bank of New York R.H. Donnelley Inc. c/o The Bank of New York - ------------------------ - ------------------------ - ------------------------ Attention: Trust Officer Re: R.H. Donnelley Inc. (the "Company") 9 1/8% Senior Subordinated Notes due June 1, 2008s Dear Sirs: Please be advised that __________________________ has transferred $__________ aggregate principal amount at maturity of the above-referenced Notes pursuant to an effective Registration Statement on Form ___ (File No. 333-_____) filed by the Company. We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied and that the above-named beneficial owner of the Notes is named as a "Selling Holder" in the Prospectus dated ____________, 199_ or in supplements thereto, and that the aggregate principal amount at maturity of the Notes transferred are the Notes listed in such Prospectus opposite such owner's name. Dated: Very truly yours, -------------------------------------------- (Name) By: ----------------------------------------- (Authorized Signature) On behalf of each of the Purchasers EX-10.9 6 CREDIT AGREEMENT 1 Exhibit 10.9 CONFORMED COPY ================================================================================ CREDIT AGREEMENT dated as of June 5, 1998 among THE DUN & BRADSTREET CORPORATION (to be renamed R.H. Donnelley Corporation) R. H. DONNELLEY INC. The Lenders Party Hereto and THE CHASE MANHATTAN BANK, as Administrative Agent --------------------------- CHASE SECURITIES INC., as Arranger --------------------------- GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Arranger and Syndication Agent ================================================================================ 2 TABLE OF CONTENTS PAGE ---- ARTICLE 1 DEFINITIONS SECTION 1.01. Defined Terms.....................................1 SECTION 1.02. Classification of Loans and Borrowings...........24 SECTION 1.03. Terms Generally..................................25 SECTION 1.04. Accounting Terms; GAAP...........................25 ARTICLE 2 THE CREDITS SECTION 2.01. Commitments......................................26 SECTION 2.02. Loans and Borrowings.............................26 SECTION 2.03. Requests for Borrowings..........................27 SECTION 2.04. Swingline Loans..................................28 SECTION 2.05. Funding of Borrowings............................29 SECTION 2.06. Interest Elections...............................30 SECTION 2.07. Termination and Reduction of Commitments.........31 SECTION 2.08. Repayment of Loans; Evidence of Debt.............32 SECTION 2.09. Amortization of Term Loans.......................34 SECTION 2.10. Prepayment of Loans..............................37 SECTION 2.11. Fees.............................................38 SECTION 2.12. Interest.........................................39 SECTION 2.13. Alternate Rate of Interest.......................40 SECTION 2.14. Increased Costs..................................41 SECTION 2.15. Break Funding Payments...........................42 SECTION 2.16. Taxes............................................42 SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs..............................44 SECTION 2.18. Mitigation Obligations; Replacement of Lenders...46 ARTICLE 3 REPRESENTATIONS AND WARRANTIES SECTION 3.01. Organization; Powers.............................47 SECTION 3.02. Authorization; Enforceability....................47 SECTION 3.03. Governmental Approvals; No Conflicts.............47 SECTION 3.04. Financial Condition; No Material Adverse Change..48 i 3 PAGE ---- SECTION 3.05. Properties.......................................50 SECTION 3.06. Litigation and Environmental Matters.............50 SECTION 3.07. Compliance with Laws and Agreements..............51 SECTION 3.08. Investment and Holding Company Status............51 SECTION 3.09. Taxes............................................51 SECTION 3.10. ERISA............................................51 SECTION 3.11. Disclosure.......................................52 SECTION 3.12. Subsidiaries and Joint Ventures..................52 SECTION 3.13. Insurance........................................52 SECTION 3.14. Use of Proceeds..................................52 SECTION 3.15. Solvency.........................................52 SECTION 3.16. Senior Indebtedness..............................53 SECTION 3.17. Security Documents...............................53 SECTION 3.18. Representation and Warranties Related to New D&B and the Spin-off.........................53 ARTICLE 4 CONDITIONS SECTION 4.01. Effective Date...................................54 SECTION 4.02. Each Credit Event................................57 ARTICLE 5 AFFIRMATIVE COVENANTS SECTION 5.01. Financial Statements and Other Information.......58 SECTION 5.02. Notices of Material Events.......................61 SECTION 5.03. Information Regarding Collateral.................61 SECTION 5.04. Existence; Conduct of Business...................62 SECTION 5.05. Payment of Obligations...........................62 SECTION 5.06. Maintenance of Properties........................62 SECTION 5.07. Insurance........................................63 SECTION 5.08. Casualty and Condemnation........................63 SECTION 5.09. Books and Records; Inspection and Audit Rights...63 SECTION 5.10. Compliance with Laws.............................63 SECTION 5.11. Year 2000........................................64 SECTION 5.12. Use of Proceeds..................................64 SECTION 5.13. Subsidiaries.....................................64 SECTION 5.14. Further Assurances...............................65 ii 4 PAGE ---- ARTICLE 6 NEGATIVE COVENANTS SECTION 6.01. Leverage Ratio...................................66 SECTION 6.02. Fixed Charge Coverage Ratio......................66 SECTION 6.03. Indebtedness; Certain Equity Securities..........66 SECTION 6.04. Liens............................................68 SECTION 6.05. Fundamental Changes..............................70 SECTION 6.06. Investments, Loans, Advances, Guarantees and Acquisitions.....................................71 SECTION 6.07. Asset Sales......................................73 SECTION 6.08. Sale and Leaseback Transactions..................74 SECTION 6.09. Hedging Agreements...............................74 SECTION 6.10. Restricted Payments; Certain Payments of Indebtedness.....................................74 SECTION 6.11. Transactions with Affiliates.....................76 SECTION 6.12. Restrictive Agreements...........................77 SECTION 6.13. Amendment of Material Documents..................77 ARTICLE 7 EVENTS OF DEFAULT ARTICLE 8 THE ADMINISTRATIVE AGENT ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices..........................................84 SECTION 9.02. Waivers; Amendments..............................85 SECTION 9.03. Expenses; Indemnity; Damage Waiver...............87 SECTION 9.04. Successors and Assigns...........................88 SECTION 9.05. Survival.........................................91 SECTION 9.06. Counterparts; Effectiveness......................92 SECTION 9.07. Severability.....................................92 SECTION 9.08. Right of Setoff..................................92 SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process...............................92 SECTION 9.10. WAIVER OF JURY TRIAL.............................93 SECTION 9.11. Headings.........................................93 iii 5 PAGE ---- SECTION 9.12. Confidentiality..................................94 EXHIBITS: Exhibit A -- Form of Assignment and Acceptance Exhibit B -- Form of Borrower Security Agreement Exhibit C -- Form of Holdings Collateral Agreement Exhibit D -- Form of Subsidiary Collateral Agreement Exhibit E-1 -- Form of Opinion of New York Counsel for the Loan Parties Exhibit E-2 -- Form of Opinion of Counsel for Holdings Exhibit E-3 -- Form of Opinion of Counsel for the Borrower Exhibit F -- Section 2.16(e) Certificate iv 6 CREDIT AGREEMENT dated as of June 5, 1998 among R. H. DONNELLEY INC., THE DUN & BRADSTREET CORPORATION (to be renamed R.H. Donnelley Corporation), the LENDERS party hereto, and THE CHASE MANHATTAN BANK, as Administrative Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means The Chase Manhattan Bank, in its capacity as administrative agent for the Lenders under the Loan Documents. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Percentage" means, with respect to any Revolving Lender, the percentage of the total Revolving Commitments represented by such Lender's 1 7 Revolving Commitment. If the Revolving Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Revolving Commitments most recently in effect, giving effect to any assignments (assuming, for this purpose, that any assignment by a Revolving Lender of any of its Revolving Exposure is an assignment by such Revolving Lender of an equivalent portion of its Revolving Commitment). "Applicable Rate" means, for any day, (a) with respect to any ABR Loan or Eurodollar Loan that is a Revolving Loan, a Tranche A Term Loan or a Swingline Loan, or with respect to the commitment fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption "ABR Spread", "Eurodollar Spread" or "Commitment Fee Rate", as the case may be, based upon the Leverage Ratio as of the most recent determination date; provided that for any day on or prior to the day which falls six months after the Effective Date, the "Applicable Rate" for purposes of this clause shall be the applicable rate per annum set forth below in Category 3:
Leverage ABR Eurodollar Commitment Ratio Spread Spread Fee Rate - ------------ ---------- ---------- ------------ Category 1 1.00% 2.00% 0.375% Category 2 0.75% 1.75% 0.350% Category 3 0.50% 1.50% 0.300% Category 4 0.25% 1.25% 0.250% - ------------ ---------- ------------- ------------ Category 5 0% 1.00% 0.200% ============ ========== ============= ============
(b) with respect to any ABR Loan or Eurodollar Loan that is a Tranche B Term Loan, the applicable rate per annum set forth below under the caption "ABR Spread" or "Eurodollar Spread", as the case may be, based upon the Leverage Ratio as of the most recent determination date; provided that for any day on or prior to the day which falls six months after the Effective Date, the "Applicable Rate" for purposes of this clause shall be the applicable rate per annum set forth below in Category 3: 2 8
Leverage ABR Spread Eurodollar Spread - ------------ -------------- --------------------- Category 1 1.25% 2.25% Category 2 1.00% 2.00% Category 3 0.75% 1.75% Category 4 0.50% 1.50% - -------------- ----------------- ------------------- Category 5 0.50% 1.50% ============== ================= ===================
and (c) with respect to any ABR Loan or Eurodollar Loan that is a Tranche C Term Loan, the applicable rate per annum set forth below under the caption "ABR Spread" or "Eurodollar Spread", as the case may be, based upon the Leverage Ratio as of the most recent determination date; provided that for any day on or prior to the day which falls six months after the Effective Date, the "Applicable Rate" for purposes of this clause shall be the applicable rate per annum set forth below in Category 3:
Leverage ABR Spread Eurodollar Spread - ------------ -------------- --------------------- Category 1 1.50% 2.50% Category 2 1.25% 2.25% Category 3 1.00% 2.00% Category 4 0.75% 1.75% - ---------------------------------------------------- Category 5 0.75% 1.75% ====================================================
For purposes of the foregoing, (i) the Leverage Ratio shall be determined as of the end of each fiscal quarter of the Borrower's fiscal year based upon the Borrower's consolidated financial statements delivered pursuant to Section 5.01(a) or 5.01(b) and (ii) each change in the Applicable Rate resulting from a change in the Leverage Ratio shall be effective during the period commencing on and including the date of delivery to the Administrative Agent of such consolidated financial statements indicating such change and ending on the date immediately preceding the effective date of the next such change; provided that the Leverage Ratio shall be deemed to be in Category 1 (A) at any time that an Event of Default has occurred and is continuing or (B) at the option of the Administrative Agent or the Required Lenders, if the Borrower fails to deliver the consolidated financial statements required to be delivered by it pursuant to Section 5.01(a) or (b), during the period from the expiration of the time for delivery thereof until such consolidated financial statements are delivered. "Approved Fund" means, with respect to any Lender that is a fund that invests in commercial loans, any other fund that invests in commercial loans and is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. 3 9 "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent. "Basket Amount" means, on any date, an amount equal to the sum of (1) $25,000,000 and (2) 50% of cumulative consolidated net income (including any net losses) of the Borrower and its Consolidated Subsidiaries for the period from and including the first day of the first fiscal quarter commencing on or after the Effective Date to and including the last day of the fiscal quarter most recently ended on or prior to such date, treated as a single accounting period. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means R. H. Donnelley Inc., a Delaware corporation, and its successors. "Borrower Security Agreement" means the Security Agreement dated as of the Effective Date between the Borrower and the Administrative Agent, substantially in the form of Exhibit B, as amended from time to time. "Borrowing" means (a) Loans of the same Class and Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, or (b) a Swingline Loan. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.03 . "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such 4 10 obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Category 1" exists if the Leverage Ratio is greater than or equal to 4.25:1. "Category 2" exists if the Leverage Ratio is greater than or equal to 3.75:1 and less than 4.25:1. "Category 3" exists if the Leverage Ratio is greater than or equal to 3.25:1 and less than 3.75:1. "Category 4" exists if the Leverage Ratio is greater than or equal to 2.75:1 and less than 3.25:1. "Category 5" exists if the Leverage Ratio is less than 2.75:1. "CenDon" means The CenDon Partnership, an Illinois partnership, and its successors. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person other than Holdings of any shares of capital stock of the Borrower; (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of Holdings; (c) occupation of a majority of the seats (other than vacant seats) on the board of directors of Holdings by Persons who were neither (i) nominated by the board of directors of Holdings nor (ii) appointed by directors so nominated; or (d) the acquisition of direct or indirect Control of Holdings by any Person or group. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.14(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving 5 11 Loans, Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans or Swingline Loans and, when used in reference to any Commitment, refers to whether such Commitment is a Revolving Commitment, Tranche A Commitment, Tranche B Commitment or Tranche C Commitment. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral" means any and all "Collateral", as defined in any applicable Security Document. "Commitment" means a Revolving Commitment, Tranche A Commitment, Tranche B Commitment or Tranche C Commitment, or any combination thereof (as the context requires). "Consolidated Capital Expenditures" means, for any period, (a) the additions to property, plant and equipment and other capital expenditures of the Borrower and its consolidated Subsidiaries that are (or would be) set forth under the caption "Cash Flow from Investing Activities" or a comparable caption in a consolidated statement of cash flows of the Borrower for such period prepared in accordance with GAAP and (b) Capital Lease Obligations incurred by the Borrower and its consolidated Subsidiaries during such period. "Consolidated Cash Interest Expense" for any period means Consolidated Interest Expense for such period minus (a) in each case to the extent included in determining such Consolidated Interest Expense for such period, the sum of the following: (i) non-cash expenses for interest payable in kind and (ii) amortization of debt discount and fees plus (b) to the extent subtracted pursuant to clause (a) of this definition for any prior period, cash payments made during such period in respect of the items referred to in clause (a)(i). "Consolidated EBITDA" means, for any period, the sum of: (1) consolidated net income of the Borrower and its Consolidated Subsidiaries for such period (exclusive of the portion of net income allocable to minority interests in unconsolidated Persons (including without limitation any Material Joint Venture) to the extent that cash distributions have not actually been received from such Persons), plus (2) to the extent deducted in determining such consolidated net income, the aggregate amount of (i) Consolidated Interest Expense, (ii) income tax expense and (iii) depreciation and amortization (including without limitation amortization of debt issuance costs); minus 6 12 (3) any Restricted Payment made by Borrower to Holdings during such period in reliance on clause (iv) of Section 6.10; provided that: (x) "Consolidated EBITDA" for any period will in any event include 100% of the cash distributions to the Borrower or any Consolidated Subsidiary from any Material Joint Venture to the extent not otherwise included in Consolidated EBITDA; (y) "Consolidated EBITDA" for any fiscal quarter ended prior to June 30, 1998 shall be determined on the basis of the pro forma statements of operations of the Borrower set forth on Schedule 1 and "Consolidated EBITDA" for any other fiscal quarter ended prior to the Spin-off Date or during which the Spin-off Date occurs shall be determined on the basis of the financial statements for such fiscal quarter delivered by the Borrower to the Lenders pursuant to Section 5.01(a) or (b) and prepared in accordance therewith; and (z) solely for purposes of calculating the Leverage Ratio, "Consolidated EBITDA" for any period in which the Borrower or any of its Consolidated Subsidiaries shall have consummated a Permitted Acquisition or a sale, transfer or other disposition of assets (other than any such disposition permitted by clauses (i) or (ii) of Section 6.07) shall be calculated on a pro forma basis as if such Permitted Acquisition or disposition of assets had occurred on the first day of such period. Nothing in this clause (z) shall be construed to affect any limitation on the consummation of Permitted Acquisitions or the sale, transfer or other disposition of any assets by the Borrower and its Subsidiaries imposed by Article VI. "Consolidated Interest Expense" means, for any period, the interest expense of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis for such period, including in any event the interest portion of payments under Capital Lease Obligations. "Consolidated Subsidiary"means, at any date, any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "Consolidated Total Debt" means, at any date, the Indebtedness of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. 7 13 "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in the Information Memorandum, the Offering Circular or Schedule 3.06. "Distribution Agreement" means the Distribution Agreement between Holdings and New D&B, substantially in the form provided to the Lenders on June 2, 1998, as amended from time to time in accordance with Section 6.13. "dollars" or "$" refers to lawful money of the United States of America. "DonTech I" means Am-Don Partnership, an Illinois partnership, and its successors. "DonTech II" means DonTech II, an Illinois partnership, and its successors. "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02). "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of Holdings, the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any 8 14 contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article 7. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender, or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its 9 15 principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.18(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.16(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.16(e). "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "Financing Transactions" means (a) the execution, delivery and performance by each Loan Party of the Loan Documents to which it is to be a party, the borrowing of Loans and the use of the proceeds thereof and (b) the execution, delivery and performance by each Loan Party of the Subordinated Debt Documents to which it is to be a party, the issuance of the Subordinated Debt and the use of the proceeds thereof. "Fixed Charge Coverage Ratio" means, at the last day of any fiscal quarter, the ratio of (i) Consolidated EBITDA for the period of four consecutive fiscal quarters then ended to (ii) the sum of (A) Consolidated Cash Interest Expense for such period plus (B) Consolidated Capital Expenditures for such period plus (C) income tax expense of the Borrower and its Consolidated Subsidiaries for such period plus (D) dividends paid or payable (without duplication) by the Borrower during such period plus (E) the aggregate principal amount of long term Indebtedness of the Borrower and its Consolidated Subsidiaries scheduled to be amortized during such period minus (F) any Restricted Payment made by Borrower to Holdings in reliance on clause (iv) of Section 6.10 during such 10 16 period. The "Fixed Charge Coverage Ratio" for any fiscal quarter ended prior to June 30, 1998 shall be determined on the basis of the pro forma financial statements of the Borrower set forth on Schedule 1 and the "Fixed Charge Coverage Ratio" for any other fiscal quarter ended prior to the Spin-off Date or during which the Spin-off Date occurs shall be determined on the basis of the financial statements for such fiscal quarter delivered by the Borrower to the Lenders pursuant to Section 5.01(a) or (b) and prepared in accordance therewith. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "Foreign Subsidiary" means any Subsidiary that is organized under the laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. 11 17 "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Holdings" means The Dun & Bradstreet Corporation, a Delaware corporation (which will be renamed R. H. Donnelley Corporation before or immediately after the consummation of the Spin-off), and its successors. "Holdings Collateral Agreement" means the Guarantee and Collateral Agreement dated as of the Effective Date between Holdings and the Administrative Agent, substantially in the form of Exhibit C, as amended from time to time. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any Material Joint Venture or other partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity (including by virtue of any partnership agreement), except to the extent the terms of such Indebtedness provide that such Person is not liable therefor; provided that, for purposes of the definition of "Consolidated Total Debt", the Indebtedness of the Borrower and its Consolidated Subsidiaries shall 12 18 include only a percentage of the Indebtedness of any Material Joint Venture or other partnership equal to the percentage interest in such Material Joint Venture held by the Borrower and its Consolidated Subsidiaries, so long as the long term unsecured debt securities of each other partner in such Material Joint Venture (or any entity which holds, directly or indirectly, 100% of the equity interests of such partner) are rated at least BBB- by S&P and Baa3 by Moody's. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Information Memorandum" means the Confidential Information Memorandum dated May 1998 relating to Holdings, the Borrower and the Transactions. "Information Statement" means the Information Statement of Holdings and New D&B dated May __, 1998. "Interest Election Request" means a request by the Borrower to convert or continue a Revolving Borrowing or Term Borrowing in accordance with Section 2.06. "Interest Payment Date" means (a) with respect to any ABR Loan (other than a Swingline Loan), the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period, and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid. "Interest Period" means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially 13 19 shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "IRS Ruling" has the meaning set forth in Section 4.01(i). "Lenders" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. Unless the context otherwise requires, the term "Lenders" includes the Swingline Lender. "Leverage Ratio" means, on any date, the ratio of (i) Consolidated Total Debt at such date to (ii) Consolidated EBITDA for the period of four consecutive fiscal quarters ended on or most recently prior to such date. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" means this Agreement and the Security Documents. 14 20 "Loan Parties" means Holdings, the Borrower and the Subsidiary Loan Parties. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of Holdings, the Borrower and the Subsidiaries taken as a whole, or of the Material Joint Ventures, taken as a whole, (b) the ability of any Loan Party to perform any of its obligations under any Loan Document or (c) the rights of or benefits available to the Lenders or the Administrative Agent under any Loan Document. "Material Agreements" means (i) the Partnership Agreement dated as of August 19, 1997 between the Borrower and Ameritech Publishing of Illinois, Inc. with respect to DonTech II, (ii) the Revenue Participation Agreement dated as of August 19, 1997 between the Borrower and the APIL Partners Partnership, (iii) the Partnership Agreement dated as of May 5, 1988 between the Borrower and Centel Directory Company, with respect to CenDon, (iv) the Directory Services Agreement dated September 5, 1985 between NYNEX Information Resources Company and Donnelley Directory, a division of the Borrower and (v) the Indemnity and Joint Defense Agreement dated as of October 28, 1996, among AC Nielsen Corporation, Holdings and Cognizant Corporation, as amended by the side letter dated December 10, 1996, from AC Nielsen Corporation and confirmed and agreed by Holdings and Cognizant Corporation, in each case as amended, revised or replaced from time to time in accordance with Section 6.13. "Material Indebtedness" means Indebtedness (other than the Loans), or obligations in respect of one or more Hedging Agreements, of any one or more of Holdings, the Borrower and its Subsidiaries in an aggregate principal amount exceeding $5,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of Holdings, the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that Holdings, the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Material Joint Ventures" means (i) DonTech II and (ii) CenDon and, for the purpose of the definition of "Consolidated EBITDA", DonTech I. "Moody's" means Moody's Investors Service, Inc., and its successors. 15 21 "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Proceeds" means, with respect to any Prepayment Event (a) the cash proceeds received in respect of such event including (i) any cash received in respect of any non-cash proceeds, but only as and when received, (ii) in the case of a casualty, insurance proceeds, and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments, net of (b) the sum of (i) all reasonable fees and out-of-pocket expenses paid by Holdings, the Borrower and the Subsidiaries to third parties (other than Affiliates) in connection with such event, (ii) the amount of all payments required to be made by Holdings, the Borrower and the Subsidiaries as a result of such event to repay Indebtedness (other than Loans and the Subordinated Debt) secured by such asset or otherwise subject to mandatory prepayment as a result of such event, and (iii) the amount of all taxes paid (or reasonably estimated to be payable) by Holdings, the Borrower and the Subsidiaries, and the amount of any reserves established by Holdings, the Borrower and the Subsidiaries to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding year and that are directly attributable to such event (as determined reasonably and in good faith by the chief financial officer of the Borrower). "New D&B" means The New Dun & Bradstreet Corporation, a Delaware corporation (which will be renamed The Dun & Bradstreet Corporation before or immediately after the consummation of the Spin-off), and its successors. "Obligations" means all obligations of the Loan Parties under the Loan Documents. "Offering Circular" means the Confidential Offering Circular dated June 3, 1998 relating to Holdings, the Borrower and the Transactions. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Acquisition" means any acquisition, whether in a single transaction or series of related transactions, by the Borrower or any one or more Subsidiaries, or any combination thereof, of all or a substantial part of the assets, 16 22 or a going concern business or division, of any Person, whether through purchase of assets or securities, by merger or otherwise; provided that: (w) both before and immediately after giving effect to such acquisition, no Default shall have occurred and be continuing; (x) the Person whose assets, securities or equity interests are being acquired is engaged in the same line of business activity as the Borrower and its Subsidiaries and businesses reasonably related thereto in compliance with Section 6.05; (y) immediately after giving effect to such acquisition, the Borrower shall be in compliance with the ratios set forth in Sections 6.01 and 6.02, respectively, opposite the period in which the date of proposed consummation of such acquisition falls (the "Transaction Date") (and, for purposes of determining such compliance, "Consolidated EBITDA" and the "Fixed Charge Coverage Ratio" shall each be as in effect on the last day of the fiscal quarter most recently ended on or prior to such Transaction Date and adjusted to give effect to the proposed acquisition as if it had occurred on the first day of the relevant period for testing compliance and "Consolidated Total Debt" shall be as in effect on such Transaction Date and assuming the proposed acquisition has been consummated); and (z) if immediately after giving effect to such acquisition, the Borrower shall have any additional Subsidiaries, the Borrower shall have complied, and shall have caused such additional Subsidiaries to have complied, with the provision of Section 5.13 with respect thereto. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.05; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.05; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; 17 23 (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article 7; and (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Permitted Investments" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above. 18 24 "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prepayment Event" means: (a) any sale, transfer or other disposition (including pursuant to a sale and leaseback transaction) of any property or asset of the Borrower or any Subsidiary or Holdings, other than (i) dispositions described in clauses (i), (ii), (iii) and (iv) of Section 6.07 and (ii) other dispositions resulting in aggregate Net Proceeds not exceeding $5,000,000 during any fiscal year of the Borrower; or (b) any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Borrower or any Subsidiary or Holdings, other than any such damage to, or taking of, any property or asset the Net Proceeds of which do not exceed in the aggregate $20,000,000; provided that any transaction not otherwise excluded from the definition of "Prepayment Event" shall not constitute a "Prepayment Event" if the Net Proceeds therefrom have been reinvested by the Borrower and its Subsidiaries within 360 days after receipt thereof (and, to the extent such Net Proceeds are not so invested within such period, such transaction shall constitute a "Prepayment Event" on the first day after such period, and the Net Proceeds with respect thereto shall be equal to the amount of such Net Proceeds not so invested during such period.) "Prime Rate" means the rate of interest per annum publicly announced from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Register" has the meaning set forth in Section 9.04(c). 19 25 "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Revolving Exposures, Term Loans and unused Commitments representing more than 50% of the sum of the total Revolving Exposures, outstanding Term Loans and unused Commitments at such time. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock or other equity interests of Holdings, the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property) in respect of any shares of any class of capital stock or other equity interests of Holdings, the Borrower or any Subsidiary, including any sinking fund or similar deposit or any payment on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock or other equity interests or any option, warrant or other right to acquire any such shares of capital stock or other equity interests. "Revolving Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Revolving Maturity Date and the date of termination of the Revolving Commitments. "Revolving Commitment" means, with respect to each Lender, the commitment, if any, of such Lender to make Revolving Loans and to acquire participations in Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Revolving Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. The initial aggregate amount of the Lenders' Revolving Commitments is $100,000,000. "Revolving Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans and Swingline Exposure at such time. "Revolving Lender" means a Lender with a Revolving Commitment or, if the Revolving Commitments have terminated or expired, a Lender with Revolving Exposure. 20 26 "Revolving Loan" means a Loan made pursuant to clause (d) of Section 2.01. "Revolving Maturity Date" means June 5, 2004 (or, if such day is not a Business Day, the immediately succeeding Business Day). "S&P" means Standard & Poor's Ratings Group and its successors. "Security Documents" means the Borrower Security Agreement, the Holdings Collateral Agreement, the Subsidiary Collateral Agreement and each other security agreement, pledge agreement, mortgage or other instrument or document executed and delivered pursuant to Section 5.13 or 5.14 to secure any of the Obligations. "Spin-off" means all of the transactions contemplated by the Information Statement and Article 2 of the Distribution Agreement to be consummated on or prior to the Distribution Date (as defined therein), including without limitation (i) the transfer by Holdings to New D&B of all of Holdings' and its subsidiaries' right, title and interest in the New D&B Assets (as defined in the Distribution Agreement), (ii) the transfer by New D&B and its subsidiaries to Holdings, the Borrower and its Subsidiaries of all of New D&B's and its subsidiaries' right, title and interest in the RHD Assets (as defined in the Distribution Agreement), (iii) the execution and delivery of each Spin-off Document by each party thereto, and (iv) the Distribution (as defined in the Distribution Agreement). "Spin-off Date" means the date of consummation of the Spin-off. "Spin-off Documents" means (i) the Information Statement, (ii) the Distribution Agreement and (iii) each Ancillary Agreement (as defined in the Distribution Agreement), in the case of the documents described in clauses (ii) and (iii), substantially in the form provided to the Lenders on June 2, 1998 and as amended from time to time in accordance with Section 6.13. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be 21 27 available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subordinated Debt" means the Senior Subordinated Notes Due 2008 to be issued by the Borrower on or prior to the Effective Date in the aggregate principal amount of $150,000,000 and the Indebtedness represented thereby. "Subordinated Debt Documents" means the indenture under which the Subordinated Debt is issued and all other instruments, agreements and other documents evidencing or governing the Subordinated Debt or providing for any Guarantee or other right in respect thereof, as amended from time to time in accordance with Section 6.13. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, Controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any subsidiary of the Borrower. "Subsidiary Collateral Agreement" means the Subsidiary Guarantee and Collateral Agreement dated as of the Effective Date among the Subsidiary Loan Parties and the Administrative Agent substantially in the form of Exhibit D, as amended from time to time. "Subsidiary Loan Party" means any Subsidiary that is not a Foreign Subsidiary. "Swingline Exposure" means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be its Applicable Percentage of the total Swingline Exposure at such time. 22 28 "Swingline Lender" means The Chase Manhattan Bank, in its capacity as lender of Swingline Loans hereunder. "Swingline Loan" means a Loan made pursuant to Section 2.04. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Term Loans" means Tranche A Term Loans, Tranche B Term Loans and Tranche C Term Loans. "Tranche A Commitment" means, with respect to each Lender, the commitment, if any, of such Lender to make a Tranche A Term Loan hereunder on the Effective Date, expressed as an amount representing the maximum principal amount of the Tranche A Term Loan to be made by such Lender hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Tranche A Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Tranche A Commitment, as applicable. The initial aggregate amount of the Lenders' Tranche A Commitments is $75,000,000. "Tranche A Lender" means a Lender with a Tranche A Commitment or an outstanding Tranche A Term Loan. "Tranche A Maturity Date" means June 5, 2004 (or, if such day is not a Business Day, the immediately succeeding Business Day). "Tranche A Term Loan" means a Loan made pursuant to clause (a) of Section 2.01. "Tranche B Commitment" means, with respect to each Lender, the commitment, if any, of such Lender to make a Tranche B Term Loan hereunder on the Effective Date, expressed as an amount representing the maximum principal amount of the Tranche B Term Loan to be made by such Lender hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Tranche B Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Tranche B Commitment, as applicable. The initial aggregate amount of the Lenders' Tranche B Commitments is $125,000,000. 23 29 "Tranche B Lender" means a Lender with a Tranche B Commitment or an outstanding Tranche B Term Loan. "Tranche B Maturity Date" means December 5, 2005 (or, if such day is not a Business Day, the immediately succeeding Business Day). "Tranche B Term Loan" means a Loan made pursuant to clause (b) of Section 2.01. "Tranche C Commitment" means, with respect to each Lender, the commitment, if any, of such Lender to make a Tranche C Term Loan hereunder on the Effective Date, expressed as an amount representing the maximum principal amount of the Tranche C Term Loan to be made by such Lender hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Tranche C Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Tranche C Commitment, as applicable. The initial aggregate amount of the Lenders' Tranche C Commitments is $100,000,000. "Tranche C Lender" means a Lender with a Tranche C Commitment or an outstanding Tranche C Term Loan. "Tranche C Maturity Date" means December 5, 2006 (or, if such day is not a Business Day, the immediately succeeding Business Day). "Tranche C Term Loan" means a Loan made pursuant to clause (c) of Section 2.01. "Transactions" means the Spin-off and the Financing Transactions. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a 24 30 "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing"). SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. 25 31 ARTICLE 2 THE CREDITS SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees (a) to make a Tranche A Term Loan to the Borrower on the Effective Date in a principal amount not exceeding its Tranche A Commitment, (b) to make a Tranche B Term Loan to the Borrower on the Effective Date in a principal amount not exceeding its Tranche B Commitment, (c) to make a Tranche C Term Loan to the Borrower on the Effective Date in a principal amount not exceeding its Tranche C Commitment, and (d) to make Revolving Loans to the Borrower from time to time during the Revolving Availability Period in an aggregate principal amount that will not result in such Lender's Revolving Exposure exceeding such Lender's Revolving Commitment. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Amounts repaid in respect of Term Loans may not be reborrowed. SECTION 2.02. Loans and Borrowings.Each Loan (other than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Lenders ratably in accordance with their respective Commitments of the applicable Class. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.13, each Revolving Borrowing and Term Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Swingline Loan shall be an ABR Loan. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. Each Swingline Loan shall be in an amount that is an integral multiple of $50,000 and not less than $250,000. Borrowings of more than one Type and Class may be outstanding 26 32 at the same time; provided that there shall not at any time be more than a total of five Eurodollar Borrowings in each Class outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Revolving Maturity Date, Tranche A Maturity Date, Tranche B Maturity Date or Tranche C Maturity Date, as applicable. SECTION 2.03. Requests for Borrowings. To request a Revolving Borrowing or Term Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) whether the requested Borrowing is to be a Revolving Borrowing, Tranche A Term Borrowing, Tranche B Term Borrowing or Tranche C Term Borrowing; (ii) the aggregate amount of such Borrowing; (iii) the date of such Borrowing, which shall be a Business Day; (iv) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (v) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (vi) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with 27 33 respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Swingline Loans. (a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Borrower from time to time during the Revolving Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $10,000,000 or (ii) the sum of the total Revolving Exposures exceeding the total Revolving Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans. (b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by telephone (confirmed by telecopy), not later than 12:00 noon, New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to the general deposit account of the Borrower with the Swingline Lender by 3:00 p.m., New York City time, on the requested date of such Swingline Loan. (c) The Swingline Lender may by written notice given to the Administrative Agent not later than 10:00 a.m., New York City time, on any Business Day require the Revolving Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Revolving Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Revolving Lender, specifying in such notice such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default 28 34 or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Revolving Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Revolving Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Revolving Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof. SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders; provided that Swingline Loans shall be made as provided in Section 2.04. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) 29 35 in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.06. Interest Elections. (a) Each Revolving Borrowing and Term Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02 and paragraph (f) of this Section: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; 30 36 (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. (f) A Borrowing of any Class may not be converted to or continued as a Eurodollar Borrowing if after giving effect thereto (i) the Interest Period therefor would commence before and end after a date on which any principal of the Loans of such Class is scheduled to be repaid and (ii) the sum of the aggregate principal amount of outstanding Eurodollar Borrowings of such Class with Interest Periods ending on or prior to such scheduled repayment date plus the aggregate principal amount of outstanding ABR Borrowings of such Class would be less than the aggregate principal amount of Loans of such Class required to be repaid on such scheduled repayment date. SECTION 2.07. Termination and Reduction of Commitments. (a) Unless previously terminated, (i) the Tranche A Commitments, Tranche B Commitments and Tranche C Commitments shall terminate at 3:00 p.m., New York City time, on the earlier of (x) July 15, 1998 and (y) the date of the first Borrowing 31 37 hereunder and (ii) the Revolving Commitments shall terminate on the Revolving Maturity Date. (b) In the event and on each occasion that any Net Proceeds are received by or on behalf of the Borrower or any Subsidiary or Holdings in respect of any Prepayment Event, the Revolving Commitments shall be immediately and permanently reduced by an amount (if any) equal to the amount of such Net Proceeds minus the portion of such amount required to be applied to repay the Term Borrowings in accordance with Section 2.10(b); provided that after giving effect to any such reduction pursuant to this subsection (b), the Revolving Commitments shall not be less than $50,000,000. (c) The Borrower may at any time terminate, or from time to time reduce, the Commitments of any Class; provided that (i) each reduction of the Commitments of any Class shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.10, the sum of the Revolving Exposures would exceed the total Revolving Commitments. (d) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (c) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Revolving Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments of any Class shall be permanent. Each reduction of the Commitments of any Class shall be made ratably among the Lenders in accordance with their respective Commitments of such Class. SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Maturity Date, (ii) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Term Loan of such Lender as provided in Section 2.09 and (iii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Revolving Maturity Date and the first date after such Swingline Loan is made that 32 38 is the 15th or last day of a calendar month and is at least two Business Days after such Swingline Loan is made. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans of any Class made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). 33 39 Section 2.09. Amortization of Term Loans. (a) Subject to adjustment pursuant to paragraph (d) of this Section, the Borrower shall repay Tranche A Term Borrowings on each date set forth below in the aggregate principal amount set forth opposite such date:
---------------------------------------------------- Date Amount ----- ------ 9/30/99 $ 937,500 12/31/99 $ 937,500 3/31/00 $ 937,500 6/30/00 $ 937,500 9/30/00 $2,812,500 12/31/00 $2,812,500 3/31/01 $2,812,500 6/30/01 $2,812,500 9/30/01 $3,750,000 12/31/01 $3,750,000 3/31/02 $3,750,000 6/30/02 $3,750,000 9/30/02 $4,687,500 12/31/02 $4,687,500 3/31/03 $4,687,500 6/30/03 $4,687,500 9/30/03 $6,562,500 12/31/03 $6,562,500 3/31/04 $6,562,500 Tranche A $6,562,500 Maturity Date ----------------------------------------------------
34 40 (b) Subject to adjustment pursuant to paragraph (d) of this Section, the Borrower shall repay Tranche B Term Borrowings on each date set forth below in the aggregate principal amount set forth opposite such date:
---------------------------------------------------- Date Amount ----- ------ 9/30/98 $ 312,500 12/31/98 $ 312,500 3/31/99 $ 312,500 6/30/99 $ 312,500 9/30/99 $ 312,500 12/31/99 $ 312,500 3/31/00 $ 312,500 6/30/00 $ 312,500 9/30/00 $ 312,500 12/31/00 $ 312,500 3/31/01 $ 312,500 6/30/01 $ 312,500 9/30/01 $ 312,500 12/31/01 $ 312,500 3/31/02 $ 312,500 6/30/02 $ 312,500 9/30/02 $ 312,500 12/31/02 $ 312,500 3/31/03 $ 312,500 6/30/03 $ 312,500 9/30/03 $ 312,500 12/31/03 $ 312,500 3/31/04 $ 312,500 6/30/04 $ 312,500 9/30/04 $ 9,375,000 12/31/04 $ 9,375,000 3/31/05 $ 9,375,000 6/30/05 $ 9,375,000 9/30/05 $40,000,000 Tranche B $40,000,000 Maturity Date ----------------------------------------------------
35 41 (c) Subject to adjustment pursuant to paragraph (d) of this Section, the Borrower shall repay Tranche C Term Borrowings on each date set forth below in the aggregate principal amount set forth opposite such date:
---------------------------------------------------- Date Amount ----- ------ 9/30/98 $ 250,000 12/31/98 $ 250,000 3/31/99 $ 250,000 6/30/99 $ 250,000 9/30/99 $ 250,000 12/31/99 $ 250,000 3/31/00 $ 250,000 6/30/00 $ 250,000 9/30/00 $ 250,000 12/31/00 $ 250,000 3/31/01 $ 250,000 6/30/01 $ 250,000 9/30/01 $ 250,000 12/31/01 $ 250,000 3/31/02 $ 250,000 6/30/02 $ 250,000 9/30/02 $ 250,000 12/31/02 $ 250,000 3/31/03 $ 250,000 6/30/03 $ 250,000 9/30/03 $ 250,000 12/31/03 $ 250,000 3/31/04 $ 250,000 6/30/04 $ 250,000 9/30/04 $ 250,000 12/31/04 $ 250,000 3/31/05 $ 250,000 6/30/05 $ 250,000 9/30/05 $ 250,000 12/31/05 $ 250,000 3/31/06 $ 250,000 6/30/06 $ 250,000 9/30/06 $46,000,000 Tranche C $46,000,000 Maturity Date ----------------------------------------------------
36 42 (d) If the initial aggregate amount of the Lenders' Term Commitments of any Class exceeds the aggregate principal amount of Term Loans of such Class that are made on the Effective Date, then the scheduled repayments of Term Borrowings of such Class to be made pursuant to this Section shall be reduced ratably by an aggregate amount equal to such excess. Any prepayment of a Term Borrowing of any Class shall be applied to reduce the subsequent scheduled repayments of the Term Borrowings of such Class to be made pursuant to this Section (i) in the case of a prepayment made pursuant to Section 2.10(a), first, to reduce scheduled repayments of the Term Borrowings of such Class due in the 365-day period immediately following the day such prepayment is made (until all such scheduled repayments have been reduced to zero) and thereafter, ratably and (ii) in the case of a prepayment made pursuant to Section 2.10(b), ratably. (e) Prior to any repayment of any Term Borrowings of any Class hereunder, the Borrower shall select the Borrowing or Borrowings of the applicable Class to be repaid and shall notify the Administrative Agent by telephone (confirmed by telecopy) of such selection not later than 11:00 a.m., New York City time, three Business Days before the scheduled date of such repayment. Each repayment of a Borrowing shall be applied ratably to the Loans included in the repaid Borrowing. Repayments of Term Borrowings shall be accompanied by accrued interest on the amount repaid. Section 2.10. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to the requirements of this Section. (b) In the event and on each occasion that any Net Proceeds are received by or on behalf of the Borrower or any Subsidiary or Holdings in respect of any Prepayment Event, the Borrower shall, within three Business Days after such Net Proceeds are received, prepay Term Borrowings in an aggregate amount equal to such Net Proceeds. (c) If on any date the Revolving Commitments are permanently reduced pursuant to Section 2.07(b), then, on such date, the Borrower shall prepay Revolving Borrowings and/or Swingline Loans in an aggregate amount equal to the amount (if any) by which the sum of the Revolving Exposures exceed the Revolving Commitments as then reduced. (d) Prior to any optional or mandatory prepayment of Borrowings hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid and shall specify such selection in the notice of such prepayment pursuant to paragraph (e) of this Section. In the event of any optional or mandatory prepayment of Term Borrowings made at a time when Term Borrowings of more 37 43 than one Class remain outstanding, the Borrower shall select Term Borrowings to be prepaid so that the aggregate amount of such prepayment is allocated between the Term Borrowings of each Class then outstanding pro rata based on the aggregate principal amount of outstanding Borrowings of each such Class; provided that any Tranche B Lender or Tranche C Lender may elect, by notice to the Administrative Agent by telephone (confirmed by telecopy) at least one Business Day prior to the prepayment date, to decline all or any portion of any prepayment of its Tranche B Term Borrowings or Tranche C Term Borrowings, as the case may be, pursuant to paragraph (b) of this Section, in which case the aggregate amount of the prepayment that would have been applied to prepay Tranche B Term Borrowings or Tranche C Term Borrowings, as the case may be, but was so declined shall be applied to prepay Tranche A Term Borrowings then outstanding. (e) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, the principal amount of each Borrowing or portion thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably detailed calculation of the amount of such prepayment; provided that, if a notice of optional prepayment is given in connection with a conditional notice of termination of the Revolving Commitments as contemplated by Section 2.07, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.07. Promptly following receipt of any such notice (other than a notice relating solely to Swingline Loans), the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02, except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.12 and, to the extent applicable, amounts required to be paid by Section 2.15. Section 2.11. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Rate on the average daily unused amount of each 38 44 Commitment of such Lender during the period from and including the Effective Date to but excluding the date on which such Commitment terminates. Accrued commitment fees shall be payable in arrears (i) in the case of commitment fees in respect of the Revolving Commitments, on the last day of March, June, September and December of each year and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the date hereof, and (ii) in the case of commitment fees in respect of the Term Commitments of any Class, on the date on which such Commitments terminate. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For purposes of computing commitment fees with respect to Revolving Commitments, a Revolving Commitment of a Lender shall be deemed to be used to the extent of the outstanding Revolving Loans of such Lender (and the Swingline Exposure of such Lender shall be disregarded for such purpose). (b) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (c) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of commitment fees, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances. Section 2.12. Interest. (a) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the Alternate Base Rate plus the Applicable Rate. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Revolving Loans as provided in paragraph (a) of this Section. 39 45 (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Revolving Commitments; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Revolving Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. Section 2.13. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. 40 46 Section 2.14. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by, such Lender, to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions 41 47 and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. Section 2.15. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan or Term Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.10(e) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.18, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. Section 2.16. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full 42 48 amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Each Foreign Lender, or any estate or trust that is subject to federal income taxation regardless of the source of its income (each, a "Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent (or, in the case of a participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest" a statement substantially in the form of Exhibit F and a Form W-8, or any subsequent versions thereof or successors thereto properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation), In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or 43 49 invalidity of any form previously delivered by such Non-U.S. Lender. Each Non- U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this Section, a Non- U.S. Lender shall not be required to deliver any form pursuant to this Section that such Non-U.S. Lender is not legally able to deliver. Section 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set- offs. (a) The Borrower shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest or fees, or of amounts payable under Section 2.14, 2.15, 2.16 or 9.03, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except payments to be made directly to the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.14, 2.15, 2.16 and 9.03 shall be made directly to the Persons entitled thereto and payments pursuant to other Loan Documents shall be made to the Persons specified therein. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment under any Loan Document shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments under each Loan Document shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans, Term Loans or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its 44 50 Revolving Loans, Term Loans and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans, Term Loans and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans, Term Loans and Swingline Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(c), 2.05(b), 2.17(d) or 9.03(c), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. 45 51 Section 2.18. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Revolving Commitment is being assigned, the Swingline Lender), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. 46 52 ARTICLE 3 Representations and Warranties Each of Holdings and the Borrower represents and warrants to the Lenders that: Section 3.01. Organization; Powers. Each of Holdings, the Borrower and its Subsidiaries and each Material Joint Venture is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and as proposed to be conducted on or after the Spin-off Date and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. Section 3.02. Authorization; Enforceability. The Transactions to be entered into by each Loan Party are within such Loan Party's corporate powers and have been duly authorized by all necessary corporate and stockholder action. This Agreement has been duly executed and delivered by each of Holdings and the Borrower and constitutes, and each other Loan Document to which any Loan Party is to be a party, when executed and delivered by such Loan Party, will constitute, a legal, valid and binding obligation of Holdings, the Borrower or such Loan Party (as the case may be), enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. Each Spin-off Document to which any Loan Party is to be a party, when executed and delivered by such Loan Party, will constitute a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. Section 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except for the filing of a Form 10 by Holdings and New D&B with the Securities and Exchange Commission, the filing of a Form 8-K by Holdings with the Securities and Exchange Commission, the filing by Holdings and the Borrower with and declaration of effectiveness of a registration statement by the Securities and Exchange Commission relating to an exchange offer of the Subordinated Debt, the filing of UCC-1 financing statements necessary to perfect the Liens created under the Security Documents, 47 53 each of which has been made and is in full force and effect, and certain filings and approvals relating to the Spin-off with respect to the transfer of assets and stock of non-United States entities and to the transfer of licenses related to the collection agency business, the failure of which to make or obtain could not reasonably be expected to result in a Material Adverse Effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of Holdings, the Borrower or any of its Subsidiaries or any Material Joint Venture or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding upon Holdings, the Borrower or any of its Subsidiaries or any Material Joint Venture or its assets, or give rise to a right thereunder to require any payment to be made by Holdings, the Borrower or any of its Subsidiaries or any Material Joint Venture, and (d) will not result in the creation or imposition of any Lien on any asset of Holdings, the Borrower or any of its Subsidiaries or any Material Joint Venture, except Liens created under the Security Documents. Section 3.04. Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal years ended December 31, 1996 and December 31, 1997, each reported on by Coopers & Lybrand L.L.P., independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended March 31, 1998, certified by a Financial Officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. (b) The Borrower has heretofore furnished to the Lenders (i) its unaudited pro forma condensed balance sheet and unaudited pro forma condensed statement of operations, each prepared giving effect to the Transactions as if the Transactions had occurred on December 31, 1997, in the case of such balance sheet and January 1, 1997, in the case of such statement of operations and (ii) its unaudited pro forma combined balance sheet and unaudited pro forma condensed statement of operations, each prepared giving effect to the Transactions as if the Transactions had occurred on March 31, 1998, in the case of such balance sheet and January 1, 1998, in the case of such statement of operations. Such pro forma financial statements (i) have been prepared in good faith based on the same assumptions used to prepare the pro forma financial statements included in the Information Memorandum (which assumptions are believed by Holdings and the Borrower to be reasonable), (ii) are based on the best information available to Holdings and the Borrower after due inquiry, (iii) accurately reflect all 48 54 adjustments necessary to give effect to the Transactions and (iv) present fairly, in all material respects (x) in the case of such pro forma balance sheets, the financial position of the Borrower and its consolidated Subsidiaries as of December 31, 1997 and March 31, 1998, respectively (as if the Transactions had occurred on such dates) and (y) in the case of such pro forma statements of operations, the results of operations of the Borrower and its consolidated Subsidiaries for the fiscal year ended December 31, 1997 (as if the Transactions had occurred on January 1, 1997) and for the fiscal quarter ended March 31, 1998 (as if the Transactions had occurred on January 1, 1998), respectively. (c) The Borrower has heretofore furnished to the Lenders (i) the audited combined balance sheets of DonTech I and DonTech II and the audited balance sheet of CenDon as of the fiscal years ended December 31, 1996 and December 31, 1997, in each case reported on by Coopers & Lybrand L.L.P., independent public accountants, (ii) the audited combined statements of operations, partners' capital and cash flows for DonTech I and DonTech II and the audited statements of operations and cash flows for CenDon for each of the fiscal years ended December 31, 1995, December 31, 1996 and December 31, 1997, in each case reported on by Coopers & Lybrand L.L.P., independent public accountants, and (iii) the unaudited balance sheet of each of DonTech I and DonTech II as of the fiscal quarter ended March 31, 1998 and their respective statements of operations, partners' capital and cash flows for the fiscal quarter and the portion of the fiscal year then ended, certified by a Financial Officer. Such financial statements present fairly, in all material respects, (x) in the case of the financial statements described in clause (i), the combined financial position of DonTech I and DonTech II and the financial position of CenDon as of December 31, 1996 and December 31, 1997, respectively, (y) in the case of the financial statements described in clause (ii), the combined statements of operations of DonTech I and DonTech II and their combined cash flows and the statement of operations and cash flows of CenDon for each of the fiscal years in the three year period ended December 31, 1997 and (z) in the case of the financial statements described in clause (iii), the financial position of each of DonTech I and DonTech II, respectively, at March 31, 1998 and their respective results of operations and their respective cash flows for the portion of the fiscal year then ended, in each case in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (iii) above. (d) Except as disclosed in the financial statements referred to above or the notes thereto or in the Information Memorandum or the Offering Circular and except for the Disclosed Matters, after giving effect to the Transactions, none of Holdings, the Borrower or its Subsidiaries or the Material Joint Ventures has, as of each of the Effective Date and the Spin-off Date, any material contingent liabilities, unusual long-term commitments or unrealized losses. 49 55 (e) Since December 31, 1997, except as disclosed in the Information Memorandum or the Offering Circular, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of Holdings, the Borrower and its Subsidiaries, taken as a whole, or the Material Joint Ventures, taken as a whole. Section 3.05. Properties. (a) Each of Holdings, the Borrower and its Subsidiaries and each Material Joint Venture has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. There are no Liens on any such property other than Liens permitted under Section 6.04. (b) Each of Holdings, the Borrower and its Subsidiaries and each Material Joint Venture owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by Holdings, the Borrower and its Subsidiaries and each Material Joint Venture does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (c) Schedule 3.05 sets forth the address of each real property that is or will be owned or leased by the Borrower or any of its Subsidiaries as of each of the Effective Date and the Spin-off Date, in each case after giving effect to the Transactions. Section 3.06. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of Holdings or the Borrower, threatened against or affecting Holdings, the Borrower or any of its Subsidiaries or any Material Joint Venture (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve any of the Loan Documents, any of the Spin-off Documents, any of the Material Agreements or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither Holdings, the Borrower nor any of its Subsidiaries nor any Material Joint Venture (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, 50 56 license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. Section 3.07. Compliance with Laws and Agreements. Each of Holdings, the Borrower and its Subsidiaries and each Material Joint Venture is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property (including without limitation any "margin" rules or regulations promulgated by the Board) and all indentures, agreements (including without limitation all Material Agreements) and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Section 3.08. Investment and Holding Company Status. Neither Holdings, the Borrower nor any of its Subsidiaries nor any Material Joint Venture is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Section 3.09. Taxes. Each of Holdings, the Borrower and its Subsidiaries and each Material Joint Venture has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which Holdings, the Borrower or such Subsidiary or such Material Joint Venture, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plan. 51 57 Section 3.11. Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which Holdings, the Borrower or any of its Subsidiaries or any Material Joint Venture is subject, and all other matters known to any of them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the Information Statement, the Offering Circular, the Information Memorandum or any of the other reports, financial statements, certificates or other information furnished by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, Holdings and the Borrower represent only that such information was prepared in good faith based upon assumptions believed by management to be reasonable at the time. Section 3.12. Subsidiaries and Joint Ventures. On the Effective Date, Holdings will not have any subsidiaries other than the Borrower, New D&B and New D&B's subsidiaries, and the Borrower will have no Subsidiaries. On the Spin-off Date and after giving effect to the Spin-off, Holdings will not have any subsidiaries other than the Borrower and the Borrower will not have any Subsidiaries. Schedule 3.12 sets forth the name of, and the ownership interest of the Borrower in, each Material Joint Venture and each partnership or joint venture to which the Borrower is a party or in which the Borrower has an economic interest as of the Effective Date and the Spin-off Date. Section 3.13. Insurance. Schedule 3.13 sets forth a description of all insurance maintained by or on behalf of the Borrower and its Subsidiaries as of the Effective Date. As of the Effective Date, all premiums in respect of such insurance that are due have been paid. Section 3.14. Use of Proceeds. The proceeds of the Loans will be applied by the Borrower in accordance with the provisions of Section 5.12. Section 3.15. Solvency. Immediately after the consummation of the Transactions to occur on the Effective Date and the Spin-off Date and immediately following the making of each Loan, if any, made on the Effective Date and the Spin-off Date, respectively, and after giving effect to the application of the proceeds of such Loans, (a) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability 52 58 of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) each Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following the Spin-off Date. Section 3.16. Senior Indebtedness. The Obligations constitute "Senior Debt" and "Parent Company Senior Debt" under and as defined in the Subordinated Debt Documents. Section 3.17. Security Documents. The Security Documents create valid security interests in the Collateral purported to be covered thereby, which security interests are and will remain perfected security interests, prior to all other Liens other than Permitted Encumbrances in existence on the Effective Date. Each of the representations and warranties made by any Loan Party in the Security Documents is true and correct. Section 3.18. Representation and Warranties Related to New D&B and the Spin-off. (a) New D&B is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to execute, deliver and perform the Spin-off Documents to which it is a party and to consummate the Spin-off. (b) The execution, delivery and performance by New D&B of the Spin-off Documents to which it is a party and the consummation by New D&B of the Spin-off (i) are within New D&B's corporate powers, (ii) have been duly authorized by all necessary corporate and, if required, stockholder action and (iii) (w) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except for the filings which have been made and are in full force and effect and except for those referred to in Section 3.03(a), (x) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of New D&B or any order of any Governmental Authority and (y) will not violate or result in a default under any indenture, material agreement or other material instrument binding upon New D&B or any of its subsidiaries or its assets, or give rise to a right thereunder to require any material payment to be made by New D&B or any of its subsidiaries. Each Spin-off Document to which New D&B is to be a party, when executed and delivered by New D&B, will constitute a legal, valid and binding obligation of New D&B, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting 53 59 creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. ARTICLE 4 Conditions Section 4.01. Effective Date. The obligations of the Lenders to make Loans shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of each of (i) Cravath, Swaine & Moore, New York counsel for the Loan Parties, substantially in the form of Exhibit E-1, (ii) Nancy L. Henry, Senior Vice President and General Counsel of Holdings, substantially in the form of Exhibit E-2 and (iii) Steven Wiznitzer, General Counsel of the Borrower, substantially in the form of Exhibit E-3, and, in each case, covering such other matters relating to the Loan Parties, the Loan Documents or the Transactions as the Required Lenders shall reasonably request. The Borrower and Holdings hereby request each such counsel to deliver such opinions. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each Loan Party, the authorization of the Transactions and any other legal matters relating to the Loan Parties, the Loan Documents or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a 54 60 Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by any Loan Party hereunder or under any other Loan Document. (f) The Administrative Agent (or its counsel) shall have received counterparts of the Holdings Collateral Agreement and the Borrower Security Agreement duly executed by each party thereto, together with the following: (i) stock certificates representing all the outstanding shares of capital stock of the Borrower owned by or on behalf of Holdings as of the Effective Date after giving effect to the Transactions and stock powers endorsed in blank with respect to such stock certificates; (ii) all documents and instruments, including Uniform Commercial Code financing statements, required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded to create or perfect the Liens intended to be created under the Security Documents; and (iii) a completed Perfection Certificate of each Loan Party dated the Effective Date and signed by an executive officer or Financial Officer of such Loan Party, together with all attachments contemplated thereby, including the results of a search of the Uniform Commercial Code (or equivalent) filings made with respect to the Loan Parties in the jurisdictions contemplated by the Perfection Certificate and copies of the financing statements (or similar documents) disclosed by such search and evidence reasonably satisfactory to the Administrative Agent that the Liens indicated by such financing statements (or similar documents) are permitted by Section 6.04(a) or have been released; (g) The Administrative Agent shall have received evidence that the insurance required by Section 5.07 is in effect. (h) The Borrower shall have received gross cash proceeds of not less than $150,000,000 from the issuance of the Subordinated Debt. The 55 61 terms and conditions of the Subordinated Debt and the provisions of the Subordinated Debt Documents shall be substantially as described in the Offering Circular. The Administrative Agent shall have received copies of the Subordinated Debt Documents, certified by a Financial Officer as complete and correct. (i) The proposed distribution by Holdings of all of its assets (other than the capital stock of the Borrower and certain related miscellaneous assets) to the shareholders of Holdings as approved by the board of directors of Holdings shall be substantially on the terms and conditions described in the Information Statement. All material authorizations and approvals to be obtained from any Governmental Authority with respect to the Transactions (including without limitation the private letter ruling from the Internal Revenue Service to the effect that the Spin-off will be tax-free to Holdings and the shareholders of Holdings (the "IRS Ruling")) shall have been obtained and shall be in full force and effect, with only the exceptions described in Section 3.03(a). The board of directors of Holdings shall have authorized the Spin-off and declared a ratable dividend to the shareholders of Holdings payable in shares of capital stock of New D&B and all other conditions precedent to the consummation of the Spin-off on the terms and conditions described in the Information Statement shall have been satisfied, except for the conditions precedent set forth on Schedule 4.01(i). The Administrative Agent shall have received copies of each such material authorization or approval (including without limitation the IRS Ruling), each Spin-off Document, if any, in effect on the Effective Date and each Material Agreement, certified by a Financial Officer as complete and correct. All agreements relating to Holdings, the Borrower, each Subsidiary and each Material Joint Venture (including without limitation all material contracts, tax sharing agreements, indemnity agreements and transitional agreements to which Holdings, the Borrower, any Subsidiary or any Material Joint Venture is a party) and all organizational documents and the corporate and capital structure of such entities, in each case as proposed to be in effect after giving effect to the Spin-off, shall be in all material respects as described in the Information Statement or the Offering Circular, with only such material changes as the Required Lenders shall have approved. (j) The Lenders shall have received a solvency certificate, dated the Effective Date and signed by a Financial Officer, in form and substance satisfactory to the Lenders. (k) The Lenders shall have received evidence satisfactory to them that there are no actions, suits or proceedings by or before any 56 62 arbitrator or Governmental Authority pending against, or threatened against or affecting Holdings, the Borrower or any of its Subsidiaries or any Material Joint Venture (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve any of the Loan Documents, any of the Spin-off Documents, any of the Material Agreements or the Transactions. (l) The Administrative Agent shall have received evidence satisfactory to it that, concurrently with the application of the proceeds of the loans to be made on the Effective Date, all commitments to extend credit under the Multi-year Revolving Credit and Competitive Advance Facility and the 364-Day Revolving Credit and Competitive Advance Facility, each dated as of August 30, 1996 and among Holdings, the Borrowing Subsidiaries party thereto, the lenders party thereto, The Chase Manhattan Bank, as administrative agent, Citibank, N.A., as syndication agent and Morgan Guaranty Trust Company of New York, as documentation agent, shall have been terminated and all amounts outstanding thereunder shall have been repaid in full. (m) The Lenders shall have received the financial statements described in clauses (a), (b) and (c) of Section 3.04. After giving effect to the Transactions to be consummated on the Effective Date, neither Holdings, the Borrower nor any of its Subsidiaries shall have outstanding any shares of preferred stock or any Indebtedness, other than Indebtedness permitted by Section 6.03(a) or (c). The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on July 15, 1998 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). Section 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) The representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct on and as of the date of such Borrowing. 57 63 (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by Holdings and the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE 5 Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, each of Holdings and the Borrower covenants and agrees with the Lenders that: Section 5.01. Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 90 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Coopers & Lybrand L.L.P. or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; provided that such financial statements for any fiscal year ended prior to the Spin-off Date or during which the Spin-off Date occurs shall be prepared on a pro forma basis giving effect to the Transactions as if the Transactions had occurred on the first day of such fiscal year and on the basis of the assumptions used to prepare the financial statements set forth in Schedule 1; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows 58 64 as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consis tently applied, subject to normal year-end audit adjustments and the absence of footnotes; provided that such financial statements for any fiscal quarter ended prior to the Spin-off Date or during which the Spin-off Date occurs shall be prepared on a pro forma basis giving effect to the Transactions as if the Transactions had occurred on the first day of such fiscal quarter and on the basis of the assumptions used to prepare the financial statements set forth in Schedule 1; (c) within 90 days after the end of each fiscal year of each Material Joint Venture, its audited balance sheet and related statements of operations, partners' capital and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Coopers & Lybrand L.L.P. or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such financial statements present fairly in all material respects the financial condition and results of operations of such Material Joint Venture in accordance with GAAP consistently applied; (d) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Material Joint Ventures (i) in the case of CenDon, its balance sheet and related statements of operations as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year and (ii) in the case of DonTech II, its balance sheet and related statements of operations, partners' capital and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year; setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of such Material Joint Venture's financial officers as presenting fairly in all material respects the financial condition and results of operations of such Material Joint Venture in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; 59 65 (e) concurrently with any delivery of financial statements under clause (a) and (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 6.01 through 6.04, inclusive, 6.06, 6.07, 6.08 and 6.10, (iii) listing the Subsidiaries at the last day of the relevant fiscal quarter or fiscal year, as the case may be, and setting forth reasonably detailed calculations demonstrating the determination thereof and (iv) stating whether any change in GAAP or in the application thereof has occurred since the date of the Borrower's most recent audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (f) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (g) at least 30 days prior to the commencement of each fiscal year of the Borrower, a detailed consolidated budget for the Borrower for such fiscal year (including a projected consolidated balance sheet and related statements of projected operations and cash flow as of the end of and for such fiscal year and the assumptions used therein) and, promptly when available, any material revisions of such budget; (h) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Holdings, the Borrower or any Subsidiary or any Material Joint Venture with the Securities and Exchange Commission, or any Govern mental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by Holdings to its shareholders generally, as the case may be; and (i) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of Holdings, the Borrower or any Subsidiary or any Material Joint Venture, or compliance with the terms of any Loan Document, Spin-off Document or Material Agreement, as the Administrative Agent or any Lender may reasonably request. 60 66 Section 5.02. Notices of Material Events. Holdings and the Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting Holdings, the Borrower, any Subsidiary or any Material Joint Venture that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of Holdings, the Borrower and its Subsidiaries in an aggregate amount exceeding $2,500,000; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 5.03. Information Regarding Collateral. (a) The Borrower will furnish to the Administrative Agent prompt written notice of any change (i) in any Loan Party's corporate name or in any trade name used to identify it in the conduct of its business or in the ownership of its properties, (ii) in the location of any Loan Party's chief executive office, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral owned by it is located (including the establishment of any such new office or facility), (iii) in any Loan Party's identity or corporate structure or (iv) in any Loan Party's Federal Taxpayer Identification Number. Holdings and the Borrower agree not to effect or permit any change referred to in the preceding sentence (including without limitation the change of Holdings' corporate name to "R. H. Donnelley Corporation," as contemplated in the Information Statement), unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Administrative Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral. The Borrower also agrees 61 67 promptly to notify the Administrative Agent if any material portion of the Collateral is damaged or destroyed. (b) Each year, at the time of delivery of annual financial statements with respect to the preceding fiscal year pursuant to clause (a) of Section 5.01, the Borrower shall deliver to the Administrative Agent a certificate of a Financial Officer and the chief legal officer of the Borrower (i) setting forth the information required pursuant to Section 2 of each of the Perfection Certificates (as defined in the Borrower Security Agreement or the Subsidiary Collateral Agreement, as applicable) or confirming that there has been no change in such information since the date of such Perfection Certificate delivered on the Effective Date or the date of the most recent certificate delivered pursuant to this Section and (ii) certifying that all Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period). Section 5.04. Existence; Conduct of Business. Each of Holdings and the Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.05. Section 5.05. Payment of Obligations. Each of Holdings and the Borrower will, and will cause each of its Subsidiaries to, pay its Indebtedness and other material obligations, including Tax liabilities, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) Holdings, the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP, (c) such contest effectively suspends collection of the contested obligation and the enforcement of any Lien securing such obligation and (d) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. Section 5.06. Maintenance of Properties. Each of Holdings and the Borrower will, and will cause each of its Subsidiaries to, keep and maintain all 62 68 property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted. Section 5.07. Insurance. (a) Each of Holdings and the Borrower will, and will cause each of its Subsidiaries to, maintain with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts (with no greater risk retention) and against at least such risks as are usually maintained, retained or insured against in the same general area by companies of established repute engaged in the same or a similar business. In addition, each of Holdings and the Borrower will, and will cause each of its Subsidiaries to, maintain all the insurance required to be maintained under the Security Documents. The Borrower will furnish to the Lenders, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. Section 5.08. Casualty and Condemnation. The Borrower will furnish to the Administrative Agent and the Lenders prompt written notice of any casualty or other insured damage to any material portion of any Collateral or the commencement of any action or proceeding for the taking of any Collateral or any part thereof or interest therein under power of eminent domain or by condemnation or similar proceeding in accordance with the provisions of the Security Documents. Section 5.09. Books and Records; Inspection and Audit Rights. Each of Holdings and the Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Each of Holdings and the Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants (including without limitation, but subject to any confidentiality obligation to which the Borrower or any Subsidiary is subject, any of the foregoing in the possession of the Borrower or any of its Subsidiaries with respect to, or relating to, the Material Joint Ventures) all at such reasonable times and as often as reasonably requested. In addition, Holdings and the Borrower will, and will cause each of its Subsidiaries to, use its reasonable efforts to give the Administrative Agent and the Lenders the rights set forth in the immediately preceding sentence with respect to the Material Joint Ventures. Section 5.10. Compliance with Laws. Each of Holdings and the Borrower will, and will cause each of its Subsidiaries to, comply with all laws, 63 69 rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 5.11. Year 2000. Any reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the Borrower's and its Subsidiaries' computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which Borrower's or its Subsidiaries' systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be substantially completed by January 1, 1999. The cost to the Borrower and its Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Borrower and its Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or equipment ) will not result in a Default or a Material Adverse Effect. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Borrower and its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient to permit the Borrower to conduct its business without Material Adverse Effect. Section 5.12. Use of Proceeds. The proceeds of the Term Loans and the Revolving Loans made on the Effective Date, together with the proceeds of the Subordinated Debt, will be used by the Borrower only for the payment of (a) a dividend or other distribution to Holdings, the proceeds of which will be applied by Holdings to repay Indebtedness outstanding on the Effective Date (including without limitation Indebtedness of Holdings to subsidiaries that, following the Spin-off, will be subsidiaries of New D&B) and (b) fees and expenses payable in connection with the Transactions. The proceeds of the Revolving Loans made after the Effective Date and Swingline Loans will be used only for general corporate purposes, including working capital and the payment of fees and expenses payable in connection with the Transactions. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. Section 5.13. Subsidiaries. If any Subsidiary is formed or acquired after the Effective Date, the Borrower will notify the Administrative Agent and the Lenders thereof and (a) if such Subsidiary is a Subsidiary Loan Party, the Borrower will cause such Subsidiary to become a party to the Subsidiary Collateral Agreement within ten Business Days after such Subsidiary is formed or acquired and promptly take such actions to create and perfect Liens on such Subsidiary's assets to secure the Obligations as the Administrative Agent or the 64 70 Required Lenders shall reasonably request and (b) if any shares of capital stock or other equity interests or Indebtedness of such Subsidiary are owned by or on behalf of any Loan Party, the Borrower will cause such shares and promissory notes evidencing such Indebtedness to be pledged pursuant to the Security Documents within ten Business Days after such Subsidiary is formed or acquired (except that, if such Subsidiary is a Foreign Subsidiary, shares of common stock of such Subsidiary to be pledged pursuant to the Security Documents may be limited to 65% of the outstanding shares of common stock or other equity interests of such Subsidiary). Section 5.14. Further Assurances. (a) Each of Holdings and the Borrower will, and will cause each Subsidiary Loan Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, deeds of trust and other documents), which may be required under any applicable law, or which the Administrative Agent or the Required Lenders may reasonably request, to effectuate the transactions contemplated by the Loan Documents or to grant, preserve, protect or perfect the Liens created or intended to be created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Loan Parties. Holdings and the Borrower also agree to provide to the Administrative Agent, from time to time upon request, evidence reasonably satisfactory to the Administrative Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents. (b) If any material assets (including any real property or improvements thereto or any interest therein) are acquired by the Borrower or any Subsidiary Loan Party after the Effective Date (other than assets constituting Collateral under the Subsidiary Collateral Agreement that become subject to the Lien of the Subsidiary Collateral Agreement upon acquisition thereof), the Borrower will notify the Administrative Agent and the Lenders thereof, and, if requested by the Administrative Agent or the Required Lenders, the Borrower will cause such assets to be subjected to a Lien securing the Obligations and will take, and cause the Subsidiary Loan Parties to take, such actions as shall be necessary or reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in paragraph (a) of this Section, all at the expense of the Loan Parties. 65 71 ARTICLE 6 Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, each of Holdings and the Borrower covenants and agrees with the Lenders that: Section 6.01. Leverage Ratio. At any date during any period set forth below, the Leverage Ratio will not exceed the ratio set forth below opposite such period:
---------------------------------------------- Period Ratio ------ ----- 9/30/98-9/29/99 4.25:1 9/30/99-12/30/00 4.00:1 12/31/00-12/30/01 3.75:1 12/31/01-12/30/02 3.50:1 12/31/02-9/29/03 3.25:1 9/30/03-6/29/04 3.00:1 Thereafter 2.75:1 ----------------------------------------------
Section 6.02. Fixed Charge Coverage Ratio. At the last day of any fiscal quarter, the Fixed Charge Coverage Ratio will not be less than 1.10:1.00. Section 6.03. Indebtedness; Certain Equity Securities. (a) The Borrower will not, and will not permit any Subsidiary to, (i) create, incur, assume or permit to exist any Indebtedness or (ii) issue any preferred stock or other preferred equity, except: (i) Indebtedness created under the Loan Documents; (ii) the Subordinated Debt; (iii) Indebtedness existing on the date hereof and set forth in Schedule 6.03(a), and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof; (iv) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other Subsidiary; provided that Indebtedness of any Subsidiary that is not a Loan Party to the Borrower or any Subsidiary Loan Party shall be subject to Section 6.06; 66 72 (v) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary; provided that Guarantees by the Borrower or any Subsidiary Loan Party of Indebtedness of any Subsidiary that is not a Loan Party shall be subject to Section 6.06; (vi) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof; provided that (A) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (B) the aggregate principal amount of Indebtedness permitted by this clause (vi) shall not exceed $10,000,000 at any time outstanding; (vii) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided that (A) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (B) the aggregate principal amount of Indebtedness permitted by this clause (vii) shall not exceed $10,000,000 at any time outstanding; (viii) Indebtedness of the Borrower incurred to finance a Permitted Acquisition that is permitted by Section 6.06 so long as (w) such Indebtedness is subordinated to the Indebtedness created under the Loan Documents in a manner substantially equivalent to the subordination of the Subordinated Debt, (x) the terms of such Indebtedness are no more restrictive than the terms applicable to the Loans, (y) the final maturity of such Indebtedness is no earlier than the final maturity of the Loans and (z) such Indebtedness shall not require any payments of principal thereof prior to the final maturity of the Loans; provided that, immediately after giving effect to the incurrence of such Indebtedness, the Borrower shall be in compliance with the ratios set forth in Sections 6.01 and 6.02, respectively, opposite the period in which the date of the proposed incurring of such Indebtedness falls (the "Indebtedness Measurement Date") (and, for purposes of determining such compliance, "Consolidated EBITDA"and the "Fixed Charge Coverage Ratio" shall each be as in effect on the last day of the fiscal quarter most recently ended on or prior to such 67 73 Indebtedness Measurement Date and adjusted to give effect to the proposed incurrence of Indebtedness and the uses of the proceeds thereof as if such Indebtedness had been incurred on the first day of the relevant period for testing compliance and "Consolidated Total Debt" shall be as in effect on such Indebtedness Measurement Date and assuming the proposed Indebtedness has been incurred); and (ix) unsecured Indebtedness of the Borrower or any Subsidiary not permitted by any of the foregoing clauses in an aggregate principal amount not to exceed $10,000,000 at any time outstanding. (b) The Borrower will not vote its direct or indirect interest in any Material Joint Venture to permit the Material Joint Ventures to create, incur, assume or permit to exist any Indebtedness except: (i) Indebtedness existing on the date hereof and set forth in Schedule 6.03(b), and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof; and (ii) other Indebtedness of the Material Joint Ventures in an aggregate principal amount not to exceed $10,000,000 at any time outstanding. (c) Holdings will not create, incur, assume or permit to exist any Indebtedness except (i) Indebtedness created under the Loan Documents and (ii) Indebtedness existing on the date hereof and set forth in Schedule 6.03(c). Section 6.04. Liens. (a) The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof (including without limitation any such rights under any Material Agreement), except: (i) Liens created under the Loan Documents; (ii) Permitted Encumbrances; (iii) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof of the types and securing obligations in the amounts set forth in Schedule 6.04(a); provided that (A) 68 74 such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (B) such Lien shall secure only those obligations which it secures on the date hereof; (iv) any Lien (other than Liens permitted by clause (iii)) existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (A) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (B) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (C) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; and (v) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (A) such Liens secure Indebtedness permitted by Section 6.03(a)(vi), (B) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (C) the Indebtedness secured thereby does not exceed 90% of the cost of acquiring, constructing or improving such fixed or capital assets and (D) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary. (b) The Borrower will not vote its direct or indirect interest in any Material Joint Venture to permit the Material Joint Ventures to create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by them, or assign or sell any income or revenues (including accounts receivable) or rights in respect thereof, except: (i) Permitted Encumbrances; (ii) any Lien on any property or asset of any Material Joint Venture existing on the date hereof and set forth in Schedule 6.04(b); provided that (A) such Lien shall not apply to any other property or asset of such Material Joint Venture and (B) such Lien shall secure only those obligations which it secures on the date hereof; (iii) any Lien existing on any property or asset prior to the acquisition thereof by any Material Joint Venture; provided that (A) such Lien is not created in contemplation of or in connection with such acquisi tion, (B) such Lien shall not apply to any other property or assets of such Material Joint Venture and (C) such Lien shall secure only those obligations which it secures on the date of such acquisition; (iv) Liens on fixed or capital assets acquired, constructed or improved by any Material Joint Venture; provided that (A) such Liens secure Indebtedness permitted by Section 6.03(b)(ii), (B) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (C) the Indebtedness secured thereby does not exceed 90% of the cost of acquiring, constructing or improving such fixed or capital assets and (D) such security interests shall not apply to any other property or assets of such Material Joint Venture; and (v) Liens not otherwise permitted by the foregoing clauses securing Indebtedness of the Material Joint Ventures in an aggregate principal amount not to exceed $2,000,000 at any time outstanding. (c) Holdings will not create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect thereof except liens created under the Holdings Collateral Agreement and Permitted Encumbrances. Section 6.05. Fundamental Changes. (a) Neither Holdings nor the Borrower will, nor will they permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary and (iii) any Subsidiary (other than a Subsidiary Loan Party) may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided that any such merger involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.06. (b) The Borrower will not, and will not permit any of its Subsidiaries to, and will not vote its direct or indirect interest in any Material Joint Venture to permit such Material Joint Venture to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its 69 75 Subsidiaries or such Material Joint Venture, as the case may be, on the date of execution of this Agreement and businesses reasonably related thereto. (c) Holdings will not engage in any business or activity other than the ownership of all the outstanding shares of capital stock of the Borrower (and, prior to the Spin-off Date, the capital stock of New D&B and of subsidiaries that, following the Spin-off, will be subsidiaries of New D&B) and activities incidental thereto. Holdings will not own or acquire any assets (other than shares of capital stock of the Borrower and, prior to the Spin-off Date, the capital stock of New D&B and subsidiaries that, following the Spin-off, will be subsidiaries of New D&B, cash, Permitted Investments and equipment having a de minimus value) or incur any liabilities (other than liabilities under the Loan Documents, the Subordinated Debt Documents, the Spin-off Documents, liabilities imposed by law, including tax liabilities, and other liabilities incidental to its existence and permitted business and activities). Section 6.06. Investments, Loans, Advances, Guarantees and Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit (any of the foregoing, for purposes of this Section 6.06, an "investment"), except: (i) Permitted Investments; (ii) investments existing on the date hereof and set forth on Schedule 6.06; (iii) investments by the Borrower and its Subsidiaries in the capital stock of their Subsidiaries; provided that (i) any such shares of capital stock held by a Loan Party shall be pledged pursuant to the Subsidiary Collateral Agreement (subject to the limitations applicable to common stock of a Foreign Subsidiary referred to in Section 5.13) and (ii) the amount of investments made by the Borrower and its Subsidiaries in Subsidiaries that are not Loan Parties under this clause (iii) after the Effective Date, together with loans and advances made to any such Subsidiaries after the Effective Date under Section 6.06(a)(iv) and Guarantees for the benefit of any such Subsidiaries granted after the 70 76 Effective Date under Section 6.06(a)(v), shall not exceed $5,000,000 in the aggregate at any time outstanding; (iv) loans or advances made by the Borrower to any Subsidiary and made by any Subsidiary to the Borrower or any other Subsidiary; provided that the amount of all such loans and advances made by Loan Parties to Subsidiaries that are not Loan Parties under this clause (iv) after the Effective Date, together with investments in any such Subsidiaries made after the Effective Date under Section 6.06(a)(iii) and Guarantees for the benefit of any such Subsidiaries granted after the Effective Date under Section 6.06(a)(v), shall not exceed $5,000,000 in the aggregate at any time outstanding; (v) Guarantees constituting Indebtedness permitted by Section 6.03(a); provided that (i) a Subsidiary shall not Guarantee the Subordinated Debt unless (A) such Subsidiary also has Guaranteed the Obligations pursuant to the Subsidiary Collateral Agreement and (B) such Guarantee of the Subordinated Debt is subordinated to such Guarantee of the Obligations on terms no less favorable to the Lenders than the subordination provisions of the Subordinated Debt and (ii) the amount of Indebtedness that is (A) outstanding with respect to Subsidiaries that are not Loan Parties and (B) Guaranteed by any Loan Party under this clause (v) after the Effective Date, together with investments made under Section 6.06(a)(iii) after the Effective Date and loans and advances made to any such Subsidiaries after the Effective Date under Section 6.06(a)(iv), shall not exceed $5,000,000 in the aggregate at any time outstanding; (vi) (x) investments in existence on the date hereof in Material Joint Ventures and (y) investments in Material Joint Ventures (other than investments permitted by clause (vi)(x) or any other clause of this Section) in an aggregate amount not to exceed $10,000,000; (vii) investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business; and (viii) investments not otherwise permitted by the foregoing clauses of this Section and consisting of (x) Permitted Acquisitions in an aggregate amount not to exceed on any date the greater of (1) $30,000,000 and (2) the amount by which the Basket Amount in effect on such date exceeds the sum of (xx) the aggregate amount of Restricted Payments declared or made (without duplication) by the Borrower in reliance on 71 77 clause (v) of Section 6.10 on or prior to such date and (yy) the aggregate amount of investments in excess of $30,000,000 made by the Borrower or any of its Subsidiaries in reliance on clause (y)(2) of this Section 6.06(viii); provided that at least 10 Business Days prior to consummating any Permitted Acquisition, the Borrower shall have delivered to the Lenders a certificate of a Financial Officer of the Borrower certifying that the conditions described in the definition of "Permitted Acquisition" have been met with respect thereto and setting forth in reasonable detail the calculations required to be made pursuant to clause (y) of such definition and the assumptions used by the Borrower to make such calculations and (y) investments in joint ventures and partnerships (other than Permitted Acquisitions) in an aggregate amount not to exceed on any date the greater of (1) $30,000,000 and (2) the amount by which the Basket Amount in effect on such date exceeds the sum of (xx) the aggregate amount of Restricted Payments declared or made (without duplication) by the Borrower in reliance on clause (v) of Section 6.10 on or prior to such date and (yy) the aggregate amount of Permitted Acquisitions in excess of $30,000,000 made by the Borrower or any of its Subsidiaries in reliance on clause (x)(2) of this Section 6.06(viii) on or prior to such date. Any calculation to be made pursuant to this Section 6.06(viii) on any date shall be made after giving pro forma effect to any Restricted Payments proposed to be declared or made by the Borrower in reliance on clause (v) of Section 6.10 and any investments proposed to be made by the Borrower and its Subsidiaries in reliance on this Section 6.06(viii), in each case on such date. Section 6.07. Asset Sales. The Borrower will not, and will not permit any of its Subsidiaries to, sell, transfer, lease or otherwise dispose of any asset, including any capital stock, nor will the Borrower permit any of its Subsidiaries to issue any additional shares of its capital stock or other ownership interest in such Subsidiary, except: (i) sales of inventory, used or surplus equipment and Permitted Investments in the ordinary course of business; (ii) sales, transfers and other dispositions to the Borrower or a Subsidiary; provided that any such sales, transfers or dispositions involving a Subsidiary that is not a Loan Party shall be made in compliance with Section 6.06; (iii) sales, transfers and other dispositions pursuant to the Spin-off, so long as the Spin-off is consummated in accordance with all 72 78 applicable laws and substantially in accordance with the terms and conditions set forth in the Information Statement; (iv) the sale, transfer and other disposition of the assets used in connection with the Borrower's existing proprietary directory operation in Cincinnati, Ohio, northern Kentucky and southeast Indiana; and (v) sales, transfers and other dispositions of assets (other than capital stock of a Subsidiary) that are not permitted by any other clause of this Section; provided that the aggregate fair market value of all assets sold, transferred or otherwise disposed of in reliance upon this clause (v) shall not exceed $5,000,000 during any fiscal year of the Borrower; provided that all sales, transfers, leases and other dispositions permitted by clauses (iv) and (v) shall be made for fair value and the consideration therefor shall consists of at least 75% cash or cash equivalents. Section 6.08. Sale and Leaseback Transactions. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into any arrangement with any Person (other than a Subsidiary) whereby it shall sell or transfer any property used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred, except to the extent that any such arrangement or arrangements does not contravene the provisions of Section 6.07 and, if applicable, Section 6.03(a)(vi). Section 6.09. Hedging Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. Section 6.10. Restricted Payments; Certain Payments of Indebtedness. (a) Neither Holdings nor the Borrower will, nor will they permit any Subsidiary or Material Joint Venture to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (i) Holdings may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (ii) Subsidiaries may declare and pay dividends ratably with respect to their capital stock, (iii) Holdings may make Restricted Payments with the proceeds from the sale of capital stock pursuant to stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, such Restricted Payments to consist of (1) purchases of capital stock in respect of 73 79 option or stock grants or repurchases of options or stock, in each case from management or employees leaving their positions or (2) purchases of capital stock in the open market to counter the dilutive effect of any issuance of options or capital stock pursuant to such stock option plans or other benefit plans, (iv) the Borrower may pay dividends to Holdings so long as upon receipt of any such dividends Holdings shall apply the proceeds thereof in full to pay taxes of Holdings then due and payable, (v) the Borrower may declare and pay dividends to Holdings so long as: (x) after giving effect to the declaration of any such proposed dividend on any date (a "Dividend Date"), the aggregate amount of dividends declared and/or paid (without duplication) by the Borrower to Holdings in reliance on this clause (v) would not exceed the amount by which (aa) the Basket Amount in effect on such Dividend Date exceeds (bb) the sum of the aggregate amount of Restricted Payments declared or made by the Borrower in reliance on this clause (v) on or prior to such Dividend Date plus the aggregate amount of Permitted Acquisitions in excess of $30,000,000 made by the Borrower and its Subsidiaries in reliance on Section 6.06(viii)(x)(2) plus the aggregate amount of investments in excess of $30,000,000 made by the Borrower and its Subsidiaries in reliance on Section 6.06(viii)(y)(2), in each case on or prior to such Dividend Date, (y) on such Dividend Date, immediately before and after giving effect to such dividend, (1) no Default shall have occurred and be continuing and (2) the Borrower shall be in compliance with the ratios set forth in Sections 6.01 and 6.02, respectively, opposite the period in which such Dividend Date falls (and, for purposes of determining such compliance, "Consolidated EBITDA" and the "Fixed Charge Coverage Ratio" shall each be for the period of four consecutive fiscal quarters most recently ended on or prior to such Dividend Date, and adjusted to give effect to the payment of each dividend, including the proposed dividend, declared or paid (without duplication) during the period from and including the first day immediately after such period of four consecutive fiscal quarters to and including such Dividend Date, but excluding each dividend declared or paid (without duplication) during the first quarter included in such period of four consecutive fiscal quarters) and (z) upon receipt of any such dividends, Holdings shall apply the proceeds thereof in full to make Restricted Payments in an aggregate amount equal to the amount of any such dividend paid by the Borrower to Holdings, (vi) Holdings may make Restricted Payments as contemplated by clause (v)(z) and (vii) the Borrower may dividend to Holdings (x) the net proceeds from the issuance of the Subordinated Debt and the proceeds from the initial Borrowings hereunder in an aggregate amount not in excess of $500 million plus (y) any other cash of the Borrower on and prior to the effective date of the Spin-off up to an amount equal to the amount required to be distributed by Holdings to New D&B pursuant to the Distribution Agreement on such date, and Holdings may use the proceeds of such dividends to repay Indebtedness of Holdings and for advances to New D&B, in all cases without such dividends or uses contemplated by this clause (vii) counting against any restriction set forth in 74 80 this Section including without limitation clause (v) hereof. Nothing in this Section shall prohibit the Borrower from paying any dividend to Holdings in reliance on clause (v) within 60 days after the declaration thereof in accordance therewith. Any calculation to be made pursuant to clause (v) of this Section 6.10 on any Dividend Date shall be made after giving pro forma effect to any Restricted Payments proposed to be declared or made by the Borrower in reliance on such clause (v) and any investments proposed to be made by the Borrower and its Subsidiaries in reliance on Section 6.06(viii), in each case on such Dividend Date. (b) Neither Holdings nor the Borrower will, nor will they permit any Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Indebtedness, or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Indebtedness, except: (i) payment of Indebtedness created under the Loan Documents; (ii) payment of regularly scheduled interest and principal payments as and when due in respect of any Indebtedness (including without limitation intercompany Indebtedness), other than payments in respect of the Subordinated Debt prohibited by the subordination provisions thereof; and (iii) payment of secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness. Section 6.11. Transactions with Affiliates. Neither Holdings nor the Borrower will, nor will they permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions in the ordinary course of business that do not involve Holdings and are at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and the Subsidiary Loan Parties not involving any other Affiliate, (c) transactions contemplated by the Spin-off Documents and consummated in accordance therewith, (d) transactions contemplated by the Material Agreements and consummated in accordance therewith and (e) any Restricted Payment permitted by Section 6.10. 75 81 Section 6.12. Restrictive Agreements. (a) Neither Holdings nor the Borrower will, nor will they permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (i) the ability of Holdings, the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (ii) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary; provided that (v) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document or Subordinated Debt Document, (w) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.12(a) (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (x) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (y) clause (i) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (z) clause (i) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment thereof. (b) The Borrower will not vote its direct or indirect interest in any Material Joint Venture to permit such Material Joint Venture to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement with any Person (other than any partner in any such Material Joint Venture) that prohibits, restricts or imposes any condition upon the ability of such Material Joint Venture to pay dividends or other distributions to, or to make or repay loans or advances to, the Borrower or any Subsidiary; provided that the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.12(b) (but shall apply to any amendment or modification expanding the scope of, any such restriction or condition). Section 6.13. Amendment of Material Documents. Neither Holdings nor the Borrower will, nor will they permit any Subsidiary to, (a) amend, waive or modify any provisions of any Subordinated Debt Document relating to subordination, (b) change the interest rate applicable to the Subordinated Debt, (c) change the maturity date or the amortization of the Subordinated Notes, or (d) amend, waive or modify any covenants applicable to the Subordinated Debt. Neither Holdings nor the Borrower will, nor will they permit any Subsidiary to, amend, modify or waive any of its rights under (i) any Subordinated Debt 76 82 Document (other than any such amendment, waiver or modification described in clauses (a) through (d) of the immediately preceding sentence), (ii) its certificate of incorporation, by-laws or other organizational documents or (iii) any Material Agreement or any Spin-off Document (other than Sections 2.1(a), (i), (m), (n) and (p) or Article III (or any related definitions) the amendment, waiver or modification of which is governed by the last sentence of this Section) of the Distribution Agreement), if any such amendment, modification or waiver could reasonably be expected to have (x) a Material Adverse Effect or (y) an adverse effect on the rights or remedies of the Agent or the Lenders under the Loan Documents. Neither Holdings nor the Borrower will, nor will they permit any Subsidiary to, amend, waive or modify in any material respect any provision of Section 2.1(a), (i), (m), (n) and ( p) or Article III (or any related definitions) of the Distribution Agreement. ARTICLE 7 Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days; (c) any representation or warranty made or deemed made by or on behalf of Holdings, the Borrower or any Subsidiary in or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) Holdings or the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.04 (with 77 83 respect to the existence of Holdings or the Borrower) or 5.12 or in Article 6; (e) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender); (f) Holdings, the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable; (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of Holdings, the Borrower, any Subsidiary or any Material Joint Venture or any of their respective debts, or of a substantial part of their respective assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the Borrower, any Subsidiary or any Material Joint Venture or for a substantial part of their respective assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) Holdings, the Borrower, any Subsidiary or any Material Joint Venture shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a 78 84 timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the Borrower, any Subsidiary or any Material Joint Venture or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) Holdings, the Borrower, any Subsidiary or any Material Joint Venture shall become unable, admit in writing its inability or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against Holdings, the Borrower, any Subsidiary, any Material Joint Venture or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of Holdings, the Borrower, any Subsidiary or any Material Joint Venture to enforce any such judgment; (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $5,000,000; (m) (i) any Lien purported to be created under any Security Document shall cease to be a valid and perfected Lien on any Collateral (other than Collateral which in the aggregate has a fair market value not in excess of $1,000,000) with the priority required by the applicable Security Document, except as a result of the Administrative Agent's failure to maintain possession of any stock certificates, promissory notes or other instruments delivered to it under any pledge agreement which is a Security Document, (ii) any Loan Party shall assert, in writing, that any Lien purported to be created under any Security Document shall cease to be a valid and perfected Lien on any Collateral with the priority required by the applicable Security Document, except as a result of the Administrative Agent's failure to maintain possession of any stock certificates, promissory notes or other instruments delivered to it under any pledge agreement which is a Security Document or (iii) the Holdings Collateral 79 85 Agreement or the Subsidiary Collateral Agreement shall cease to be in full force and effect (or any Loan Party shall so assert in writing); (n) a Change in Control shall occur; (o) the Spin-off Date shall not have occurred by the 45th day after the Effective Date; (p) (i) any Material Agreement shall cease to be in full force and effect (or any party shall so assert in writing) or (ii) any Material Joint Venture shall terminate (other than on the final scheduled termination date thereof in accordance with the terms of the Material Agreements applicable thereto); (q) (i) any Spin-off Document shall cease to be in full force and effect (or any party shall so assert in writing) or (ii) any party to any Spin-off Document shall fail to perform its obligations thereunder and such failure (x) could result in the loss by the Borrower of any material right thereunder or (y) could result in a Material Adverse Effect; or (r) (i) the IRS Ruling shall cease to be in full force and effect, (ii) the Spin-off shall for any reason cease to qualify as a tax-free distribution under Section 355 of the Code or (iii) Holdings shall fail to take any action, or shall take any action, in each case that would constitute non-compliance with, or a breach of, any of the representations or undertakings of Holdings set forth in Section 2.10 of the Distribution Agreement; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then 80 86 outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE 8 The Administrative Agent Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent under the Loan Documents shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with Holdings, the Borrower or any Subsidiary, any Material Joint Venture or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to Holdings, the Borrower or any of its Subsidiaries or any Material Joint Ventures that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 81 87 9.02) or in the absence of its own gross negligence or wilful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by Holdings, the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the existence or sufficiency of any Collateral or (vi) the satisfaction of any condition set forth in Article 4 or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for Holdings or the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of each Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor the Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its 82 88 resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder. ARTICLE 9 Miscellaneous Section 9.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be 83 89 delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to Holdings (x) prior to the Spin-off Date, to Holdings at One Diamond Hill Road, Murray Hill, New Jersey 07474, Attention of Robert J. Levin, Esq. (Telecopy No. (908) 665-1409) and (y) on and after the Spin-off Date, to Holdings at One Manhattanville Road, Purchase New York 10577, Attention of Frank Colarusso (Telecopy No. (914) 933- 6744); (b) if to the Borrower, to it at One Manhattanville Road, Purchase New York 10577, Attention of Frank Colarusso (Telecopy No. (914) 933-6744 ); (c) if to the Administrative Agent, to The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017, Attention of Tracey Navin (Telecopy No. (212) 270-4164); (d) if to the Swingline Lender, to it at Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017, Attention of Tracey Navin (Telecopy No. (212) 270-4164); and (e) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. Section 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent, or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or 84 90 remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Holdings, the Borrower and the Required Lenders or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Loan Party or Loan Parties that are parties thereto, in each case with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.17(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision of any Loan Document specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender (or each Lender of such Class, as the case may be), (vi) release all or substantially all of the Loan Parties Guaranteeing the Obligations (or limit their liability with respect thereto) without the written consent of each Lender, (vii) release all or substantially all of the Collateral from the Liens of the Security Documents, without the written consent of each Lender, (viii) change any provisions of any Loan Document in a manner that by its terms adversely affects the rights in respect of payments due to Lenders holding Loans of any Class differently than those holding Loans of any other Class, without the written consent of Lenders holding a majority in interest of the outstanding Loans and unused Commitments of each affected Class, (ix) change the rights of the Tranche B Lenders to decline mandatory prepayments as provided in Section 2.10, without the written consent of Tranche B Lenders holding a majority of the outstanding Tranche B Term Loans or (x) change the rights of the Tranche C 85 91 Lenders to decline mandatory prepayments as provided in Section 2.10, without the written consent of Tranche C Lenders holding a majority of the outstanding Tranche C Term Loans; provided further that (A) no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or the Swingline Lender without the prior written consent of the Administrative Agent or the Swingline Lender, as the case may be, and (B) any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of the Revolving Lenders (but not the Tranche A Lenders, Tranche B Lenders and Tranche C Lenders), the Tranche A Lenders (but not the Revolving Lenders, Tranche B Lenders and Tranche C Lenders), the Tranche B Lenders (but not the Revolving Lenders, Tranche A Lenders and Tranche C Lenders) or the Tranche C Lenders (but not the Revolving Lenders, Tranche A Lenders and Tranche B Lenders) may be effected by an agreement or agreements in writing entered into by Holdings, the Borrower and requisite percentage in interest of the affected Class of Lenders. Section 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. (b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any other agreement or instrument contemplated hereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower 86 92 or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent or the Swingline Lender, as the case may be, such Lender's pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent or the Swingline Lender in its capacity as such. For purposes hereof, a Lender's "pro rata share" shall be determined based upon its share of the sum of the total Revolving Exposures, outstanding Term Loans and unused Commitments at the time. (d) To the extent permitted by applicable law, the Borrower shall not assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable not later than 10 days after written demand therefor. Section 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither Holdings nor the Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by Holdings or the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and 87 93 the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender, an Affiliate of a Lender or, solely in the case of a Lender that is a fund that invests in commercial loans, to an Approved Fund of such Lender, each of the Borrower and the Administrative Agent (and, in the case of an assignment of all or a portion of a Revolving Commitment or any Lender's obligations in respect of its Swingline Exposure, the Swingline Lender) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender, an Affiliate of a Lender or, solely in the case of a Lender that is a fund that invests in commercial loans, to an Approved Fund of such Lender, or an assignment of the entire remaining amount of the assigning Lender's Commitment or Loans, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, except that this clause (iii) shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender's rights and obligations in respect of one Class of Commitments or Loans, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article 7 has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16, and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for 88 94 purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and Holdings, the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower, the Administrative Agent or the Swingline Lender, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) Holdings, the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this 89 95 Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.17(c) as though it were a Lender. (f) A Participant shall not be entitled to receive any greater payment under Section 2.14 and 2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.16(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. Section 9.05. Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16, and 9.03 and Article 8 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. 90 96 Section 9.06. Counterparts; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. Section 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. Section 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) Each of Holdings and the Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and 91 97 unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against Holdings, the Borrower or its properties in the courts of any jurisdiction. (c) Each of Holdings and the Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Section 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREE MENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Section 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this 92 98 Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 9.12. Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) to any direct or indirect contractual counterparty in swap agreements or such contractual counterparty's professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of Section 9.12), (h) with the consent of the Borrower or (i) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than Holdings or the Borrower. For the purposes of this Section, "Information" means all information received from Holdings or the Borrower relating to Holdings or the Borrower or its business, other than any such information that is available to the Administrative Agent, or any Lender on a nonconfidential basis prior to disclosure by Holdings or the Borrower; provided that, in the case of information received from Holdings or the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. 93 99 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. R. H. DONNELLEY INC. By: /s/ Frank M. Colarusso ------------------------------------- Title: Vice President and Treasurer THE DUN & BRADSTREET CORPORATION By: /s/ Roxanne E. Parker ------------------------------------- Title: Vice President and Treasurer THE CHASE MANHATTAN BANK, as Lender, Swingline Lender and Administrative Agent By: /s/ Marian N. Schulman ------------------------------------- Title: Vice President GOLDMAN SACHS CREDIT PARTNERS L.P. as Lender By: /s/ Stephen B. King ------------------------------------- Title: Authorized Signatory 94 100 BANKBOSTON, N.A. By: /s/ Julie V. Jalelian ------------------------------------- Title: Director CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Vladimir Labun ------------------------------------- Title: First Vice President - Manager PARIBAS By: /s/ Salo Aizenberg ------------------------------------- Title: Vice President By: /s/ Lynne S. Randall ------------------------------------- Title: Director ROYAL BANK OF CANADA By: /s/ Colleen Roux ------------------------------------- Title: Senior Manager 95 101 THE BANK OF NEW YORK By: /s/ Ernest Fung ------------------------------------- Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ Mark Narbey ------------------------------------- Title: Authorized Signatory FLEET NATIONAL BANK By: /s/ Stephen Curran ------------------------------------- Title: AVP UNION BANK OF CALIFORNIA, N.A. By: /s/ Sonia L. Isaacs ------------------------------------- Title: Vice President 96 102 ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG By: /s/ Anca Trifan ------------------------------------- Title: Vice President By: /s/ John S. Runnion ------------------------------------- Title: First Vice President SUNTRUST BANK, ATLANTA By: /s/ W. David Wisdom ------------------------------------- Title: Group Vice President By: /s/ Laura G. Harrison ------------------------------------- Title: Assistant Vice President 97 103 KZH-IV CORPORATION By: /s/ Virginia Conway ------------------------------------- Title: Authorized Agent DLJ CAPITAL FUNDING, INC By: /s/ Howard Shams ------------------------------------- Title: Vice President KZH-CYPRESS TREE-1 CORPORATION By: /s/ Virginia Conway ------------------------------------- Title: Authorized Agent KZH-ING-2 CORPORATION By: /s/ Virginia Conway ------------------------------------- Title: Authorized Agent THE TRAVELERS INSURANCE COMPANY By: /s/ Allen R. Cantrell ------------------------------------- Title: Investment Officer 98 104 KZH-CRESCENT CORPORATION By: /s/ Virginia Conway ------------------------------------- Title: Authorized Agent TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY By: /s/ John M. Casparian ------------------------------------- Title: Investment Officer MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: /s/ Joseph Matteo ------------------------------------- Title: Vice President OCTAGON LOAN TRUST By: Octagon Credit Investors as Manager By: /s/ Andrew D. Gordon ------------------------------------- Title: Managing Director KZH-SOLEIL-2 CORPORATION By: /s/ Virginia Conway ------------------------------------- Title: Authorized Agent 99 105 METROPOLITAN LIFE INSURANCE COMPANY By: /s/ James R. Dingler ------------------------------------- Title: Director NATIONAL WESTMINSTER BANK PLC By: NatWest Capital Markets Limited, its agent By: Greenwich Capital Markets, Inc., its agent By: /s/ Jeremy J. Hood ------------------------------------- Title: Vice President THE TRAVELERS LIFE AND ANNUITY COMPANY By: /s/ Allen R. Cantrell ------------------------------------- Title: Investment Officer 100 EX-12.1 7 STATEMENT RE COMPUTATION OF EARNINGS RATIO 1 Exhibit 12.1 R.H. DONNELLEY CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGE
Pro Forma Three Months Ended March 31, 1998 1997 -------- -------- Income before Taxes $ 20,246 $103,715 Add: Portion of rents representative of the interest factor 764 3,700 Interest and related debt expenses 10,239 40,436 -------- -------- Income before Taxes as adjusted 31,249 147,851 ======== ======== Fixed Charges Interest and related debt expenses 10,239 40,436 Portion of rents representative of the interest factor 764 3,700 -------- -------- Fixed Charges $ 11,003 $ 44,136 ======== ======== Ratio of earnings to fixed charges 2.8 3.3
EX-21.1 8 LIST OF SUBSIDIARIES 1 Exhibit 21.1 LIST OF SUBSIDIARIES OF DONNELLEY CORP. R.H. Donnelley Inc., a Delaware corporation. EX-23.1 9 CONSENT OF PRICEWATERHOUSECOOPERS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on From S-4 of (i) our report dated March 31, 1998, except as to Note 14, for which the date is July 1, 1998, on our audits of the consolidated financial statements of R.H. Donnelley Corporation and (ii) our report dated January 8, 1998, on our audits of the combined financial statements of DonTech I and DonTech II. We also consent to the references to our firm under the caption "Experts". PricewaterhouseCoopers LLP New York, New York July 17,1998 EX-27.1 10 FINANCIAL DATA SCHEDULE / 12-MOS ENDED 12/31/1995
5 0000030419 R.H. DONNELLEY CORPORATION 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 1,444 1,327 196,115 (21,168) 0 38,419 71,192 (37,281) 520,214 80,875 0 0 0 12,002 411,767 520,214 0 312,940 0 130,145 0 0 0 182,795 (74,398) 108,397 0 0 0 108,397 0.64 0.64
EX-27.2 11 FINANCIAL DATA SCHEDULE / FOR 1996
5 0000030419 R.H. DONNELLEY CORPORATION 3-MOS 6-MOS 9-MOS 12-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996 1,469 1,443 1,605 60 1,327 1,327 1,327 0 153,194 145,796 124,526 164,765 (18,216) (14,157) (10,262) (11,607) 0 0 0 0 16,587 48,685 48,909 30,931 68,153 61,848 64,774 58,297 (32,344) (32,352) (32,958) (27,545) 475,859 482,946 478,560 502,193 63,157 65,907 72,336 58,549 0 0 0 0 0 0 0 0 0 0 0 0 12,002 12,002 12,002 12,002 355,176 359,513 348,698 367,182 475,859 482,946 478,560 502,193 0 0 0 0 23,170 87,785 145,528 270,029 0 0 0 0 16,249 85,264 115,539 102,587 0 28,500 28,500 28,500 0 0 0 0 0 0 0 0 6,921 (25,979) 1,489 138,942 (3,032) 11,378 (653) (60,857) 3,889 (14,601) 836 78,085 0 0 0 0 0 0 0 0 0 0 0 0 3,889 (14,601) 836 78,085 0.02 (0.09) 0.00 0.46 0.02 (0.09) 0.00 0.46
EX-27.3 12 FINANCIAL DATA SCHEDULE / FOR 1997
5 0000030419 R.H. DONNELLEY CORPORATION 3-MOS 6-MOS 9-MOS 12-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997 64 58 64 32 0 0 0 0 111,750 105,047 139,885 134,828 (10,212) (8,193) (8,002) (4,014) 0 0 0 0 55,893 56,251 57,748 11,894 64,194 65,644 66,588 55,585 (30,077) (33,116) (36,003) (30,125) 443,724 418,212 438,818 382,286 48,014 49,806 55,437 59,465 0 0 0 0 0 0 0 0 0 0 0 0 12,002 12,002 12,002 12,002 316,798 289,494 304,469 246,673 443,724 418,212 438,818 382,286 0 0 0 0 20,200 80,664 143,392 239,865 0 0 0 0 22,490 73,165 89,060 105,126 0 0 0 (9,412) 0 0 0 0 0 0 0 0 (2,290) 7,499 54,332 144,151 916 (3,000) (21,733) (59,246) (1,374) 4,499 32,599 84,905 0 0 0 0 0 0 0 0 0 0 0 0 (1,374) 4,499 32,599 84,905 (0.01) 0.02 0.18 0.50 (0.01) 0.02 0.18 0.50
EX-27.4 13 FINANCIAL DATA SCHEDULE FOR 3-MOS ENDED 3/31/1998
5 0000030419 R.H. DONNELLEY CORPORATION 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 17 0 124,185 (5,657) 0 18,175 56,208 (32,601) 359,174 50,527 0 0 0 12,002 233,885 359,174 0 24,344 0 4,098 0 0 0 20,246 (8,098) 12,148 0 0 0 12,248 0.07 0.07
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