-----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, EGDjS0Txnjtq+pVC+FRqkZaNe85zkL/qAs+7ojliPISeYBwWaC7zlAyqJD2DiL76 Q3e0ggpwf+HzlYT9PzQIrA== 0000950123-02-004915.txt : 20020510 0000950123-02-004915.hdr.sgml : 20020510 ACCESSION NUMBER: 0000950123-02-004915 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNELLEY R H INC CENTRAL INDEX KEY: 0001065310 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 362467635 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-59287 FILM NUMBER: 02641388 BUSINESS ADDRESS: STREET 1: 1 MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9149336400 MAIL ADDRESS: STREET 1: 1 MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 FILER: COMPANY DATA: COMPANY CONFORMED NAME: R H DONNELLEY CORP CENTRAL INDEX KEY: 0000030419 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 132740040 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07155 FILM NUMBER: 02641389 BUSINESS ADDRESS: STREET 1: ONE MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9149336800 MAIL ADDRESS: STREET 1: ONE MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET COMPANIES INC DATE OF NAME CHANGE: 19790429 10-Q 1 y60142e10-q.txt QUARTERLY REPORT ON FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- -------------------------- Commission file number 001-07155 R.H. DONNELLEY CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-2740040 (State of Incorporation) (I.R.S. Employer Identification No.) One Manhattanville Road, Purchase N.Y. 10577 (Address of principal executive offices) (Zip Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Title of Class Shares Outstanding at May 1, 2002 Common Stock, par value $1 per share 29,717,407 Commission file number 333-59287 R.H. DONNELLEY INC. * (Exact name of registrant as specified in its charter) Delaware 36-2467635 (State of Incorporation) (I.R.S. Employer Identification No.) One Manhattanville Road, Purchase N.Y. 10577 (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code (914) 933-6400 * R.H. Donnelley Inc. is a wholly owned subsidiary of R.H. Donnelley Corporation. R.H. Donnelley Inc. meets the conditions set forth in General Instructions H 1(a) and (b) of Form 10-Q and is therefore filing this report with respect to R.H. Donnelley Inc. with the reduced disclosure format. R.H. Donnelley Inc. became subject to the filing requirements of Section 15(d) on October 1, 1998 in connection with the public offer and sale of its 9 1/8% Senior Subordinated Notes. As of May 1, 2002, 100 shares of R.H. Donnelley Inc. common stock, no par value, were outstanding. R.H. DONNELLEY CORPORATION INDEX TO FORM 10-Q
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001............................................................... 3 Consolidated Balance Sheets at March 31, 2002 and December 31, 2001......... 4 Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001............................................................... 5 Notes to Consolidated Financial Statements.................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................... 11 Item 3. Quantitative and Qualitative Disclosure About Market Risk........................... 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................................... 19 Item 4. Submission of Matters to a Vote of Security Holders................................. 19 Item 6. Exhibits and Reports on Form 8-K.................................................... 20 SIGNATURES........................................................................................ 25
2 R.H. DONNELLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31, -------------------- (amounts in thousands, except per share data) 2002 2001 - --------------------------------------------- -------- -------- Net revenue ...................................................... $ 18,390 $ 18,839 Expenses Operating expenses ............................................ 11,228 11,169 General and administrative expenses ........................... 5,045 4,148 Depreciation and amortization ................................. 1,608 2,885 -------------------- Total expenses .............................................. 17,881 18,202 Partnership and joint venture income ............................. 27,148 27,024 -------------------- Operating income ............................................ 27,657 27,661 Interest income .................................................. 110 1,276 Interest expense ................................................. (6,047) (7,802) -------------------- Income before income taxes and extraordinary loss ........... 21,720 21,135 Provision for income taxes ....................................... 8,362 7,926 -------------------- Income before extraordinary loss ............................ 13,358 13,209 Extraordinary loss (net of taxes of $109 in 2002 and $208 in 2001) 176 348 -------------------- Net income .................................................. $ 13,182 $ 12,861 ==================== Earnings per share before extraordinary loss Basic ....................................................... $ 0.45 $ 0.43 ==================== Diluted ..................................................... $ 0.44 $ 0.42 ==================== Earnings per share after extraordinary loss Basic ....................................................... $ 0.45 $ 0.42 ==================== Diluted ..................................................... $ 0.44 $ 0.41 ==================== Shares used in computing earnings per share Basic ....................................................... 29,453 30,874 ==================== Diluted ..................................................... 30,173 31,741 ==================== COMPREHENSIVE INCOME: Net income ....................................................... $ 13,182 $ 12,861 Unrealized loss on interest rate swaps, net of tax benefit ....... (1,022) (1,527) -------------------- Comprehensive income ............................................. $ 12,160 $ 11,334 ====================
The accompanying notes are an integral part of the consolidated financial statements. 3 R.H. DONNELLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, December 31, 2002 2001 --------- ------------ (in thousands, except share and per share data) ASSETS CURRENT ASSETS Cash and cash equivalents .......................................................... $ 11,486 $ 14,721 Accounts receivable Trade ............................................................................ 26,882 29,240 Other ............................................................................ 3,535 4,121 Allowance for doubtful accounts .................................................. (5,002) (4,189) ---------------------- Total accounts receivable ..................................................... 25,415 29,172 Other current assets ............................................................... 2,339 2,275 ---------------------- Total current assets .......................................................... 39,240 46,168 Fixed assets and computer software - net ........................................... 13,699 14,514 Partnership and joint venture investments .......................................... 198,911 208,989 Prepaid pension .................................................................... 21,356 20,956 Other non-current assets ........................................................... 8,056 7,504 ---------------------- Total Assets .................................................................. $ 281,262 $ 298,131 ====================== LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable and accrued liabilities ........................................... $ 24,523 $ 22,368 Restructuring and other related liabilities ........................................ 12,438 16,357 Accrued interest payable ........................................................... 6,361 5,163 Current portion of long-term debt .................................................. 1,911 2,846 ---------------------- Total current liabilities ..................................................... 45,233 46,734 Long-term debt ..................................................................... 249,839 283,904 Long-term restructuring liability .................................................. 4,934 4,934 Deferred income taxes - net ........................................................ 53,959 52,632 Postretirement and postemployment benefits ......................................... 8,646 7,431 Other non-current liabilities ...................................................... 13,098 13,809 Commitments and contingencies SHAREHOLDERS' DEFICIT Preferred stock, par value $1 per share, authorized -- 10,000,000 shares; outstanding - none ............................................ -- -- Common stock, par value $1 per share, authorized -- 400,000,000 shares; issued - 51,621,894 shares for 2002 and 2001, respectively ... 51,622 51,622 Additional paid-in capital ......................................................... 35,368 32,043 Unamortized restricted stock ....................................................... (284) (336) Retained deficit ................................................................... (15,687) (28,870) Treasury stock, at cost, 22,080,864 shares for 2002 and 22,231,910 shares for 2001 . (163,804) (163,442) Accumulated other comprehensive loss ............................................... (1,662) (2,330) ---------------------- Total shareholders' deficit ................................................... (94,447) (111,313) ---------------------- Total Liabilities and Shareholders' Deficit ................................... $ 281,262 $ 298,131 ======================
The accompanying notes are an integral part of the consolidated financial statements. 4 R.H. DONNELLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------- (amounts in thousands) 2002 2001 - ---------------------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ............................................................... $ 13,182 $ 12,861 Reconciliation of net income to net cash provided by operating activities: Extraordinary loss, net of tax ...................................... 176 348 Depreciation and amortization ....................................... 1,608 2,885 Deferred income tax ................................................. 1,327 -- Provision for doubtful accounts ..................................... 529 617 Other noncash charges ............................................... 332 328 Cash in excess of partnership and joint venture income .............. 10,078 11,960 Decrease in accounts receivable ..................................... 1,077 2,896 Increase in other assets ............................................ (1,513) (873) Increase (decrease) in accounts payable and accrued liabilities ..... 3,868 (3,670) Increase in other non-current liabilities ........................... 1,170 1,757 -------------------- Net cash provided by operating activities .................... 31,834 29,109 CASH FLOWS FROM INVESTING ACTIVITIES Additions to fixed assets and computer software .......................... (791) (1,034) Investment in ChinaBig.com Limited ....................................... -- (1,550) -------------------- Cash used in investing activities ............................ (791) (2,584) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of debt ........................................................ (35,000) (50,000) Purchase of treasury stock ............................................... -- (13,349) Proceeds from employee stock option exercises ............................ 722 1,305 -------------------- Net cash used in financing activities ........................ (34,278) (62,044) Decrease in cash and cash equivalents .................................... (3,235) (35,519) Cash and cash equivalents, beginning of year ............................. 14,721 55,437 -------------------- Cash and cash equivalents, end of period ................................. $ 11,486 $ 19,918 ==================== SUPPLEMENTAL INFORMATION: Cash used to pay: Interest .............................................................. $ 4,398 $ 6,190 ==================== Income taxes .......................................................... $ -- $ -- ====================
The accompanying notes are an integral part of the consolidated financial statements. 5 R.H. DONNELLEY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (amounts in thousands, except per share data) 1. BASIS OF PRESENTATION The 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 included in our Annual Report on Form 10-K for the year ended December 31, 2001. 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. Certain prior year amounts have been reclassified to conform to the current year's presentation. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. The DonTech Partnership ("DonTech") is not consolidated with our financial statements. DonTech is accounted for under the equity method whereby the Company recognizes its 50% share of the net profits of DonTech in the consolidated statements of operations as partnership and joint venture income. Revenue Recognition. We earn revenue in the form of commissions from the sale of advertising and fees from our pre-press publishing services. As a sales agent for Sprint, we recognize sales commission revenue at the time an advertising contract is executed with a customer. Sales commission revenue is recorded net of potential claims and allowances, which are estimated based on historical experience. Revenue from pre-press publishing operations is recognized as services are performed. Partnership and Joint Venture Income. Partnership and joint venture income includes our 50% share of the net profits of DonTech (accounted for under the equity method), revenue participation income from SBC Communications Inc. ("SBC") and the priority distribution on our membership interest in CenDon LLC ("CenDon"), a joint venture with Centel Directory Company ("Centel"), a subsidiary of Sprint Corporation ("Sprint"). Revenue participation income and the priority distribution are tied to advertising sales and recognized when a sales contract is executed with a customer. Partnership and Joint Venture Investments. The carrying value of the DonTech investment, the revenue participation receivable and the priority distribution receivable are reflected as partnership and joint venture investments on the consolidated balance sheets. We also have an 18% interest in ChinaBig.com ("ChinaBig"), which publishes yellow pages directories and offers Internet directory services in the People's Republic of China. The book value of this investment, currently $2 million, is reflected as other non-current assets on the consolidated balance sheets. We evaluate the carrying value of our investment in DonTech and ChinaBig for impairment when events or changes in circumstances indicate that the carrying value of the investment may not be recoverable. If impairment is deemed to have occurred, and such impairment is deemed to be permanent, the carrying value of the investment is written-down to its estimated fair value. Such estimate of fair value would be determined based on independent third party valuations or by discounting estimated future cash flows. The revenue participation receivable and the priority distribution receivable are recorded net of sales claims and allowances and bad debts, estimated based on historical experience. The ultimate amount remitted to us is based on collections by SBC and Sprint from the individual advertisers and is subject to adjustment up to specified maximums under contractual provisions. These receivable amounts are written down to the amount expected to be collected whenever events or circumstances indicate we may not recover the carrying amount of the receivable. Trade Receivables. Trade receivables represent sales commissions earned from the sale of advertising and fees earned for pre-press publishing services. An allowance for doubtful accounts is recognized based upon historical experience and contractual provisions. Receivables for sales commissions are collected from the publisher typically in the same month that the directory is published. Receivables for pre-press publishing services are collected in accordance with the terms of the applicable agreement, generally a pro rata amount each month based on forecasted volumes for the year with a year-end reconciliation based on actual volumes. 6 Concentration of Credit Risk. We maintain significant receivable balances with SBC and Sprint for revenue participation, priority distribution and sales commissions. We do not currently foresee a material credit risk associated with these receivables, although there can be no assurance that full payment will be received on a timely basis. Income Taxes. Our effective tax rate and the tax bases of our assets and liabilities reflect our best estimate of the ultimate outcome of present and future tax audits. A valuation allowance is established where expected future taxable income does not support the full realization of deferred tax assets. 3. PARTNERSHIP AND JOINT VENTURE INVESTMENTS DonTech is our 50/50 perpetual partnership with an operating unit of SBC, which acts as the exclusive sales agent for yellow pages directories published by SBC in Illinois and northwest Indiana. Income from DonTech consists of revenue participation income received directly from SBC and our 50% interest in the net profits of DonTech. Income from DonTech for the three months ended March 31, 2002 and 2001 consisted of the following:
Three months ended March 31, ----------------- 2002 2001 ------- ------- Revenue participation income .......... $19,418 $20,173 50% share of DonTech net profits ...... 2,487 1,826 ----------------- Total DonTech income .................. $21,905 $21,999 =================
Summarized combined financial information of DonTech is shown in the table below.
Three months ended March 31, ------------------- 2002 2001 -------- -------- Net revenue .................. $ 20,639 $ 21,105 Operating income ............. 5,129 3,562 Net income ................... 4,975 3,653 Total assets ................. 122,781 128,821
We are the sales agent for CenDon, our joint venture with Centel. Income from CenDon, which consists of a priority distribution on our membership interest in CenDon, was $5,243 and $5,025 for the quarter ended March 31, 2002 and 2001, respectively. The sales agency agreement with CenDon expires in 2010. 4. LONG-TERM DEBT Long-term debt at March 31, 2002 consisted of $101,750 outstanding under the Senior Secured Term Facilities ("Term Facilities") and $150,000 Senior Subordinated 91/8% Notes. We also have a Senior Revolving Credit Facility (the "Revolver"), which allows us to borrow up to $100,000. There are no outstanding borrowings under the Revolver as of March 31, 2002. During the quarter, we prepaid $35,000 of Term Facilities. In connection with the prepayment, we recorded an after-tax extraordinary loss of $176 relating to the write-off of related deferred financing costs. 7 5. RESTRUCTURING RESERVE In 2001 we recorded a restructuring reserve of $18,556 in connection with executive management employment transition arrangements and the expiration of a pre-press publishing contract, the latter of which will result in the elimination of approximately 100 positions later in 2002. In addition, the restructuring reserve included costs associated with the planned consolidation or relocation of real estate facilities during 2002. Activity in the restructuring reserve through March 31, 2002 was as follows:
Executive Asset Management Other Facilities Write-offs Transition Severance Related and Other Total 2001 Restructuring Charge ....... $ 9,937 $ 3,252 $ 4,380 $ 987 $18,556 Reclass of related liabilities .. 2,735 2,735 ----------------------------------------------------------- Balance at January 1, 2002 ...... 12,672 3,252 4,380 987 21,291 2002 ACTIVITY Payments ........................ 3,840 -- 24 55 3,919 ----------------------------------------------------------- Balance at March 31, 2002 ....... $ 8,832 $ 3,252 $ 4,356 $ 932 $17,372 =========================================================== Short-term ...................... $ 8,771 $ 885 $ 1,850 $ 932 $12,438 Long-term ....................... 61 2,367 2,506 -- 4,934 ----------------------------------------------------------- Total ........................... $ 8,832 $ 3,252 $ 4,356 $ 932 $17,372 ===========================================================
6. EARNINGS PER SHARE The computation of basic and diluted earnings per share before extraordinary loss and from net income for the quarter ended March 31, 2002 and 2001 was as follows:
2002 2001 Income before extraordinary loss .................. $ 13,358 $ 13,209 Extraordinary loss, net of taxes .................. (176) (348) --------------------------- Net income ........................................ $ 13,182 $ 12,861 =========================== Weighted average shares of common stock outstanding Basic .......................................... 29,453 30,874 Dilutive effect of stock options ............... 720 867 --------------------------- Diluted ........................................ 30,173 31,741 =========================== Earnings per share Basic Income before extraordinary loss ............ $ 0.45 $ 0.43 Extraordinary loss, net of taxes ............ (0.00) (0.01) --------------------------- Net income .................................. $ 0.45 $ 0.42 =========================== Diluted Income before extraordinary loss ............ $ 0.44 $ 0.42 Extraordinary loss, net of taxes ............ (0.00) (0.01) --------------------------- Net income .................................. $ 0.44 $ 0.41 ===========================
7. BUSINESS SEGMENTS Our reportable operating segments are DonTech and Directory Advertising Services ("DAS"). We evaluate the performance of DonTech and DAS based on operating income contribution. The DonTech segment includes revenue 8 participation income and our 50% interest in the net profits of DonTech (see Note 3), but does not include an allocation of certain expenses incurred to support this business. Our DAS segment includes our sales agency and joint venture operations with affiliates of Sprint, our pre-press publishing services operation and our information technology function. Operating income for DAS includes the operating results of each of the aforementioned business units, less an allocation of certain shared expenses based on estimated business usage. General & Corporate represents overhead and administrative costs not allocated to the DAS business units. Interest expense, interest income, income tax expense and other non-operating items are not allocated to the operating segments. Segment information for the three-month periods ended March 31, 2002 and 2001 is as follows:
Directory DonTech Advertising General & Consolidated Partnership Services Corporate Totals THREE MONTHS ENDED MARCH 31, 2002 Advertising sales (1) Publication cycle ............. $ 94,074 $ 47,368 $ 141,442 Calendar cycle ................ 81,802 42,677 124,479 Net revenue ..................... 18,390 18,390 Operating income (loss) ......... 21,905 9,775 $ (4,023) 27,657 Depreciation and amortization ... 1,531 77 1,608 EBITDA (2) ...................... 21,905 11,306 (3,946) 29,265 Total assets .................... 182,871 36,922 61,469 281,262 THREE MONTHS ENDED MARCH 31, 2001 Advertising sales (1) Publication cycle ............. $ 105,275 $ 51,597 -- $ 156,872 Calendar cycle ................ 83,398 44,936 -- 128,334 Net revenue ..................... -- 18,839 -- 18,839 Operating income (loss) ......... 21,999 9,465 $ (3,803) 27,661 Depreciation and amortization ... -- 2,655 230 2,885 EBITDA (2) ...................... 21,999 12,120 (3,573) 30,546 Total assets .................... 188,529 39,927 83,663 312,119
(1) Advertising sales represent the billing value of advertisements sold for an annual directory by DonTech and us. Calendar sales represent the billing value of advertisements sold for an annual directory and are reported when a sales contract is executed with a customer. Publication sales represent sales for directories that published in the current period regardless of when the advertising for that directory was sold. We compare publication sales for the period against publication sales for the same directories published in the prior year period. If the current year publication schedule is not consistent with the prior year publication schedule, we adjust the prior year publication schedule to conform to the current year publication schedule. Accordingly, as a result of a change in the publication date of a DonTech directory, DonTech sales for the first quarter 2001 have been decreased by $28,349 to conform to the 2002 publication schedule. (2) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income or net income prepared in conformity with generally accepted accounting principles. In addition, EBITDA may not be comparable to similarly titled measures of other companies. 8. LITIGATION Rockland Yellow Pages. In 1999, Sandy Goldberg, Dellwood Publishing, Inc. and Rockland Yellow Pages (as "plaintiffs") initiated a lawsuit against the Company and Bell Atlantic Corporation (as "defendants") in the United States District Court for the Southern District of New York. The Rockland Yellow Pages is a proprietary directory that competes against a Bell Atlantic directory in the same region, for which we served as Bell Atlantic's advertising sales agent through June 30, 2000. The complaint alleged that the defendants disseminated false information concerning the Rockland Yellow Pages, which resulted in damages to the Rockland Yellow Pages. In May 2001, the District Court dismissed substantially all of plaintiffs' claims, and in August 2001, the remaining claims were either withdrawn by the plaintiffs or dismissed by the District Court. The plaintiffs then filed a complaint against the same defendants in New York State Supreme Court, in Rockland County, alleging virtually the same state law tort claim previously dismissed by the District Court and seeking unspecified damages. In October 2001, defendants filed a motion to dismiss this complaint. On May 1, 2002, the Court granted defendants' motion to dismiss the complaint. Plaintiffs have 30 days to appeal this dismissal. Accordingly, we presently do not believe that the final outcome will have a material adverse effect on our results of operations or financial condition. Information Resources. In 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming us, ACNielsen Company and IMS International Inc., all former 9 subsidiaries of The Dun & Bradstreet Corporation ("D&B"), as defendants (the "IRI Action"). IRI alleges, among other things, various violations of the antitrust laws. They are seeking damages in excess of $350,000, which can be tripled under antitrust laws. IRI is also seeking punitive damages of an unspecified amount. Under the definitive agreement entered into in connection with our separation from D&B in 1998 (the "Distribution Agreement"), D&B assumed the defense and agreed to indemnify us against any payments that we may be required to make, including related legal fees. As required by the Distribution Agreement, Moody's Corporation, which subsequently separated from D&B, agreed to be jointly and severally liable with D&B for the indemnity obligation to us. At this stage in the proceedings, we are unable to predict the outcome of this matter. While no assurances can be provided, we currently believe that D&B and Moody's have sufficient financial resources and borrowing capacity to reimburse us for any payments we make and related costs we incur. Tax Matters. Certain tax planning strategies entered into by D&B are currently subject to review by tax authorities. As a result of the form of our separation from D&B, we are the corporate successor of, and technically the taxpayer referred to as D&B. However, under the terms of the Distribution Agreement and the Tax Allocation Agreement with D&B, D&B agreed to assume the defense and to indemnify us for any tax liability that may be assessed and any related costs and expenses we incur. Also, as required by the Distribution Agreement, Moody's Corporation is jointly and severally liable with D&B for the indemnity obligation to us. Under the terms of a series of agreements between D&B, IMS Health Incorporated ("IMS") and Nielsen Media Research, Inc. ("NMR") (both former subsidiaries of D&B), D&B is required to pay the first $137,000 of any tax liability and accrued interest assessed by the tax authorities. Any amount in excess of $137,000 will be paid 50% by IMS and NMR jointly and severally and 50% by D&B. In 2000, D&B filed an amended tax return for 1989 and 1990 reflecting $561,600 of tax and interest due and paid the IRS $349,300 while IMS (on behalf of itself and NMR) paid approximately $212,300. We understand that this payment was made under dispute in order to stop additional interest from accruing and that D&B may file for a refund of some or all of these amounts. IMS has filed an arbitration proceeding against NMR claiming that NMR subsequently underpaid to IMS its proper allocation of the tax liability under the agreements between NMR and IMS. IMS has also included us as a respondent in the arbitration proceeding so that if NMR prevails in its interpretation of the allocation computation, then IMS could apply that same interpretation of the allocation computation against us under its agreement with us. As required by the Distribution Agreement and Tax Allocation Agreement, D&B and Moody's are defending us in this arbitration proceeding at their cost and expense. If NMR prevails in the arbitration against IMS and in turn IMS prevails against us, we believe that our additional liability under this alternative interpretation of the allocation computation would be approximately $15,000 (a $60,000 gross claim offset by approximately $45,000 of tax benefit). While we believe that the original interpretation of the allocation computation is correct, if NMR prevails against IMS and in turn IMS prevails against us in this arbitration proceeding, D&B and Moody's would be obligated to indemnify us against any such liability. We believe that the fact that D&B and IMS have already paid the IRS a substantial amount of additional taxes with respect to the contested tax planning strategies significantly mitigates our risk. While no assurances can be given, we currently believe that D&B and Moody's have sufficient financial resources and borrowing capacity to reimburse us for any payments we make and related costs we incur. Other matters. We are also involved in other legal proceedings, claims and litigation arising in the ordinary conduct of our business. Although there can be no assurances, we currently believe that the outcome of such legal proceedings will not have a material adverse effect on our results of operations or financial condition. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING INFORMATION Certain statements contained in this Form 10-Q regarding R.H. Donnelley's future operating results, performance, business plans or prospects and any other statements not constituting historical fact are "forward-looking statements" subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, words such as "believe," "expect," "anticipate," "should," "will," "would," "planned," "estimated," "potential," "goal," "outlook," "could," and similar expressions, are used to identify such forward-looking statements. All forward-looking statements reflect only our current beliefs and assumptions with respect to our future results, business plans, and prospects, and are based solely on information currently available to us. Accordingly, these statements are subject to significant risks and uncertainties and our actual results, business plans and prospects could differ significantly from those expressed in, or implied by, these statements. We caution readers not to place undue reliance on, and we undertake no obligation to update any forward-looking statements. Such risks and uncertainties include, without limitation, the following: (1) DEPENDENCE ON A LIMITED NUMBER OF RELATIONSHIPS Our business consists primarily of two relationships; a perpetual partnership with SBC Communications Inc. ("SBC") called DonTech; and two sales agency arrangements with Sprint Corporation ("Sprint"), which expire in 2004 and 2010. Due to the limited number of relationships, our business portfolio is not highly diversified and a material decline in the results of one relationship, especially our relationship with SBC, would likely have a material adverse effect on our overall operating results. No assurance can be given that we will be able to renew our existing Sprint sales agency or various pre-press publishing agreements as they expire or that we will be able to secure additional business to replace these contracts as they expire. (2) DEPENDENCE ON OUR BUSINESS PARTNERS DonTech is the exclusive sales agent for SBC's yellow pages directories in certain markets and we are the exclusive sales agent for Sprint's yellow pages directories in certain markets. SBC and Sprint are the publishers of these directories. As the exclusive sales agent, DonTech and we are responsible for the management of our respective sales forces, including compensation, recruiting, training and other sales related matters. As the publisher, SBC and Sprint have responsibility for and control over all other matters, including without limitation, product development, pricing, scheduling, marketing, distribution, billing, collections, credit and customer service. While we believe that DonTech's and our economic interests are generally aligned with those of SBC and Sprint with respect to their yellow pages directory operations, SBC or Sprint could implement policies or decisions (in which DonTech or we would likely have little or no participation or influence), and/or perform their obligations in a manner that could have a material adverse effect on our results of operations or financial condition and, potentially, on our relationship with our business partners. DonTech and we are afforded certain protections under the respective agreements, which we believe could mitigate to a significant degree the adverse effects of such policy changes or decisions on us. However, we cannot give any assurances that such policy changes or decisions would not have a material adverse effect on our results of operations, financial condition or our relationship with our business partners. Lastly, we maintain large receivable balances from SBC and Sprint, and any liquidity difficulties that they may experience could materially impact our results of operations, financial condition and liquidity. (3) UNCERTAINTY REGARDING CHANGES IN THE INDUSTRY Our ability to diversify our business portfolio by providing sales agency, pre-press publishing or other services to SBC or Sprint in other markets or to other publishers in the industry may be impacted by uncertainties caused by consolidation within the telecommunications and independent yellow pages publishing industries or other changes. Also, most yellow pages directory publishers provide all sales and publishing functions internally, which could impact our ability to renew or obtain additional outsourcing business from our current publishers or offer our services to other yellow pages directory publishers. In addition, the effects of the Telecommunications Act of 1996 are still developing and the ultimate impact of those changes is still uncertain. The introduction of new products or technologies (including electronic delivery of directory information) by other companies and/or pricing pressures from competitors or customers could also adversely affect our results of operations and financial condition. 11 (4) GENERAL ECONOMIC FACTORS Our business results could be adversely affected by the continuation or further deterioration of the economic slowdown presently being experienced in the United States, especially with respect to the markets in which we operate. In addition, any residual economic effects of, and uncertainties regarding (i) the terrorist attacks that occurred on September 11, 2001, (ii) the general possibility or express threat of similar terrorist or other related disruptive events, or (iii) the future occurrence of similar terrorist or other related disruptive events, especially with respect to the major markets in which we operate that depend heavily upon travel and tourism, could also adversely affect our business. (5) USE OF CASH FLOW Our free cash flow may be used for some or all of the following: repay debt, repurchase outstanding common stock and/or pursue growth initiatives within our line of business and core competencies, whether through acquisitions, joint ventures, outsourcing opportunities or otherwise. Any share repurchases would be subject to market conditions and compliance with legal restrictions, as well as restrictions under our debt covenants. Growth initiatives, if pursued, would be subject to implementation, integration and other related risks. Any significant growth initiative would likely require the issuance of additional indebtedness and could involve the public or private sale of our equity securities and no assurance can be given that any proposed transaction would be accretive to earnings. We did not repurchase any common stock in the first quarter of 2002. We currently intend to apply excess cash to repay debt. THE COMPANY R.H. Donnelley Corporation is a leading independent marketer of yellow pages advertising services tailored for small and medium-sized businesses. Our business is organized into two reportable operating segments as of January 1, 2002, the DonTech Partnership ("DonTech") and Directory Advertising Services ("DAS"). Unless otherwise indicated, the terms "Company," "we," "us" and "our" refer to R.H. Donnelley Corporation and its direct and indirect wholly owned subsidiaries. All tabular amounts are presented in millions of dollars. DONTECH DonTech is a 50/50 perpetual partnership with an operating unit of SBC, which acts as the exclusive sales agent for yellow pages directories published by SBC in Illinois and northwest Indiana. DonTech provides advertising sales services and receives a commission from SBC. Our income associated with DonTech is comprised of two components, our 50% interest in the net profits of DonTech and revenue participation income received directly from SBC, which is based on a percentage of DonTech advertising sales. Income from DonTech accounts for a significant portion of our operating income and a material decline in the advertising sales of DonTech would likely have a material adverse effect on our results of operations and financial condition. We also provide certain pre-press publishing and billing services for DonTech directories, as well as provide sales related computer applications to DonTech. The fees received for these services are included in our DAS segment. DIRECTORY ADVERTISING SERVICES Within our DAS segment, we sell yellow pages advertising for affiliated entities of Sprint and perform pre-press publishing services for yellow pages directories. We are the exclusive sales agent in the greater Orlando, Florida market ("Central Florida") for an operating unit of Sprint and the exclusive sales agent in certain Nevada, Florida, Virginia and North Carolina markets for CenDon LLC ("CenDon"), a joint venture with Centel Directory Company ("Centel"), a subsidiary of Sprint. Other Sprint affiliates sell yellow pages advertising in other markets in these states. We receive sales commissions on all advertising we sell for Sprint and CenDon and a priority distribution on our membership interest in CenDon ("priority distribution"). The priority distribution amount is based on a percentage of CenDon advertising sales and was designed to allow us to maintain the same level of profitability as we would have earned under the predecessor CenDon Partnership through its scheduled expiration date in 2004. A material decline in the advertising sales of our Sprint operation could have a material adverse effect on our results of operations and financial condition. We also provide pre-press publishing services for the yellow pages directories of DonTech and Sprint for which we sell advertising, as well as for an unaffiliated third party publisher under separately negotiated contracts. All information technology costs are also included in DAS. 12 During the quarter, we signed an agreement with SBC to continue to provide pre-press publishing services for DonTech's 130 directories through 2008. The original agreement was set to expire at the end of 2003. The pre-press publishing agreement with Sprint is set to expire in 2003 and we intend to pursue negotiations to extend this agreement, although no assurance can be given that we will be able to extend this contract. At the end of 2002, our pre-press publishing agreement with an unaffiliated publisher will expire and this contract will not be extended. At the end of 2001, we recorded a restructuring charge for severance and other related costs associated with the expiration of this contract. As a result of this charge, the expiration of this contract will not have a material adverse effect on our results of operations or financial condition in the future. Sprint has publicly announced that it is considering divesting its directory publishing operations. We do not believe that any sale or change in control of the Sprint directory operations would have a material adverse effect on our results of operations or financial condition because we believe all of our contractual rights related to serving as sales agent in the Central Florida and CenDon markets would survive any such sale or change in control. In addition, our CenDon agreements specifically obligate Sprint (and any successor) to indemnify us against any material damages we suffer as a result of any changes in policies, practices and procedures from those in existence at the time of the restructuring of the CenDon relationship in July 2000. We believe that this indemnity significantly protects us against any potential material adverse effects from any such sale or change in control with respect to the CenDon markets. CRITICAL ACCOUNTING POLICIES Those accounting policies that involve assumptions or subjectivity on our part and/or that have or could have a material effect on our results of operations or financial condition are as follows: Revenue Recognition. We earn revenue in the form of commissions from the sale of advertising and fees from our pre-press publishing services. As a sales agent for Sprint, we earn and recognize sales commission revenue at the time an advertising contract is executed with a customer. Sales commission revenue is recorded net of potential claims and allowances, which are estimated based on historical experience. Revenue from pre-press publishing operations is recognized as services are performed. Partnership and Joint Venture Income. Partnership and joint venture income ("partnership income") includes our 50% share of the net profits of DonTech (accounted for under the equity method), revenue participation income and the priority distribution. Revenue participation income and priority distribution income are earned and recognized when a sales contract is executed with a customer. Partnership and Joint Venture Investments. The carrying value of the DonTech investment, the revenue participation receivable and the priority distribution receivable are reflected as partnership and joint venture investments on the consolidated balance sheets. We also have an 18% interest in ChinaBig.com ("ChinaBig"), which publishes yellow pages directories and offers Internet directory services in the People's Republic of China. The book value of this investment, currently $2 million, is reflected as other non-current assets on the consolidated balance sheets. We evaluate the carrying value of our investment in DonTech and ChinaBig for impairment when events or changes in circumstances indicate that the carrying value of the investment may be impaired. If impairment is deemed to have occurred, and such impairment is deemed to be permanent, the carrying value of the investment is written-down to its estimated fair value. Such estimate of fair value would be determined based on independent third party valuations or by discounting estimated future cash flows. The revenue participation receivable and the priority distribution receivable are recorded net of sales claims and allowances and bad debts, estimated based on historical experience. The ultimate amount remitted to us is based on collections by SBC and Sprint from the individual advertisers and is subject to adjustment up to specified maximums under contractual provisions. These receivable amounts are written down to the amount expected to be collected whenever events or circumstances indicate we may not recover the carrying amount of the receivable. Trade Receivables. Trade receivables represent sales commissions earned from the sale of advertising and fees earned for pre-press publishing services. An allowance for doubtful accounts is recognized based upon historical experience and contractual provisions. Receivables for sales commissions are collected from the publisher typically in the same month that the directory is published. Receivables for pre-press publishing services are collected in 13 accordance with the terms of the applicable agreement, generally a pro rata amount each month based on forecasted volumes for the year with a year-end reconciliation based on actual volumes. Concentration of Credit Risk. We maintain significant receivable balances with SBC and Sprint for revenue participation, priority distribution and sales commissions. We do not currently foresee a material credit risk associated with these receivables, although there can be no assurance that full payment will be received on a timely basis. Income Taxes. Our effective tax rate and the tax bases of our assets and liabilities reflect our best estimate of the ultimate outcome of present and future tax audits. A valuation allowance is established where expected future taxable income does not support the full realization of deferred tax assets. See Note 2 to the Consolidated Financial Statements for additional information on our accounting policies. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2002 AND 2001 ADVERTISING SALES As a sales agent, DonTech earns a commission on the value of advertising sold for SBC and we earn a commission on the value of advertising sold for Sprint. We therefore do not report the gross value of advertising sold on the consolidated statements of operations. We nevertheless disclose and discuss the value of advertising sales made by DonTech and us on a publication basis and calendar basis because advertising sales affect our reported revenue and profitability. Publication sales represent the value of advertising sales in directories that published during the current period regardless of when the advertising for that directory was sold. We compare publication sales for the period against publication sales for the same directories published in the prior year period. If the current year publication schedule is not consistent with the prior year publication schedule, we adjust the prior year publication schedule to conform to the current year publication schedule. This comparison gives an indication of underlying sales growth in the directories for which DonTech and we sell advertising. However, they do not have a direct correlation to our reported revenue or profitability in the indicated period as most, if not all, of these sales were consummated and reported in prior periods (see "Calendar Sales" below). Calendar sales represent the annual billing value of advertisements sold in the current period and are reported when a sales contract is executed with a customer. Commission revenue, revenue participation income and priority distribution income are computed based on calendar sales and reported concurrently with the reporting of calendar sales. Accordingly, our revenue and profitability are directly correlated to calendar sales. In terms of reporting, a calendar sale generally precedes a publication sale by three to eight months, therefore, calendar sales reported in one period will generally be reported as publication sales in subsequent periods. Publication Sales Publication sales by segment for the quarter ended March 31, 2002 and 2001 are presented in the table below. A DonTech directory originally scheduled to publish in February 2002 was published in December 2001. To conform to the 2002 publication schedule, DonTech's first quarter 2001 publication sales have been decreased $28.3 million.
2002 2001 $ Change % Change ---- ---- -------- -------- DonTech $ 94.1 $105.3 $(11.2) (10.6)% DAS 47.3 51.6 (4.3) (8.3) ------ ------ ------ ---- Total $141.4 $156.9 $(15.5) (9.9)% ====== ====== ====== ====
Publication sales were $141.4 million for the quarter compared to $156.9 million for the prior year quarter. Lower publication sales for the quarter was primarily due to the decline in sales for DonTech's Chicago Consumer directory 14 and Sprint's January Las Vegas directory. As previously disclosed, the advertisements in these directories were sold during the latter half of 2001 and were impacted by deteriorating economic conditions and increased uncertainty among advertisers. Calendar Sales The selling of advertising for a specific directory is managed as a sales campaign, which typically begins approximately six to eight months prior to the scheduled publication date. Calendar sales can fluctuate from the prior period due to various factors, including changes in the actual commencement date of a sales campaign, the level of sales campaign servicing in the current period relative to the prior year period and the length of the sales campaign. Such fluctuations, if material, would likely have a material effect on our results of operations or financial condition for that period. Calendar sales by segment for the quarter ended March 31, 2002 and 2001 were as follows:
2002 2001 $ Change % Change ---- ---- -------- -------- DonTech $ 81.8 $ 83.4 $ (1.6) (1.9)% DAS 42.7 44.9 (2.2) (4.9) ------ ------ ------ ---- Total $124.5 $128.3 $ (3.8) (3.0)% ====== ====== ====== ====
Calendar sales were $124.5 million for the quarter, down 3% compared to $128.3 million for the prior year quarter. The weak economy continued to affect our sales as advertiser renewal rates were below historical levels due to continued uncertainty among advertisers and tighter credit standards. Also contributing to the decline was the timing of sales. Certain 2002 sales campaigns started later in the year than the 2001 sales campaigns and the servicing level, or the percent of the sales campaign completed, for other campaigns was lower than the prior year. NET REVENUE Revenue is derived entirely from our DAS segment and is earned principally from two sources - sales commissions earned on the value of advertising sold for Sprint and fees for pre-press publishing services. Revenue of $18.4 million for the quarter was lower than the prior year quarter of $18.8 million, primarily due to lower DAS calendar sales for the reasons described above. EXPENSES Expenses for the quarter ended March 31, 2002 and 2001 were as follows:
2002 2001 $ Change % Change ---- ---- -------- -------- Operating expenses $11.2 $11.2 -- -- G&A expenses 5.1 4.1 $ 1.0 24.4% D&A expense 1.6 2.9 (1.3) (44.8) ----- ----- ----- ---- Total $17.9 $18.2 $(0.3) (1.6)% ===== ===== ===== ====
Operating expenses of $11.2 million for the current year quarter were unchanged from the prior year quarter. Lower sales expense resulting from the decline in sales was offset by higher software maintenance type costs (which are expensed when incurred) and lower software development type costs (which are capitalized when incurred) this quarter relative to the prior year quarter. General and administrative expenses were $5.1 million for the quarter compared to $4.1 million for the prior year quarter. The increase was primarily due to costs associated with the previously announced executive management transition and higher employee benefit costs. Depreciation and amortization expense was $1.6 million for the quarter compared to $2.9 million for the prior year quarter. This decline was primarily due to the original investment in the Raleigh Information Center being fully depreciated by the end of 2001. 15 PARTNERSHIP AND JOINT VENTURE INCOME Partnership income for the quarter ended March 31, 2002 and 2001 was as follows:
2002 2001 $ Change % Change ---- ---- -------- -------- DonTech Revenue participation $19.4 $20.2 $(0.8) (4.0)% Equity income share 2.5 1.8 0.7 38.9 ----- ----- ----- ---- Total DonTech 21.9 22.0 (0.1) (0.5) CenDon 5.2 5.0 0.2 4.0 ----- ----- ----- --- Total $27.1 $27.0 $ 0.1 0.4% ===== ===== ===== ===
Partnership income for the quarter was $27.1 million compared to $27.0 million for the prior year quarter. Partnership income from DonTech was $21.9 million compared to $22.0 million in the first quarter of 2001. Revenue participation income was lower due to the decrease in sales; however, higher equity income due to DonTech's cost saving initiatives and timing of expenses offset most of this decline. CenDon income was $5.2 million compared to $5.0 million in the prior year quarter. A contractual increase in the priority distribution rate for 2002 more than offset the negative effect of lower calendar sales. OPERATING INCOME Operating income for DonTech includes our 50% interest in the net profits of DonTech and revenue participation income, but does not include an allocation of certain general and administrative expenses incurred to support this business. Operating income for DAS includes the operating results of each of the included business units, less an allocation of certain shared expenses based on estimated business usage. General & Corporate represents overhead and administrative costs not allocated to the DAS business units. Operating income by segment for the quarter ended March 31, 2002 and 2001 was as follows:
2002 2001 $ Change % Change ---- ---- -------- -------- DonTech $21.9 $22.0 $(0.1) (0.5)% DAS 9.8 9.5 0.3 3.2 General & Corporate (4.0) (3.8) (0.2) (5.3) ----- ----- ----- --- Total $27.7 $27.7 $ -- 0.0% ===== ===== ===== ===
Operating income of $27.7 million for the quarter was unchanged from the prior year quarter as higher DAS income was offset by higher General & Corporate costs. The increase in DAS operating income was driven by the higher CenDon priority distribution income and lower pre-press publishing costs due a reduction in headcount. The increase in General & Corporate costs was due to costs associated with the previously announced executive management transition. INTEREST AND TAXES Net interest expense for the quarter was $5.9 million compared to $6.5 million in the first quarter of 2001. The decrease was primarily due to lower average outstanding debt levels in the first quarter 2002 compared to the first quarter 2001. The effective tax rate for the first three months of 2002 was 38.5% compared to 37.5% for the first three months of 2001. The increase in our effective tax rate was due to changes in state apportionment factors. EXTRAORDINARY LOSS In the first quarter of 2002, we prepaid $35 million of debt versus $50 million the first quarter of 2001. In connection with these prepayments, we recognized an extraordinary after-tax loss from the write-off of related deferred financing costs of $0.2 million in the first quarter 2002 and $0.3 million in the first quarter 2001. 16 NET INCOME AND EARNINGS PER SHARE Net income before extraordinary loss for the quarter was $13.4 million compared to $13.2 million in the prior year quarter. The increase was mainly due to a reduction in interest expense partially offset by higher income taxes. Diluted earnings per share before extraordinary loss for the quarter was $0.44 per share compared to $0.42 per share in the prior year quarter. This increase was due to the increase in net income and the effect of lower outstanding shares. Net income after extraordinary loss for the quarter was $13.2 million compared to $12.9 million for the prior year quarter and diluted earnings per share after extraordinary loss for the quarter was $0.44 per share compared to $0.41 per share in the prior year quarter. LIQUIDITY AND CAPITAL RESOURCES Our primary source of liquidity is cash flows from operations. Additionally, at March 31, 2002, we had available $100 million under our $100 million Senior Revolving Credit Facility (the "Revolver"). We believe that cash flows generated from operations and the available borrowing capacity under the Revolver will be sufficient to fund our operations and meet our obligations to our employees, vendors and creditors for at least the next 12 to 24 months. Our sources of cash flow are primarily from revenue participation, priority distribution and sales commission payments received from SBC and Sprint. These payments are all directly dependent on the value of advertising sold. The amount of cash flow from these sources can be impacted by, among other factors, competition in our markets, general economic conditions and the level of demand for yellow pages advertising. Management believes that if advertising sales were to decline by 10%, cash flow from operations, together with the available borrowing capacity under the Revolver, would still be sufficient to fund our operations and meet our obligations to our employees, vendors and creditors for at least the next 12 to 24 months. See "Forward-Looking Information - Use of Cash Flow." In addition, as the publisher of the respective directories, Sprint and SBC are responsible for and consequently control many of the critical functions and decisions that can impact our results and the results of DonTech. While it has not historically been the case, their respective policies, decisions and performance of their respective obligations in these areas, in which we have little or no participation or influence, could have a material adverse effect on our results of operations or financial condition. See "Forward-Looking Information - Dependence on our Business Partners." Sprint has publicly announced that it is considering divesting its directory publishing operations. We do not believe that any sale or change in control of the Sprint directory operations would have a material adverse effect on our results of operations or financial condition because we believe all of our contractual rights related to serving as sales agent in the Central Florida and CenDon markets would survive any such sale or change in control. In addition, our CenDon agreements specifically obligate Sprint (and any successor) to indemnify us against any material damages we suffer as a result of any changes in policies, practices and procedures from those in existence at the time of the restructuring of the CenDon relationship in July 2000. We believe that this indemnity significantly protects us against any potential material adverse effects from any such sale or change in control with respect to the CenDon markets. In 2001 we recorded a restructuring reserve of $18.6 million in connection with executive management employment transition arrangements and the expiration of a pre-press publishing contract, the latter of which will result in the elimination of approximately 100 positions later in 2002. In addition, the restructuring reserve included costs associated with the planned consolidation or relocation of real estate facilities during 2002. Payments made during the quarter for this restructuring were $3.9 million and pertained primarily to the executive management transition (see Note 5 in Item 1 "Financial Statements"). We expect to make restructuring payments of $9.0 million during the second quarter, which will also primarily relate to the executive management transition. There were no reductions in headcount related to the expiration of the pre-press publishing contract during the first quarter and no reductions are anticipated for the second quarter. During the quarter, we generated $31.8 million of cash flow from operations compared to $29.1 million in the first quarter of 2001. Contributing to the $2.7 million increase were lower interest payments due to the prepayment of $65 million of debt in 2001 and lower management bonus payments, which were based on 2001 financial and operational performance. 17 Cash used in investing activities for the quarter was $0.8 million and consisted of fixed assets and computer software purchases. Cash used in investing activities for the prior year quarter was $2.6 million, which included a $1.6 million investment in ChinaBig. This investment represented our final required investment in ChinaBig. We currently have no material commitments for investment spending or capital expenditures. Net cash used in financing activities was $34.3 million during the quarter compared to $62.0 million in the prior year quarter. We prepaid $35 million of debt in the quarter and $50 million of debt in the prior year quarter. There were no share repurchases during the quarter compared to $13.3 million of repurchases in the prior year quarter. Certain telecommunications companies have publicly announced their intent to consider or explore divesting their respective directory publishing operations. We intend to carefully evaluate these potential growth opportunities within our core competencies and line of business. During our evaluation of these still-evolving opportunities, we have suspended our share repurchase programs and currently intend to apply excess cash flow to repay debt. See "Forward Looking Information - Use of Cash Flow." Item 3. Quantitative and Qualitative Disclosure About Market Risk RISK MANAGEMENT We borrow funds under our Senior Secured Term Facilities ("Term Facilities") and Revolver at prevailing short-term rates. To mitigate our exposure to fluctuating short-term interest rates, we have outstanding interest rate swaps whereby we pay a fixed rate and receive a variable rate based on 3-month LIBOR. At March 31, 2002, the notional value of the interest rate swaps was $125 million. In June 2002, an interest rate swap agreement with a notional value of $50 million will expire. Due to the reduced level of indebtedness, we do not presently intend to replace the expiring interest rate swap. These interest rate swap agreements expose us to credit risk in the event that we are in a net gain position and the counterparty to the agreements does not, or can not meet their obligation. The notional amount is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The loss would be limited to the amount that would have been received, if any, over the remaining life of the agreements. At March 31, 2002, we were in a net loss position (see "Market Risk Sensitive Instruments" below), and therefore, are not currently exposed to credit risk. The counterparty to these agreements is a major financial institution and, had we been in a net gain position, we would expect this counterparty to perform its obligations under the swaps. We use derivative financial instruments for hedging purposes only and not for trading or speculative purposes. MARKET RISK SENSITIVE INSTRUMENTS The interest rate swaps have been designated as cash flow hedges. In accordance with FAS 133, the fair value of the swaps is recognized in other comprehensive income, a component of shareholders' equity. The fair value of the swaps was based on quoted market prices. At March 31, 2002, the unrealized fair value, which is the difference between what we would have to pay to terminate the swaps, and the book value of the swaps, was a loss of $2.7 million ($1.7 million, after tax). This loss was recognized in the consolidated balance sheet as other non-current liabilities and accumulated other comprehensive loss, a component of shareholders' deficit. 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to the discussion of legal proceedings under Item 3 of Part I in our Annual Report on Form 10-K for the year ended December 31, 2001 ("10-K"). As of March 31, 2002, there has been no material change in the information with respect to legal proceedings from that set forth in the 10-K. See also Note 8 of the Notes to the Consolidated Financial Statements in Item 1 of Part 1 of this Quarterly Report on Form 10-Q. We are also involved in certain legal proceedings incidental to the normal conduct of our business. Although there can be no assurances, we presently believe that the outcome of such legal proceedings will not have a material adverse effect on our results of operations or financial condition. Item 4. Submission of Matters to a Vote of Security Holders Our Annual Meeting of Stockholders ("Meeting") was held in White Plains, N.Y. on May 1, 2002. At the Meeting, the Company's stockholders elected the two Class III Directors nominated for election by the Board of Directors to serve three-year terms as follows:
Votes Name Votes For Withheld Peter J. McDonald 26,435,287 296,095 Frank R. Noonan 26,556,024 175,358
William G. Jacobi did not stand for re-election and therefore the Board of Directors now comprises seven members. The other members of our Board of Directors (Kenneth G. Campbell, Robert Kamerschen, Carol J. Parry, David C. Swanson and Barry Lawson Williams) were not subject to re-election by stockholders this year and continue in office. At the Meeting, the Company's stockholders also ratified the appointment of PricewaterhouseCoopers LLP ("PwC") to serve as our independent accountants for 2002 as follows:
Votes For Votes Against Abstentions Ratification of the appointment of PwC 26,053,915 660,394 17,073
19 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
EXHIBIT NO. DOCUMENT 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 3.3 Certificate of Incorporation of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 3.4 By-laws of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.1 Indenture dated as of June 5, 1998 between R.H. Donnelley Inc., as Issuer, the Company, as Guarantor, and the Bank of New York, as Trustee, with respect to the 9 1/8% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 4.2 Form of the 9 1/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.1) 4.3 Company Guarantee (included in Exhibit 4.1) 4.4 Rights Agreement, dated as of October 27, 1998 between R.H. Donnelley Corporation and First Chicago Trust Company (incorporated by reference to Exhibit 4 to the Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on November 5, 1998, Registration No. 001-07155) 4.5 Amendment No. 1 to Rights Agreement dated as of February 26, 2001 by and among R.H. Donnelley Corporation, First Chicago Trust Company of New York (as initial Rights Agent) and The Bank of New York (as successor Rights Agent) (incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.1 Form of Distribution Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.2 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.2 Form of Tax Allocation Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.3 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155)
20
EXHIBIT NO. DOCUMENT 10.3 Form of Employee Benefits Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.4 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.4 Form of Intellectual Property Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.5 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.5 Form of Amended and Restated Transition Services Agreement between the Company (f/k/a The Dun & Bradstreet Corporation), The New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation and Gartner Group, Inc. (incorporated by reference to Exhibit 99.9 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155) 10.6 Credit Agreement among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent and the Lenders party thereto (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287) 10.7 First Amendment to Credit Agreement, dated as of March 4, 1999, among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155) 10.8 DonTech II Partnership Agreement, effective August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois, Inc. (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.9 Revenue Participation Agreement, dated as of August 19, 1997, by and between APIL Partners Partnership and R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.10 Master Agreement, executed August 19, 1997, by and among R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation), the Company (f/k/a The Dun & Bradstreet Corporation), The Am-Don Partnership a/k/a DonTech, DonTech II, Ameritech Publishing, Inc., Ameritech Publishing of Illinois, Inc., Ameritech Corporation, DonTech I Publishing Company LLC and the APIL Partners Partnership (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.11 Exclusive Sales Agency Agreement, effective August 19, 1997, between APIL Partners Partnership and DonTech II (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287)
21
EXHIBIT NO. DOCUMENT 10.12 Second Amended and Restated Partnership Agreement, effective as of August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois (incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287) 10.13* Agreement for Publishing Services, dated as of January 1, 2002 between Ameritech Publishing Inc. and R.H. Donnelley Inc. 10.14+ Key Employees' Performance Unit Plan, as amended and restated (incorporated by reference to Exhibit 10.15 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287) 10.15+ 1991 Key Employees' Stock Option Plan, as amended and restated through April 25, 2000 (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2000, Commission File No. 001-07155) 10.16+ Amended and Restated 1998 Directors' Stock Plan (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 001-07155) 10.17+ Pension Benefit Equalization Plan (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 001-07155) 10.18+ 2001 Stock Award and Incentive Plan (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 001-07155) 10.19+ 2001 Partner Share Plan (incorporated by reference to Exhibit 99.1 to Registration Statement on Form S-8, filed with the Securities and Exchange Commission on April 30, 2001, Registration No. 333-59790) 10.20+ Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 99.02 to Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July, 25, 2001, Registration No. 333-65822) 10.21+ Form of Annual Incentive Program Award (incorporated by reference to Exhibit 99.03 to Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July, 25, 2001, Registration No. 333-65822) 10.22+ Form of Performance Unit Program Award (incorporated by reference to Exhibit 99.04 to Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July, 25, 2001, Registration No. 333-65822) 10.23+ Deferred Compensation Plan (incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on November 24, 1999, Registration No. 333-91613)
22
EXHIBIT NO. DOCUMENT 10.24+ Amended and Restated Employment Agreement dated as of December 27, 2001 between the Company and Frank R. Noonan (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 001-07155) 10.25+ Amended and Restated Employment Agreement dated as of December 27, 2001 between the Company and Philip C. Danford (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 001-07155) 10.26+ Employment Agreement dated as of September 28, 1998 between the Company and David C. Swanson (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Commission File No. 001-07155) 10.27+ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and David C. Swanson (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.28+ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and David C. Swanson (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.29+ Employment Agreement dated as of September 28, 1998 between the Company and Frank M. Colarusso (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.30+ Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Frank M. Colarusso (incorporated by reference to Exhibit 10.33 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.31+ Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and Frank M. Colarusso (incorporated by reference to Exhibit 10.34 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.32+ Employment Agreement dated as of September 26, 2000 between the Company and William C. Drexler (incorporated by reference to Exhibit 10.35 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.33+ Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and William C. Drexler (incorporated by reference to Exhibit 10.36 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)
20
EXHIBIT NO. DOCUMENT 10.34+ Employment Agreement dated as of January 1, 2001 between the Company and Robert J. Bush (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.35+ Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and Robert J. Bush (incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 10.36+ Separation Agreement and Release dated as of March 15, 2001 between the Company and Judith A. Norton (incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155) 21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)
- ---------- * Flied herewith + Management contract or compensatory plan (b) Reports on Form 8-K: None 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R.H. DONNELLEY CORPORATION Date: May 10, 2002 By: /s/ Steven M. Blondy ---------------------------------- Steven M. Blondy Senior Vice President and Chief Financial Officer Date: May 10, 2002 By: /s/ William C. Drexler ---------------------------------- William C. Drexler Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R.H. DONNELLEY INC. Date: May 10, 2002 By: /s/ Steven M. Blondy ---------------------------------- Steven M. Blondy Senior Vice President and Chief Financial Officer Date: May 10, 2002 By: /s/ William C. Drexler ---------------------------------- William C. Drexler Vice President and Controller 25 EX-10.13 3 y60142ex10-13.txt AGREEMENT FOR PUBLISHING SERVICES Agreement No. Aas-463-A Page 1 of 31 AGREEMENT FOR PUBLISHING SERVICES This Agreement for Publishing Services ("Agreement") is entered into effective as of January 1, 2002 ("Effective Date") between Ameritech Publishing, Inc., d/b/a Ameritech advertising services, a Delaware corporation with its principal business offices at 100 E. Big Beaver Road, Troy, MI 48083 ("Publisher"), and R. H. Donnelley Inc. ("RHD"), a Delaware corporation with its principal offices at One Manhattanville Road, Purchase, New York 10577 ("RHD"). This Agreement terminates, supersedes and replaces the Agreement for Publishing Services entered into between RHD and The Am-Don Partnership a/k/a DonTech as of July 17, 1997 (which was assumed by Publisher in December 1997). Publisher and RHD are sometimes referred to herein, collectively, as the "Parties," and, individually, as a "Party." While The DonTech Partnership, a general partnership between the Parties (or their affiliates) organized under the Illinois Uniform Partnership Act ("DonTech"), may (a) directly receive from RHD, on behalf of Publisher, certain services or data and/or (b) directly provide to RHD, on behalf of Publisher, certain services or data (in either case as the Publisher's exclusive sales agent with respect to the directories subject to this Agreement), the Parties hereby acknowledge and agree that DonTech is not a party to this Agreement nor shall it be deemed a third party beneficiary of this Agreement. Consequently, DonTech shall not be entitled to enforce any of the terms or conditions of this Agreement. Publisher and RHD agree to use their reasonable best efforts to cause DonTech to cooperate and perform any and all activities necessary and appropriate in connection with this Agreement. DonTech, or any other successor entity that shall hereafter serve as Publisher's sales agent with respect to the directories subject to this Agreement, shall hereinafter be referred to as "Publisher's Sales Agent." Therefore, for the promises and other considerations set forth herein, the Parties mutually agree as follows: 1. TERM This Agreement will continue in full force and effect until December 31, 2008 (the "Termination Date"), unless previously terminated in accordance with Section 18. 2. SCOPE OF WORK; PERFORMANCE STANDARDS a. Scope of Work. The services to be performed under this Agreement, including those specifically described in Sections 3 through 14 and Attachment 2 of this Agreement will be provided by RHD to Publisher under this Agreement during the term of the Agreement for all of Publisher's print classified directories identified on Attachment1 published during the term of this Agreement, and any other print classified print directories published by Publisher during the term of this Agreement for primary distribution in whole or in part either (i) in Illinois or (ii) in the geographical area where the Northwest Indiana Directories are published for primary distribution on this Agreement's Effective Date. Any changes or additions to the services to be provided by RHD hereunder from those specified herein, and any additional costs incurred by RHD as a result thereof, shall be governed by the Work Request Process described in Section 16. Agreement No. Aas-463-A Page 2 of 31 2. SCOPE OF WORK; PERFORMANCE STANDARDS (CON'T) b. Performance Standards. The Parties agree that each Party shall perform its respective obligations hereunder as specified by the performance standards set forth herein, which performance standards may be modified from time to time upon mutual agreement of the Parties. With respect to any performance standard that calls for performance within a specified number of days or working days, compliance with that standard shall be measured on a three-month rolling average basis. Any documents or records called for by this Agreement shall be provided and/or maintained in the form specified by this Agreement, except as may otherwise be mutually agreed by the Parties. 3. SERVICE ORDER PROCESSING a. Provision of Service Orders by Publisher. i. Publisher will provide to RHD service order data containing business customers' listing information on a daily basis via electronic transmission for automated application to the listings database. ii. Should service order data provided by Publisher require modifications to the service order interface, or should RHD be required to handle service orders outside of the existing interface process, Publisher shall reimburse RHD's reasonable and necessary additional costs, in accordance with the Work Request Process. b. Service Order Data Processing to be Performed by RHD. RHD will perform the following activities with respect to service orders: i. Update the listings database daily and provide Publisher and Publisher's Sales Agent with daily electronic notification whenever advertising is affected. ii. Where necessary, contact the issuing telephone company to resolve discrepancies. iii. Transmit to Publisher's Sales Agent potential sales leads in electronic format that may be identified as a result of service order processing within *** working days of receipt of service order information. iv. The Parties acknowledge that (A) the entry of multiple telephone companies providing local exchange telephone service within the area covered by Publisher's directories or (B) any conversion of Publisher's service order listing base system may have significant and unanticipated impact on the abilities of Parties to maintain a complete and accurate listings database. The occurrences described in clauses (A) and (B) may also impact RHD's ability - ------------------------------------------------------------------------------ ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 3 of 31 3. SERVICE ORDER PROCESSING (con't) b. Service Order Data Processing to be Performed by RHD (con't) to maintain the outlined turnaround and/or average outgoing quality level (the "AOQL") for service order processing. In such cases, RHD will work to achieve a listings database that is as complete and accurate as reasonably can be achieved, and Publisher shall reimburse RHD for its reasonable costs related thereto in accordance with the Work Request Process. v. Assuming an automated process between RHD and Publisher whereby (A) ***% or more of the transmitted service orders can be applied directly to the listings database without manual intervention and (B) ***% or less of the hard copy service orders received are defective, then RHD shall update the listings database with automated service orders daily, and with manually processed service orders within *** working days of receipt of such service orders. If (A) less than ***% of the transmitted service orders can be applied directly to the listings database without manual intervention or (B) more than ***% of the hard copy service orders received are defective, then the Parties shall negotiate revised time periods for processing service orders and agree upon any additional costs to RHD, in accordance with the Work Request Process. c. Quality Control. RHD agrees to maintain an AOQL for service order processing of at least ***% accuracy, to be verified by the following process: i. RHD shall maintain records of service orders in a format mutually agreed by the parties, which shall contain such information as the levels of manual intervention and the AOQL for the service orders processed by RHD. The Parties shall review these records monthly to determine whether the appropriate AOQL is being maintained. ii. The quality inspection shall be performed using a valid statistical sampling scheme whereby samples of daily production are subjected to inspection. Defects identified by the sample will be promptly returned to RHD production and corrected. iii. The data collected from the quality inspection process will be recorded and provided to Publisher to be applied to graph charts. The Publisher graph charts record the AOQL, which is required to be ***% or greater. These monthly statistics will be maintained by RHD and the charts will be maintained and kept on file by Publisher for internal purposes. Publisher may audit the underlying information at a time, location, and in a manner mutually agreeable between the Parties. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 4 of 31 3. SERVICE ORDER PROCESSING (con't) c. Quality Control (con't) iv. The AOQL will be determined by the following method: - All defects (non-conforming quality service orders) identified in the sample will be divided by the total number of service orders included in the sample to compute a "projected defect percentage." - This projected defect percentage will then be multiplied by the total number of service orders processed during the relevant period to compute "projected total defects." - The projected total defects less the defects corrected pursuant to clause ii. above are then divided by the total number of service orders processed during the relevant period to compute a "defect percentage". - This defect percentage is then subtracted from 100% to derive the AOQL. d. Telecommunications Carrier ("TC") Service Orders. RHD will image all manual and mechanized TC service orders sent to RHD by Publisher. The imaging process consists of: batching, scanning, and manually keying all index information into RHD's imaging database. Imaged information is provided on a stand-alone basis accessible only from RHD's Imaging application, and no reference to these orders or accounts would exist in RHD's publishing (OLTP) or customer service (CSO) databases. 4. CONTRACT PROCESSING a. Local Advertising Contracts. Publisher agrees to use its reasonable best efforts to cause Publisher's Sales Agent to provide to RHD a consistent volume of contracts of between *** to *** manual contract insertions (including those arising from any reciprocal agreements or other arrangements that Publisher may enter into) per week. These manual contract insertions shall be provided by Publisher in accordance with the agreed upon Schedule established pursuant to Section 12. Unless the contracts require querying as described below, then the individual contracts will be processed by RHD within *** working days from the date of receipt by RHD of the individual contracts. A customer acknowledgment letter will be mailed to each customer on the *** working day after the receipt of the contracts by RHD. In January 2003, the Parties agree to comprehensively review the impact of the AdVantage full upload on the insertion volumes set forth in this Section and to negotiate in good faith appropriate volume levels and variable pricing for both manual and automated insertions. At that time, this Agreement will be amended accordingly to reflect the agreement of the Parties on these matters. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 5 of 31 4. CONTRACT PROCESSING (con't) a. Local Advertising Contracts (con't) i. If a given contract cannot be processed as received, RHD will provide a query to Publisher's Sales Agent within *** business days of RHD's determination that the contract cannot be processed. The contract will be processed within *** working days of Publisher's Sales Agent providing query resolution to RHD. ii. Volumes in excess of *** manual contract insertions per week will be processed within *** working days from receipt of the contracts. With respect to such contracts, a customer acknowledgment letter will be mailed within *** working days from receipt of the contracts by RHD. b. Quality Control. RHD agrees to maintain an AOQL for contract processing of at least ***% accuracy, to be verified by the following process: i. RHD shall maintain records of the contracts in a form mutually agreed by the Parties, which shall contain such information as the AOQL for the contracts processed by RHD. The Parties shall review these records monthly to determine whether the appropriate AOQL is being maintained. ii. The quality inspection shall be performed using a valid statistical sampling scheme whereby samples of daily production are subjected to inspection. Defects identified by the sample will be promptly returned to RHD production and corrected. iii. The data collected from the quality inspection process will be recorded and provided to Publisher to be applied to graph charts. The graph charts record the AOQL, which is required to be ***% or greater. These monthly statistics will be maintained by RHD and the charts will be maintained and kept on file by Publisher for internal purposes. Publisher may audit the underlying information at a time, location, and in a manner mutually agreeable between the Parties. iv. The AOQL will be determined by the following method: - All defects (non-conforming quality insertions) identified in the sample will be divided by the total number of insertions included in the sample to compute a "projected defect percentage." - This projected defect percentage will then be multiplied by the total number of insertions processed during the relevant period to compute "projected total defects." - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 6 of 31 4. CONTRACT PROCESSING (con't) b. Quality Control (con't) iv. The AOQL will be determined by the following method: (con't) - The projected total defects less the defects corrected pursuant to clause ii. above are then divided by the total number of insertions processed during the relevant period to compute a "defect percentage". - This defect percentage is then subtracted from 100% to derive the AOQL. c. Reciprocal & Cross-Sell Advertiser Contracts. RHD will receive and process all contracts resulting from reciprocal agreements currently in place. This service will include routine, daily coordination with Verizon (referred to as "reciprocal") and the SBC directory affiliates (referred to as "cross-sell"). The SBC directory affiliates are referred to herein, collectively, as "SBCDO." At no additional charge above the reciprocal contract processing price in the Pricing Schedule (see Attachment 2), RHD will compare and review reciprocal advertiser contracts and copy for adherence to directory standards and the contract database will be updated where required. RHD shall forward to the appropriate publisher for processing computer output resulting from Publisher's sales into reciprocal directories. In the event that Publisher negotiates new reciprocal agreements, the Parties will mutually agree upon and enter into appropriate service and pricing agreements to support such additional reciprocal agreements, in accordance with the Work Request Process. d. Acknowledgment Letters to Advertisers. i. Publisher shall reimburse RHD for the costs associated with postage, paper and mailing supplies in connection with customer acknowledgement letters. Such costs are not included within the Annual Fee described in Section 15 hereof. ii. RHD will continue to use the existing vendor to perform RHD's obligations with regard to customer acknowledgement letters. In the event that Publisher designates another vendor, RHD shall not be responsible for the vendor's performance, including without limitation the vendor's turnaround time. Publisher shall be responsible for any additional costs associated with transitioning to any different vendor. The Parties shall use the Work Request Process if a change of vendor is requested or becomes necessary. 5. DATA MAINTENANCE RHD will perform routine database corrections resulting from error reports generated in the closing and billing processes. Acknowledgement Letters that are returned as undeliverable will be routed to Publisher's Sales Agent to contact the applicable advertiser for address correction. Agreement No. Aas-463-A Page 7 of 31 6. COPY PROCESSING a. Copy Supplied by Publisher's Sales Agent. Publisher's Sales Agent shall provide RHD with copy that has been edited according to Publisher's standards. RHD assumes no responsibility for copy editing, except as provided by Section 6 (c). b. RHD's Copy Processing Obligations. Upon receipt of advertising copy from Publisher's Sales Agent, RHD will compose ads and store the finished ads digitally in the graphics database in a format that is an acceptable standard for the industry. All ads will be proofread to ensure that the advertising proof generated by the graphics database matches the copysheet submitted by the Publisher's Sales Agent. For all ads manufactured from copy received prior to the mutually agreed upon show proof close date, two (2) proofs will be mailed in accordance with the Publisher's instructions. c. Reciprocal Sales. For reciprocal sales into Publisher directories, RHD will edit the copy, manufacture the ad, and provide Publisher with a production print. For sales into Verizon or other SBCDO directories by Publisher's Sales Agent, RHD will copy edit and provide the publisher with the art. These editing services are at no additional charge. The compensation to be paid to RHD will be calculated as set forth for Copy Processing in the Attachment 2. d. Copy Processing Turnaround Times. Provided that copy is received consistent with the agreed upon specifications, schedules, and volumes, RHD will i. manufacture display and process color ads within *** working days from RHD's receipt of the copysheet; ii. complete in column ads within *** working days from the date of order processing completion by RHD. Where the copysheet cannot be processed as received from Publisher, RHD will provide a query to Publisher's Sales Agent within *** business days of RHD's determination that the copysheet cannot be processed. The copysheet will be processed within *** working days of Publisher's Sales Agent providing query resolution to RHD. e. Postage. Publisher shall reimburse RHD for the costs of postage incurred in connection with proof mailing. Such costs are not included within the Annual Fee described in Section 15 hereof. f. Quality Control. RHD commits to maintain high quality levels and will perform the following quality assurance activities with respect to copy processing: i. Internally, RHD will proofread ***% of the finished ads to ensure that the proof of the finished ad matches the copysheet. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 8 of 31 6. COPY PROCESSING (con't) f. Quality Control (con't) ii. After the ads are proofread, RHD will select ads meeting the criteria for NAT Audit based on the closing schedule and the changes required to Name, Address, Telephone which subject the advertising to the telephone audit. The audit will be performed and any identified necessary changes will be returned promptly to RHD production and corrected to the advertising proof. The Parties acknowledge that the NAT audit is currently provided by RHD under the Work Request Process and will continue to be billed separately to Publisher pursuant to the Work Request Process through June 30, 2002. In July 2002, the Parties agree to comprehensively review the costs and pricing of the NAT audit process, and to negotiate in good faith to remove NAT audit activity from the Work Request Process and to include an appropriate level of NAT audit activity as part of a mutually agreed increased Base Fee. At that time, this Agreement will be amended accordingly to reflect the agreement of the Parties on these matters. iii. RHD agrees to maintain an AOQL for copy processing of at least ***% accuracy, to be verified by the following process: (a) RHD shall maintain records relating to copy received from Publisher's Sales Agent and processed by RHD, in a format mutually agreed by the Parties. The detailed information is maintained for review by Publisher and on a monthly basis the results are forwarded to the Publisher. The Parties shall review these records monthly to determine whether the appropriate AOQL is being maintained. (b) The quality inspection shall be performed using a valid statistical sampling scheme whereby samples of daily production are subjected to inspection. Defects identified by the sample will be promptly returned to RHD production and corrected. (c) The data collected from the quality inspection process will be recorded by RHD and provided to Publisher to be applied to graph charts. The Publisher's graph charts record the AOQL, which is required to be ***% or greater. These charts will be maintained by Publisher and kept on file for internal purposes. Publisher may audit the underlying information at a time, location, and in a manner mutually agreeable between the Parties. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 9 of 31 6. COPY PROCESSING (con't) f. Quality Control (con't) iii. RHD agrees to maintain an AOQL for copy processing of at least ***% accuracy, to be verified by the following process: (con't) (d) The AOQL will be determined by the following method: - All defects (nonconforming quality finished ads) identified in the sample will be divided by the total number of finished ads included in the sample to compute a "projected defect percentage." - This projected defect percentage will then be multiplied by the total number of finished ads processed during the relevant period to compute "projected total defects." - The projected total defects less the defects corrected pursuant to clause (b) above are then divided by the total number of finished ads processed during the relevant period to compute a "defect percentage". o This defect percentage is then subtracted from 100% to derive the AOQL. 7. BOOK PRODUCTION a. Classified Advertising. RHD will proof all advertising and free listings in book form subsequent to the close of a directory's sales campaign. RHD will proof for the following items: Phone numbers for all listings and ads; Invalid fonts; RGB photos; Overprints; Telltales; Continued heading text; "Holes" on the page; First page half-class title, running head, and copyright date; Alpha tabs, Overlaps, General graphic problems, Leader Ads, Alpha Listings, Trade items, Bold/non bold and red/black captions; Duplication; Split captions; Left justified AL phone numbers; Drug filler in sensitive headings, Guides, and Bleed bars. RHD will produce the directory's pages in conformance with reasonable specifications provided by Publisher. Upon request of the Publisher, RHD will forward digital files for printing in accordance with schedules mutually agreed to by the Parties. RHD will ship up to *** pages per day to Publisher's printers; however, technological enhancements may, upon mutual agreement, supersede and increase these page requirements. At the request of the Publisher and with approval from the Publisher's Printer, RHD can ship up to *** pages per day up to a maximum of *** consecutive business days without additional cost, subject to RHD's in-house schedule capacity. Requests for more than *** consecutive days or a total of *** days in a given month, may be subject to additional costs incurred by RHD for extraordinary staffing. The quality of media provided by RHD to the designated printers will be ***% accurate (computed as the number of printer call backs divided by the total number of pages sent to the printer) and in accordance with standards mutually agreed upon by the Parties. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 10 of 31 7. BOOK PRODUCTION (con't) b. White Pages. RHD will extract and forward to Publisher's Listing Services Department white pages advertising according to an annual schedule to be provided by Publisher. RHD shall identify listing discrepancies between sold advertising and telephone company records, and RHD will transmit this information to Publisher's Listing Services Department for inclusion in Publisher's white pages. RHD will produce a digital file of white page ads composed by RHD in postscript format and transmit to Publisher's Listing Services Department. 8. MAINTENANCE OF COMPLETE PAGE POSITIVES/DIGITAL FORMATS All completely assembled digital file formats used in the production of the current issue of the directories shall be kept by RHD at a safe site in secure files for use at the time of the next issue of such directories for the retrieval of standing ads. RHD will maintain the pages in digital form and transmit a digitized postscript file to Publisher's Printer upon completion of book production. This information must be stored for a minimum of one (1) year or until the next publication date, whichever is longer. Upon Publisher's prior written request, RHD will deliver to Publisher any and all assembled digital files within *** working days of RHD sending this information to Publisher's printer. 9. NATIONAL ACCOUNTS a. YPPA Standards Compliance. RHD will receive national advertising orders and correspondence for Publisher directories through the Yellow Pages Publishers Association's ("YPPA") Electronic Intelligent Transaction Exchange ("ELITE"). Until ELITE is fully operational later in 2002, RHD will continue to receive national advertising orders and correspondence for Publisher directories through YPPA's Value Added Network ("VAN"). RHD assumes no liability hereunder for errors, defects or inefficiencies that result directly or indirectly from the conversion from VAN to ELITE. RHD will use its reasonable efforts to work with Publisher to attempt to resolve or circumvent any such errors, defects or inefficiencies. b. Order Updating. RHD will update all national order data in the contract database with an interface for copy to the ad storage system within *** working days from the date of RHD's receipt of said data, assuming the data is query-free. If queries are involved, the time period for performance does not begin until the applicable query is resolved. This data will be extracted by RHD for book production along with locally sold advertising. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 11 of 31 9. NATIONAL ACCOUNTS (con't) c. Quality Control for Order Updating. RHD agrees to maintain an AOQL of at least ***% accuracy for order updating, to be verified by the following process: i. RHD shall maintain records relating to YPPA standards compliance and order updating processed by RHD, in a form mutually agreed by the Parties. The Parties shall review these records monthly to determine whether the appropriate AOQL is being maintained. ii. The quality inspection shall be performed using directory billing invoices for inspection. iii. The data collected from the quality inspection process will be recorded and provided to Publisher to be applied to graph charts. The graph charts record the AOQL, which is required to be ***% or greater. These charts will be maintained by Publisher and kept on file for internal purposes. Publisher may audit the underlying information at a time, location, and in a manner mutually agreeable between the Parties. iv. The AOQL will be determined by the following method: - All defects (directory billing invoices with errors) are divided by the total number of directory billing invoices to compute a "defect percentage". - This defect percentage is then subtracted from 100% to derive the AOQL. d. Copy Updating. RHD will update all national copy in the graphics database within *** working days from the date of RHD's receipt of said copy, assuming copy is query free. If queries are involved, the time period for performance does not begin until the applicable query is resolved. These graphics will be extracted by RHD for book production along with locally sold advertising. e. Quality Control for Copy Updating. RHD commits to maintain high quality levels and will perform the following quality assurance activities: i. Internally, RHD will proofread ***% of the finished ads to ensure that the proof of the finished ad matches the copysheet. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 12 of 31 9. NATIONAL ACCOUNTS (con't) e. Quality Control for Copy Updating (con't) ii. RHD agrees to maintain an AOQL of at least ***% accuracy for copy updating, to be verified by the following process: (a) RHD shall maintain records relating to copy received and processed by RHD, in a form mutually agreed by the Parties. The detailed information is maintained for review by Publisher and on a monthly basis the results are forwarded to the Publisher. The Parties shall review these records monthly to determine whether the appropriate AOQL is being maintained. (b) The quality inspection shall be performed using a valid statistical sampling scheme whereby samples of daily production are subjected to inspection. Defects identified by the sample will be promptly returned to RHD production and corrected. (c) The data collected from the quality inspection process will be recorded by RHD and provided to Publisher to be applied to graph charts. The Publisher's graph charts record the AOQL, which is required to be ***% or greater. These charts will be maintained by Publisher and kept on file for internal purposes. Publisher may audit the underlying information at a time, location, and in a manner mutually agreeable between the Parties. (d) The AOQL will be determined by the following method: - All defects (nonconforming quality finished ads) identified in the sample will be divided by the total number of finished ads included in the sample to compute a "projected defect percentage." - This projected defect percentage will then be multiplied by the total number of finished ads processed during the relevant period to compute "projected total defects." - The projected total defects less the defects corrected pursuant to clause (b) above are then divided by the total number of finished ads processed during the relevant period to compute a "defect percentage". - This defect percentage is then subtracted from 100% to derive the AOQL. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 13 of 31 10. REVENUE ACCOUNTING AND CUSTOMER BILLING a. Billing Extracts. RHD will extract Local, Reciprocal-Out (sold by Publisher's Sales Agent into Verizon), and Cross-Sell (sold by Publisher or its sales agents into any SBCDO directory) billing information from its database and transmit such information to Publisher or its designated billing vendor (which is presently RHD under a separate Agreement for Billing Services dated the date hereof) in a format consistent with Publisher's or Publisher's billing vendor's specifications via an electronic file transfer. Directory Billing Files that are not successfully accepted/loaded by Publisher or its vendor will be investigated by RHD and resubmitted for billing within *** calendar days. b. National and Specialized Billing. RHD will provide national billing and specialized billing services to Publisher. Specialized Billing Services are for Street Address Directory and New Movers. National invoices will be bulk shipped to Publisher who, in turn, will forward the invoices to CMR's. c. Revenue Accounting/Financial Reports. RHD will provide financial and statistical reports which will identify total amounts and records sent for billing and all increases/decreases to billing amounts, including, but not limited to claims, billing adjustments and accelerated billing due to disconnects and/or delinquent accounts. Financial reports will be provided monthly in accordance with mutually acceptable schedules RHD will be responsible for the settlement with Verizon (reciprocal-out) and other SBCDO directories (cross-sell) in accordance with existing standards and procedures. d. Quality Control. RHD agrees to maintain an AOQL of at least ***% accuracy to be verified by the following process: i. RHD shall maintain records of billing information in a form as shall be mutually agreed by the Parties. The Parties shall review these records monthly to determine whether the appropriate AOQL is being maintained. ii. The quality inspection shall be performed by inspecting all customers on the directory billing extract for verification to the quality requirements. Identified defects will be promptly returned and corrected by RHD. iii. The data collected from the quality inspection process will be recorded by RHD and provided monthly to Publisher to be applied to graph charts. The graph charts record the AOQL, which is required to be ***% or greater. These charts will be maintained by Publisher and kept on file for internal purposes. Publisher may audit the underlying information at a time, location, and in a manner mutually agreeable between the Parties. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 14 of 31 10. REVENUE ACCOUNTING AND CUSTOMER BILLING (con't) d. Quality Control (con't) iv. The AOQL will be determined by the following method: - All defects (nonconforming billing records) are divided by the total number of billing records to compute a "defect percentage". - This defect percentage is then subtracted from 100% to derive the AOQL. 11. ASSIGNMENT SUPPORT If so requested by Publisher's Sales Agent, RHD will print sales contracts and distribute them to Publisher in accordance with agreed upon schedules. Publisher will reimburse RHD for reasonable costs incurred in connection therewith, in accordance with the Work Request Process. Any changes to contracts such as Terms & Conditions, Logos, etc., will flow through the Work Request Process and Publisher will reimburse RHD accordingly. 12. SCHEDULING Prior to June 1 of each year, Publisher and RHD will review and mutually agree upon a definitive directory publication and distribution schedule for the following year. Thereafter, the Parties shall review and discuss any further proposed changes in the publishing and distribution schedules, as needed. Publisher shall reimburse RHD its reasonable costs incurred as a result of any such scheduling changes, in accordance with the Work Request Process. Notwithstanding the foregoing, RHD agrees to use reasonable efforts to work with Publisher's Sales Agent to reduce publishing cycle times so as to maximize (to the extent reasonably practicable) the time available for sales campaign activities. 13. SYSTEM SUPPORT TABLES RHD will maintain all necessary system support tables. From these tables, RHD will create the data file used by a designated third party to compose Publisher's headings book. Arranging for the composition and manufacture of the headings book and the cost thereof is Publisher's responsibility. 14. WORK FLOW AND FORECASTING a. Work Flow Requirements. Publisher shall cause its Sales Agent to use its best efforts to ensure that a range between *** and *** manual contract insertions weekly are submitted for processing in accordance with mutually agreed upon due dates. Contracts shall be submitted with any related copy attached. In January 2003, the Parties agree to comprehensively review the impact of the AdVantage full upload on the insertion volumes set forth in this Section and to negotiate in good faith appropriate volume levels and variable pricing for both manual and automated insertions. At that time, this Agreement will be amended accordingly to reflect the agreement of the Parties on these matters. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 15 of 31 b. Changes in Products and Scheduling. Publisher or its Sales Agent shall promptly inform RHD of changes in sales canvass dates (especially extensions), directories published, their scope, units of advertising offered, specifications, features and characteristics of the directories, change in length of directory life, and other such changes in products and scheduling. Publisher shall reimburse RHD for its reasonable costs incurred in connection with such changes in products and scheduling, in accordance with the Work Request Process. c. Publisher Requirements Forecast. Publisher shall cause its Sales Agent to provide RHD with all information required for routine publishing in a timely manner. Further, Publisher will provide RHD with estimates of total copy and contract volumes by June 1 of the each year for the following year's directories, or by another mutually agreed upon date. 15. PRICING a. Annual Fee. The fee payable by Publisher to RHD each year for the services provided by RHD hereunder consists of a lump sum amount, which for 2002 and 2003 shall be ***, (the "Base Fee"). The Base Fee shall then be adjusted for actual volumes processed in the year versus base line volumes assumed and included within the Base Fee amount as set forth on Attachment 2. Any difference between the base line volumes and the actual volumes for any metric will be multiplied by the variable unit price for that metric as set forth on Attachment 2 and then the aggregate adjustment computed shall be added to or subtracted from (as the case may be) the Base Fee amount to compute the Annual Fee which is due from Publisher to RHD. b. Price Adjustments. In addition to the volume adjustments set forth above, in computing the Annual Fee, the Base Fee amount and variable unit prices listed in Attachment 2 shall be adjusted each year as follows: *** CPI shall mean the Consumer Price Index for Southeast Urban Region for the preceding full calendar year as published by the United States Bureau of Labor Statistics ("BLS"), but for purposes of this Agreement shall not exceed ***% in any given year. - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 16 of 31 15. PRICING (con't) Publishing Rebate: Beginning in 2002 and each year thereafter during the term of this Agreement, Publisher shall be entitled to receive a $*** discount from the Annual Fee computed above, resulting in an aggregate discount of $*** over the term of this Agreement. If Publisher so notifies RHD in writing by June 1, 2002, RHD will promptly credit to Publisher the aggregate $*** discount and ratably reduce each remaining monthly invoice under Section 17 during the remainder of 2002. Failing such written notification, the discount will be applied by RHD annually as part of the year-end "true up" process under Section 17. 16. WORK REQUEST PROCESS Any services requested by Publisher not expressly set forth herein or changes to the services from those provided as of the effective date of this Agreement shall be subject to the Work Request Process. The Work Request Process presently in effect will continue in effect and the Parties may modify the Work Request Process from time to time as mutually agreed. The following provisions shall apply to the Work Request Process. a. Publisher shall submit Work Request Forms (WRF's) classified into Tiers 1 through 4. WRF's will be responded to in writing by RHD as follows: (i) Tier 1 - within *** full business days; Tier 2 - within *** full working days; and Tiers 3 and 4- within *** full working days, in each case, after receipt from Publisher, and will set forth all applicable conditions and pricing terms. b. WRF's deemed as "complex" by RHD in its reasonable judgment will be responded to in writing by RHD within *** full business days from receipt from Publisher and will set forth all applicable conditions and pricing terms. c. RHD will advise Publisher within *** business days if request is deemed "complex". d. Both Parties acknowledge that at times, very large initiatives may be deemed as "extremely complex" and WRF response turnaround will be determined mutually by both Parties. e. Publisher will promptly address and respond to any business questions generated by RHD which directly impact the accurate and timely completion of a WRF response by RHD. f. The time taken by Publisher to address and respond to RHD inquiries will not be counted against the RHD turnaround metrics. g. All estimates and terms set forth within RHD's Work Request responses will be valid only for *** days from the response date to the Publisher, unless another time frame is specified within the WRF response. - ------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 17 of 31 16. WORK REQUEST PROCESS (con't) h. If Publisher approval is not received within *** days, Publisher acknowledges that RHD may require a re-evaluation of system and business impacts, which may alter the WRF response terms accordingly. i. RHD will provide a high-level WRF response based upon the initial Publisher requirements. If at any time, RHD determines that the actual cost will be in excess of ***% over the initial estimate, or that other terms of the response will be materially different, RHD will promptly notify Publisher in order to obtain approval to continue with work request under the revised terms. j. Publisher acknowledges that any changes to WRF requirements after initial approval and commencement of work by RHD may impact the cost and other terms of the WRF. k. Publisher shall reimburse RHD for any incurred costs if a WRF is withdrawn or cancelled after initial approval by the Publisher. l. RHD will provide Publisher an invoice for each calendar quarter by the 30th of the following month for any costs related to WRF's or other additional activity not covered by the Annual Fee. m. Beginning in 2002 and each year thereafter during the term of this Agreement, Publisher shall be entitled to receive a $*** credit against aggregate annual Work Request Process fees, regardless of whether such fees arise under this Agreement or the Agreement for Non-Publishing Applications and Support Services or the Agreement for Billing Services, each dated the date hereof. The annual credit will be applied as follows: $*** credit applied against each quarterly WRF invoice rendered by RHD to Publisher, with any unused credit carried forward to the next quarterly invoice, but in no event shall any unused credit be carried over to the next calendar year. 17. INVOICES AND PAYMENT Based upon Publisher's estimates provided pursuant to Section 14 of this Agreement, by January 1 of each year during the term of this Agreement, RHD will provide to Publisher a projection of an estimated Annual Fee and any additional mutually agreed upon costs for which RHD is entitled to reimbursement (the "Annual Price") for the ensuing year. On the thirtieth of each month, Publisher will pay to RHD by bank wire transfer one-twelfth (1/12th) of the Annual Price. By February 15 of the following year, RHD will issue a "true-up" report identifying the actual Annual Price for that year. RHD will submit a final invoice for reimbursement or credit which will reflect any differences between the actual Annual Price and the estimated Annual Price identified by the "true up" report. Invoices for costs to which RHD is entitled to reimbursement that are not included in the estimated Annual Price shall be submitted by either mail, facsimile, or electronic transfer, as shall be mutually agreed by the Parties, to Publisher. Publisher shall pay such invoices within forty-five (45) days of receipt. - ------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 18 of 31 18. TERMINATION In the event Publisher decides to terminate this Agreement on the Termination Date, Publisher will provide prior notice of its intention to terminate to RHD in writing prior to June 30, 2007, and will propose a transition plan (the "Transition Plan") to be mutually agreed upon by the Parties. The Parties agree to use their reasonable best efforts and to reasonably cooperate in order to agree on an acceptable Transition Plan. Either Party may terminate this Agreement before the Termination Date in the event of a material breach by the other Party. In order to terminate for material breach, the non-breaching Party must give the breaching Party written notice identifying the purported breach in reasonable detail and requesting that the breach be cured (the "Cure Notice"). If the breaching Party fails to cure the breach within sixty (60) days of receipt of the Cure Notice, the other Party shall have the right to terminate this Agreement, effective upon seven (7) days prior written notice to the breaching Party (the "Terminating Notice"); provided, however that if such breach cannot reasonably be cured within sixty (60) days of receipt of the Cure Notice, the same shall not constitute a failure to cure hereunder if the Parties mutually agree upon a written plan to cure the breach and the breaching Party continues to perform in accordance with the written plan of cure. Upon termination of this contract, RHD will transfer to Publisher all digital files, Photo Mechanical Transmissions or other representation of display, trademark or in-column ads, contract listing data paid for by Publisher and any other printed material. This transfer will be in a manner and format mutually agreed upon by the Parties, and will enable Publisher (assuming Publisher has systems comparable to or compatible with those used by RHD) to regenerate the digital files sent to the printer by RHD for the latest issue of each Directory and to generate the next issue of each Directory. This transfer will be executed according to the Transition Plan. The Transition Plan will forecast the reasonable expenses to be incurred by RHD in connection with this transfer and other aspects of the Transition Plan, and Publisher will reimburse all such reasonable expenses of RHD. 19. WARRANTY RHD warrants that the services furnished hereunder will be free from defects in workmanship and will conform to the specifications and standards set forth herein, and as otherwise mutually agreed by the Parties. RHD also warrants that the services will be performed in a workmanlike manner, consistent with industry standards. All warranties shall survive inspection, acceptance, and payment. Agreement No. Aas-463-A Page 19 of 31 20. NEW DEVELOPMENTS & INNOVATION RHD agrees to use reasonable efforts to keep abreast of major developments in the compilation, composition, graphic arts, and data processing industries (e.g., new methods, processes, equipment, etc.) and to advise Publisher of any that might affect the production of end products. RHD agrees to examine reasonable Publisher ideas and RHD may present Publisher with innovative proposals to increase efficiency and improve processes. 21. ASSIGNMENT Except where expressly permitted by this Agreement, neither Party will assign any right or interest under this Agreement (excepting monies due or to become due) nor delegate any work or other obligation to be performed under the Agreement without the other Party's prior written consent, which shall not be unreasonably withheld. Any attempted assignment or delegation in contravention of the above provisions will be void and ineffective. Any assignment of monies will be void and ineffective to the extent that (1) the assigning Party will not have given the non-assigning Party prior written notice of such assignments and (2) such assignment attempts to impose upon the non-assigning Party obligations to the assignee additional to the payment of such monies, or to preclude the non-assigning Party from dealing solely and directly with the assigning Party in all matters pertaining to this Agreement including the negotiation of amendments or settlements of amounts due. Notwithstanding the foregoing, assignments of this Agreement, or the obligations or rights contained in it, to a parent or affiliate of either Party shall be permitted without the requirement of consent by the other Party to this Agreement. 22. BANKRUPTCY Either Party may terminate this Agreement and any or all orders placed hereunder by notice in writing in the event that (i) the other makes an assignment for the benefit of creditors; or (ii) the other admits in writing inability to pay debts as they mature; or (iii) the other, or any substantial part of the other's assets, comes under the control of a trustee or other receiver appointed by any court; or (iv) a proceeding is instituted under any provision of the Federal Bankruptcy Code by the other and is not dismissed within sixty (60) days or results in an adjudication in bankruptcy. In the event of bankruptcy by RHD, all property of Publisher in RHD's possession will be returned to Publisher immediately upon request. 23. ARBITRATION The Parties shall submit all disputes, except those disputes that include a demand for emergency equitable relief, arising out of this Agreement, to binding arbitration in accordance with the Commercial Rules of the American Arbitration Association ("AAA") then in effect. Unless otherwise agreed by the Parties, the dispute shall be resolved by the AAA within sixty (60) days of submission, and the AAA shall be informed of the sixty (60) day resolution requirement when the submission is made to the AAA. Judgment on the award may be entered in any court having jurisdiction. The location of the arbitration proceeding shall be in the greater metropolitan area of Chicago, Illinois. Any court action including a demand for emergency equitable relief shall be brought in a court of competent jurisdiction in the State of Illinois. Agreement No. Aas-463-A Page 20 of 31 24. GOVERNING LAW This Agreement shall be deemed to have been executed and delivered within the State of Illinois, and shall in all respects be interpreted, enforced and governed by the laws of the State of Illinois, irrespective of choice of law principles to the contrary. 25. COMPLIANCE WITH LAWS Each Party and all employees and agents of the Parties shall comply with all applicable federal, state and local laws, ordinances, rules, regulations and codes, including but not limited to the procurement of permits, certificates and licenses when needed, in the performance of this Agreement. Each Party shall indemnify and hold the other party harmless against any loss, damage or liability that may be sustained by reason of its failure to comply with such federal, state and local laws, regulations and codes. 26. FORCE MAJEURE If any Party is prevented from performing any of its obligations under this Agreement because of any act of God, lockout, strike or other labor dispute, riot or civil commotion, act of public enemy, law, order or act of government, whether federal, state or local, or other similar event beyond the Party's control (a "Force Majeure Event"), then that Party will be excused from performing any of its obligations which are so prevented. However, the Party so excused is responsible for performing those obligations of which it had been relieved due to the Force Majeure Event as soon as the Force Majeure Event has ceased to prevent the Party's performance. If a Force Majeure Event excuses RHD from performing its duties under this Agreement, Publisher may procure substitute performance; immediately upon RHD's providing notice that the Force Majeure Event has ended, however, RHD is entitled to resume performance under this Agreement. 27. INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS RHD agrees to defend, at RHD's expense, all suits against Publisher for infringement of any patent, trademark, copyright, trade secret, or any other proprietary right, by any third party relating to services provided by RHD under this Agreement, except infringement arising from adherence to copy, contracts, specifications or drawings which RHD is or was directed by Publisher to follow, or infringement residing in parts or supplies furnished by Publisher to RHD for use under this Agreement (other than infringement residing in items of RHD's design or selection). RHD will save Publisher harmless from all expense of defending any such suit and all payments by final judgment or settlements assessed on account of such infringement. Publisher agrees to defend, at Publisher's expense, all suits against RHD for infringement of any patent, trademark, copyright, trade secret, or any other proprietary right, by any third party arising from adherence to copy, contracts, specifications or drawings which RHD is or was directed by Publisher to follow, or infringement residing in parts or supplies furnished by Publisher to RHD for use under this Agreement (other than infringement residing in items of RHD's design or selection). Publisher will save RHD harmless from all expense of defending any such suit and from all payments by final judgment or settlements assessed on account of such infringement. Each Party agrees to give the other prompt written notice of suits for infringement for which the other assumes responsibility under this Agreement and full opportunity and authority to assume the sole defense including appeals, and, upon such other's request, and at its expense, to furnish reasonable information and assistance available to it for such defense. Agreement No. Aas-463-A Page 21 of 31 28. VENDOR MANAGEMENT a. Vendor Management Function. In order to fulfill its obligations under the terms set forth in this Agreement, RHD may require support from Publisher and Publisher agrees to support RHD as necessary in the following areas: i. Publisher may assist in making joint decisions with RHD management on countermeasures that need to be implemented to maintain a cost effective and quality product. ii. Publisher may assist RHD with clarification of Work Requests in order to expedite the response process. iii. Publisher shall distribute to the appropriate Parties at RHD any Methods and Procedures documents that could affect the accurate publication of the directories covered by this Agreement. iv. Publisher may provide assessment of quality and process deficiencies and recommend solutions via RHD Client Services. v. At a time mutually agreeable to both Parties, Publisher and RHD may meet periodically to review the performance standards and metrics set forth in this Agreement. b. Vendor Management Staffing. In order to support these functions, and if so desired by Publisher, the Parties will discuss a process whereby RHD would permit up to two (2) employees of Publisher to be located at RHD's publishing facility. If so, RHD agrees to provide appropriate work space and related supplies/equipment at the facility (i.e., no more than two work stations with phones and computer and access to fax, copiers, etc.). Notwithstanding the foregoing, any such arrangement would not create any employer/employee relationship between such Publisher employees and RHD. c. Policies and Procedures. While on RHD's premises, Publisher shall ensure that its employees comply with all of RHD's policies and procedures, including premises security procedures. Publisher shall conduct any inspections in a manner that will not disrupt RHD operations. Publisher's employees agree to abide by all RHD restrictions to access to third-party information while on RHD's premises and will use their best efforts to avoid viewing or obtaining information regarding other RHD clients. Agreement No. Aas-463-A Page 22 of 31 29. INSURANCE RHD will maintain, at RHD's expense and with an insurance company having a rating of B+ or better and a Financial Size Category of VII or better, as rated in the A.M. Best Key Rating Guide for Property and Casualty Insurance Companies, standard fire insurance with standard extended coverage and "all risk" coverage (or equivalent) on all material furnished by Publisher, including all master information and all media. Such insurance will cover the replacement cost of such property, including the cost of labor on such property, and the policy will contain a provision that losses will be paid directly to Publisher or to RHD, as the respective interests appear. If the coverage is in the form of an endorsement, it should specify that the full amount of Publisher's loss, without prorating, is payable to Publisher. RHD agrees that RHD, Publisher's insurer(s) and anyone claiming by, through, under or in RHD's behalf will have no claim, right of action or right of subrogation against Publisher based on any loss or liability insured against under the foregoing insurance. RHD will maintain during the term of the Agreement: a) Workers' Compensation insurance with benefits afforded under the laws of the state in which the Services are to be performed and Employer's Liability insurance with minimum limits of $100,000 for Bodily Injury-each accident, $500,000 for Bodily Injury by disease-policy limits and $100,000 for Bodily Injury by disease-each employee. b) Commercial General Liability insurance with minimum limits of: $2,000,000 General Aggregate limit; $1,000,000 each occurrence sub-limit for bodily injury or property damage incurred in any one occurrence sub-limit for bodily injury or property damage incurred in any one occurrence; $1,000,000 each occurrence sub-limit for Personal Injury and Advertising; $2,000,000 Products/Completed Operations Aggregate limit, with a $1,000,000 each occurrence sub-limit for Products/Completed Operations. Fire Legal Liability sublimits of $300,000 are required for lease agreements. c) If use of a motor vehicle is required, Automobile Liability insurance with minimum limits of $1,000,000 combined single limits per occurrence for bodily injury and property damage, which coverage shall extend to all owned, hired and non-owned vehicles. Upon request by Publisher, RHD will furnish work certificates or adequate proof of the foregoing insurance. The type and amount of insurance may be amended periodically by Publisher, subject to the mutual agreement of RHD. Certificates furnished by RHD will contain a clause stating that Publisher is to be notified in writing at least thirty (30) days prior to any change in the amount of coverage of this insurance coverage, change in the types of coverage of this insurance coverage or cancellation of this insurance coverage. The cancellation clause on the certificate of insurance will be amended to read as follows: "THE ISSUING COMPANY WILL USE ITS REASONABLE BEST EFFORTS TO MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER PRIOR TOANY CHANGE IN THE AMOUNT OF COVERAGE OF THIS INSURANCE COVERAGE, CHANGE IN THE TYPE OF COVERAGE OF THIS INSURANCE COVERAGE OR CANCELLATION OF THE INSURANCE COVERAGE PROVIDED IN THE POLICY DESCRIBED ABOVE." Agreement No. Aas-463-A Page 23 of 31 30. LICENSES No licenses, express or implied, under any patents, trademarks or copyright, are granted by either Party hereunder. 31. OWNERSHIP AND USE OF INFORMATION All materials furnished to RHD by Publisher, other than software owned or licensed by RHD, in written, printed, graphic, or other form, remains Publisher's property. RHD shall keep such materials confidential, and RHD shall return the materials to Publisher at Publisher's request. RHD agrees that such information shall be used solely for the purposes set forth in this Agreement and that RHD shall not use or permit others to use information or any part thereof, printed or otherwise, for any other purpose, unless agreed in writing by Publisher. 32. PROTECTION OF INFORMATION Notwithstanding the provision entitled "Force Majeure," as set forth herein, it shall be RHD's responsibility to institute reasonable procedures to protect Publisher's information. Should any information in graphic or machine readable form owned or furnished by Publisher under this Agreement be rendered unusable or irretrievable as a result of action or inaction on RHD's part, RHD agrees to use its best efforts to reconstruct the information to the condition previously existing at no charge to Publisher. Publisher will furnish RHD with source documents or other input data available for such reconstruction. RHD agrees to retain sufficient back-up of the systems and data used or generated in connection with this Agreement. 33. RISK OF LOSS RHD will institute procedures to protect Publisher's information. Notwithstanding the Section entitled "Force Majeure," if any information in graphic or machine readable form, owned or furnished by Publisher under this Agreement, is lost, damaged or rendered unusable or irretrievable while the information is in RHD's possession or under RHD's direction and control, RHD will use its best efforts to reconstruct the information to the condition previously existing at no charge to Publisher within a reasonable time. Publisher will furnish RHD with source documents or other input data available for such reconstruction. In the event RHD cannot reconstruct such information in a reasonable time period, or should such input data be unavailable, RHD shall reimburse Publisher for its reasonable costs to reconstruct the information, the amount to be agreed upon by the Parties. In no event shall RHD's liability extend to any consequential, special or incidental damages. Agreement No. Aas-463-A Page 24 of 31 34. SECURITY REVIEW RHD will permit Publisher to review RHD's methods and procedures for keeping confidential all information furnished by Publisher, including master information, processing media, products, and other material containing information falling within the Section entitled "Ownership and Use of Information." RHD further agrees that RHD will comply with all of Publisher's reasonable requirements for security resulting from such review. Publisher's corporate security shall have the right upon reasonable notice and during RHD's normal business hours to inspect security at RHD's premises. Publisher shall conduct such inspections in a manner that will not disrupt RHD's business operations or jeopardize the confidentiality of third-party information. Such right to inspection shall not include the right to stop, interfere with, or otherwise disrupt the activities of RHD or examine the materials of any entity other than Publisher, which may reside with RHD. 35. SHIPPING Shipments of any finished or unfinished material(s) to points other than between RHD's publishing/graphics facilities and Publisher's facilities shall be made only upon specific orders and in accordance with routing instructions furnished by Publisher. Transportation and related insurance charges, unless otherwise provided herein, shall be prepaid by RHD and invoiced to Publisher as a separate item. Shipment of finished pages from RHD to Publisher's printer(s) shall be sent for overnight delivery with a vendor that can effectively trace shipments. RHD will not charge Publisher for shipment of pages to Publisher's printer(s) that require same day delivery due to page corrections or any other circumstance required to complete the manufacturing process of directories. 36. SUPPLIER'S INFORMATION All RHD specifications, drawings, sketches, models, samples, listings, master information, and products or data, written, oral or otherwise, including any software and software documentation furnished by RHD to Publisher hereunder, or in contemplation hereof, shall be considered by Publisher to be confidential or proprietary. 37. TAX Federal Manufacturer's and Retailer's Excise, State or Municipal Sales and Use Taxes, when applicable, shall be paid by RHD and billed to Publisher as separate items. RHD agrees to pay, and to hold Publisher harmless from and against, any penalty, interest, additional tax or other charge that may be levied or assessed as a result of RHD's delay or failure, for any reason, to pay any tax or file any return or information required by law, rule or regulation or by this Agreement to be paid or filed by RHD. Agreement No. Aas-463-A Page 25 of 31 38. WORKING DAYS References to number of days and prices set forth in the Agreement are based on the number of working days which are calendar days less the number of Saturdays, Sundays, holidays, and other days observed as non-working days by either Party in its business operations. Annually by the end of the first calendar quarter, RHD will provide Publisher with a written list of RHD's non-working days for the subsequent year, and Publisher will provide RHD with a written list of Publisher's non-working days for the subsequent year. 39. RECORDS AND AUDIT RHD shall maintain accurate and complete records of all matters which relate to RHD's obligations hereunder. Any financial records shall be maintained in accordance with generally accepted accounting principles and practices, uniformly and consistently applied, so that they may be readily audited. Upon reasonable advance written notice, Publisher shall have the right to audit RHD's books and records during normal business hours insofar as they pertain to work performed under this Agreement. All payments, if any, made under this Agreement shall be subject to final adjustment as determined by such audit(s). Unless otherwise provided in this Agreement, RHD shall retain all such records for a period not less than three (3) years from the date of final payment to which such records relates. 40. EMPLOYMENT STATUS RHD and Publisher are independent contracting parties and nothing in this Agreement will make either Party the agent or legal representative of other for any purpose whatsoever, nor does it grant either Party any authority to assume or to create any obligation on behalf of or in the name of the other. In addition, Publisher will not withhold taxes or other sums from the compensation owed RHD under this Agreement, nor will RHD or its employees be eligible to participate in Publisher's employee benefit plans. 41. LIMITATION OF LIABILITY AND INDEMNIFICATION a. Each Party shall reimburse the other Party for reasonable costs incurred as a result of the other Party's failure to adhere to the provisions of this Agreement. In no event will either Party be liable to the other Party for the other Party's loss of profits, or for any indirect, special, consequential or incidental damages incurred by the other Party arising out of this Agreement or any breach of this Agreement or the rendition of services hereunder or the Agreement No. Aas-463-A Page 26 of 31 41. LIMITATION OF LIABILITY AND INDEMNIFICATION (con't) late delivery or non-delivery of material hereunder, regardless of any notice of such damages or the potential for such damages. b. In addition to the indemnification provided for in the "Infringement of Intellectual Property Rights," Section 27, unless caused by the negligence of the other party, each party shall indemnify and hold the other harmless from any third-party claim, demand or action or expense, including reasonable attorneys' fees, arising out of or in connection with: i. such party's breach of its obligations under this Agreement; ii. Any injury or damage to person or property caused by the acts or omissions of such party, its agents or servants; iii. Any claims and/or lawsuits made by reason of any errors or omissions in directories caused by such party; and iv. Any personal injury by an agent or employee of such party subject to workers' compensation or similar laws. With respect to matters described in Section 41(b)(iii) above, it is expressly understood that such party's liability for any single occurrence shall not exceed three times the yearly contract amount for the advertising item that is the subject matter of the claim or lawsuit and shall not exceed $250,000 in the aggregate for all such occurrences in any calendar year. Each party agrees to notify the other party within a reasonable time of any written claims or demands against that party for which that party may be responsible under this Section. 42. NON-WAIVER The failure of either Party at any time to require performance by the other Party of any provision of this Agreement will in no way affect the right to require such performance at any time thereafter nor will the waiver of either Party of a breach of any provision constitute a waiver of any succeeding breach of the same or any other provision. Agreement No. Aas-463-A Page 27 of 31 43. CONFIDENTIALITY The Parties agree to keep and cause their employees to keep the existence of this Agreement and the nature of the Parties' obligations hereunder strictly confidential and not to disclose any information with respect hereto to any third party or entity, except as may be necessary and required in conducting the business of either of the Parties or as required by law. In connection with the work performed under this Agreement, each Party may provide the other with certain confidential or proprietary information ("Confidential Information"), the disclosure of which would seriously and irreparably harm the providing Party. Accordingly, each Party agrees for all time: a) To use Confidential Information only for the purpose of this Agreement; b) To treat Confidential Information with the same degree of care as it gives its own confidential information; c) To limit access to Confidential Information only to those employees having a need to know under this Agreement; d) To require all employees having access to Confidential Information to acknowledge their responsibilities under this Agreement in writing; e) To return all Confidential Information at the conclusion of the work or earlier upon request of the furnishing party. Each Party agrees that, in addition to other remedies, the providing Party is entitled to injunctive relief to prevent an actual or threatened disclosure of Confidential Information. The Parties shall not be obligated to maintain the confidentiality of Confidential Information which is or becomes public knowledge other than through breach of this Agreement, or Confidential Information which is independently developed, or lawfully furnished, by a third party. 44. NOTICES Unless otherwise specified in this Agreement, any notice required or permitted under this Agreement shall be in writing given by certified or registered mail, facsimile or overnight courier service to the Parties as follows: Agreement No. Aas-463-A Page 28 of 31 44. NOTICES (con't) RHD: George Bednarz Vice President - Publishing and Information Technology R.H. Donnelley Inc. 6001 Hospitality Court Morrisville, NC 27560-8530 Fax Number: (919) 461-9256 Publisher: Henry K. Arnold Vice President - Publishing SBC Directory Operations One SBC Center, Room 4206 909 Chestnut Saint Louis, Missouri 63101 Fax Number: (314) 242-8943 with a copy to each of: SBC Directory Operations Attention: General Attorney Room 3600 One SBC Center 909 Chestnut Saint Louis, Missouri 63101 Fax Number: (314) 242-8860 R. H. Donnelley Corporation One Manhattanville Road Purchase, New York 10577 Attention: General Counsel Fax No.: (914) 933-6844 45. HEADINGS AND CAPTIONS The headings and captions herein are provided for reference and convenience only and shall not be considered part of this Agreement and shall not be employed in the construction of this Agreement. Agreement No. Aas-463-A Page 29 of 31 46. ENTIRE AGREEMENT; SEVERABILITY This Agreement, including all Attachments and subordinate documents attached to or referenced in this Agreement, shall constitute the entire agreement between RHD and Publisher and shall not be modified or rescinded, except by a written amendment signed by RHD and Publisher. The provisions of this Agreement shall supersede all prior oral and written quotations, communications, agreements and understandings of the parties in respect of the subject matter of this Agreement. If any term of this Agreement is invalid or unenforceable under any statute, regulation, ordinance, executive order or other rule of law, such term will be deemed reformed or deleted, but only to the extent necessary to comply with such statute, regulation, ordinance, order or rule, and the remaining provisions of this Agreement will remain in full force and effect. 47. AMENDMENTS No provision of this Agreement shall be deemed waived, amended or modified by either party, unless such waiver, amendment or modification is in writing and signed by the authorized representative of the party against whom it is sought to enforce such waiver, amendment or modification. 48. CONFLICT OF INTEREST Each party represents and warrants that no officer, director, employee or agent of the other has been or will be employed, retained, paid a fee, or otherwise has received or will receive any personal compensation or consideration by or from such party or any of such party's officers, directors, employees or agents in connection with obtaining, arranging or negotiating this Agreement or other documents entered into or executed in connection herewith. 49. ATTACHMENTS Attachments 1 and 2 are the only attachments hereto, as such may be amended from time to time in accordance with the terms hereof, and are expressly made a part of this Agreement. 50. NO THIRD PARTY BENEFICIARIES Except as otherwise provided in this Agreement, the provisions of this Agreement shall be binding upon, and enforceable solely by, each Party and their respective successors and permitted assigns, and not by or for any other person. 51. NOTICE OF DELAYS Whenever any actual or potential cause delays or threatens to delay RHD's performance hereunder, RHD shall promptly so notify Publisher in writing. Such notice shall include all relevant information concerning the actual or potential cause of the delay and its background. During the period such actual or potential cause exists, RHD shall keep Publisher advised of its effect on RHD's performance and of the measures being taken to remove it. RHD's giving of this notice shall not relieve it of liability for delay in performance, unless the delay is attributable to Publisher or its agents, or otherwise excused under this Agreement. Agreement No. Aas-463-A Page 30 of 31 52. PUBLICITY RHD shall submit to Publisher all advertising, sales promotion and other publicity relating to the subject matter of this Agreement wherein Publisher's or a Publisher affiliate's name or names are mentioned, or language, signs, markings or symbols are used from which the connection of Publisher's or its affiliate's name or names therewith may, in Publisher's reasonable judgment, be reasonably inferred or implied. RHD shall not publish or use such advertising, sales promotion or publicity materials without Publisher's prior written approval, which shall not unreasonably be withheld. 53. REMEDIES CUMULATIVE Any rights of cancellation, termination or other remedies prescribed in this Agreement are cumulative and are not intended to be exclusive of any other remedies to which the injured party may be entitled at law or equity (including but not limited to the remedies of specific performance and cover) in case of any breach or threatened breach by the other party of any provision of this Agreement, unless such other remedies which are not prescribed in this Agreement are specifically limited or excluded by this Agreement. The use of one or more available remedies shall not bar the use of any other remedy for the purpose of enforcing the provisions of this Agreement; provided, however, that a party shall not be entitled to retain the benefit of inconsistent or duplicative remedies. 54. TITLE All plans for or actual pictures, artboards, graphics and other concepts, ideas, reports, information or materials or documents prepared, purchased or furnished by RHD on Publisher's behalf and paid for or subject to payment by Publisher shall be deemed "works made for hire" to the extent permitted by applicable law and, as between the Parties, shall remain the exclusive property of Publisher. As between the parties, the Publisher shall have all rights thereto, including, but not limited to, copyright and right to use, in whole or in part, in any manner whatsoever. RHD makes no representation as to Publisher's ownership or rights therein, and cautions that vendors or advertisers may have superior rights to those of Publisher. If such property is in the possession of RHD, it will be surrendered to Publisher at any time upon request. If such property is in the possession of RHD's supplier, RHD shall obtain such property for Publisher upon Publisher's request. 55. SURVIVAL OF OBLIGATIONS Each Party's obligations under this Agreement which by their nature would need to continue beyond the termination, cancellation or expiration of this Agreement, shall survive termination, cancellation or expiration of this Agreement. Agreement No. Aas-463-A Page 31 of 31 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first indicated above. (SPACE INTENTIONALLY LEFT BLANK) R. H. DONNELLEY INC. AMERITECH PUBLISHING INC. By: /s/ George Bednarz By: /s/ James W. Callaway -------------------------------- ----------------------------- Printed Name: George Bednarz Printed Name: James W. Callaway. -------------------- ------------------ Title: Vice President Title: Group President - SBC ---------------------------- ------------------------- Agreement No. Aas-463-A Page 1 of 12 ATTACHMENT 1 2002 DIRECTORY LIST SORTED BY CLIENT
REGION/ YP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE # COL - ------------------------------------------------------------------------------------------ AAS/SBCDO ALGONQUIN (MH) ALG 018070 10/02 4 AAS/SBCDO ALTON (ME) ALT 018203 12/02 5 AAS/SBCDO ARLINGTON HTS+ (NOW) ARL 018287 12/02 5 AAS/SBCDO ASHBURN (NEI) ASN 018312 08/02 3 AAS/SBCDO AURORA+ (FV) AUR 018337 02/02 4 AAS/SBCDO AUSTIN (NEI) AUN 018345 08/02 3 AAS/SBCDO BARRINGTON (NOW) BAR 018370 12/02 5 AAS/SBCDO BARTLETT (NOW) BLT 018387 12/02 5 AAS/SBCDO BEARDSTOWN BEA 018403 12/02 2 AAS/SBCDO BELLEVILLE+ (ME) BLV 018420 12/02 6 AAS/SBCDO BELMONT-CRAGIN (NEI) BCN 018430 08/02 3 AAS/SBCDO BENSENVILLE (FW) BNS 018453 08/02 5 AAS/SBCDO BEVERLY (NEI) BYN 018461 08/02 3 AAS/SBCDO BIG ROCK (FV) BRK 018470 02/02 4 AAS/SBCDO BLOOMINGDALE (FW) BDL 018471 08/02 5 AAS/SBCDO BLUE ISLAND (SO) BLI 018503 10/02 6 AAS/SBCDO BRIDGEPORT (NEI) BRN 018526 08/02 3 AAS/SBCDO BRIGHTON PARK (NEI) BPN 018537 08/02 3 AAS/SBCDO BRIGHTON PARK-SPANISH (NEI) BPS 100408 08/02 3 AAS/SBCDO BUFFALO GR/WHEELING (NOW) WHL 021947 12/02 5 AAS/SBCDO CAIRO+ (CR) CRO 018570 09/02 2 AAS/SBCDO CALUMET CITY+ (CC) CCY 018582 12/02 5 AAS/SBCDO CANTON CTN 018603 02/02 4 AAS/SBCDO CARY (MH) CAR 018703 10/02 4 AAS/SBCDO CHAIN O'LAKES (FN) ANT 018766 04/02 5 AAS/SBCDO CHAMPAIGN CHA 018770 11/02 5 AAS/SBCDO CHATHAM (NEI) CHN 018833 08/02 3 AAS/SBCDO CHICAGO ALPHA CGA 018888 02/02 AAS/SBCDO CHICAGO BTB CGC 018888 12/02 5 AAS/SBCDO CHICAGO CONSUMER CGB 018887 02/02 5 AAS/SBCDO CHICAGO HEIGHTS (SO) CHH 018987 10/02 6 AAS/SBCDO CHICAGO/LOOP DWNTN (NEI) VIS 018889 08/02 3
Agreement No. Aas-463-A Page 2 of 12 2002 DIRECTORY LIST SORTED BY CLIENT
REGION/ YP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE # COL - -------------------------------------------------------------------------------- AAS/SBCDO CICERO/RIVERSIDE+ (NEW) CIC 019027 11/02 5 AAS/SBCDO CLINTON COUNTY (ME) CLC 019060 12/02 5 AAS/SBCDO COLLINSVILLE (ME) COL 019067 12/02 5 AAS/SBCDO CRETE (SO) CRE 019083 10/02 5 AAS/SBCDO CROWN POINT (NWI) CRP 022770 12/02 5 AAS/SBCDO CRYSTAL LAKE (MH) CRY 019100 10/02 4 AAS/SBCDO DANVILLE DAN 019133 08/02 4 AAS/SBCDO DARIEN (FW) DAR 019138 08/02 5 AAS/SBCDO DECATUR DEC 019150 05/02 5 AAS/SBCDO DEERFIELD (NN) DEE 019167 06/02 5 AAS/SBCDO DELAVAN DVA 019200 09/02 2 AAS/SBCDO DOWNERS GROVE (FW) DOW 019267 08/02 5 AAS/SBCDO DUNDEE (FNW) DUN 019283 02/02 4 AAS/SBCDO DWIGHT (MR) DWT 019300 06/02 4 AAS/SBCDO EAST CHICAGO+ (NWI) ECH 022887 12/02 5 AAS/SBCDO EAST ST LOUIS (ME) ESL 019333 12/02 5 AAS/SBCDO EDWARDSVILLE (ME) EDW 019360 12/02 6 AAS/SBCDO ELBURN (FV) ELB 019383 02/02 4 AAS/SBCDO ELGIN+ (FNW) ELG 019400 02/02 4 AAS/SBCDO ELK GROVE VILLAGE (NOW) EGV 019405 12/02 5 AAS/SBCDO ELMHURST (FW) ELM 019417 08/02 5 AAS/SBCDO ENGLEWOOD (NEI) ENN 019442 08/02 3 AAS/SBCDO EVANSTON (NN) EVA 019450 06/02 5 AAS/SBCDO EVERGREEN PARK+ (SO) EVP 019467 10/02 5 AAS/SBCDO FORREST FOR 019567 03/02 2 AAS/SBCDO FRANKFORT/MOKENA (SW) FRA 019583 06/02 5 AAS/SBCDO GALENA GAL 019633 01/02 2 AAS/SBCDO GARY (NWI) GAR 023117 12/02 5 AAS/SBCDO GENEVA (FV) GEN 019700 02/02 4 AAS/SBCDO GIBSON CITY GIB 019717 03/02 2 AAS/SBCDO GILMAN (WT) GIL 019733 03/02 4/5 AAS/SBCDO GLENN ELLYN+ (FW) GLL 019750 08/02 5
12/21/2001 Agreement No. Aas-463-A Page 3 of 12 2002 DIRECTORY LIST SORTED BY CLIENT REGION/ YP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE #COL - ------------------------------------------------------------------------------ AAS/SBCDO GLENVIEW (NN) GLV 019767 06/02 5 AAS/SBCDO GRANITE CITY (ME) GRA 019783 12/02 5 AAS/SBCDO GREENVILLE GRE 019817 04/02 4 AAS/SBCDO HAMMOND (NWI) HAM 023267 12/02 6 AAS/SBCDO HAMPSHIRE (FNW) HMP 019833 02/02 4 AAS/SBCDO HARVARD (MH) HVD 019867 10/02 4 AAS/SBCDO HARVEY (SO) HAR 019883 10/02 6 AAS/SBCDO HEGEWISCH/EASTSIDE (NEI) EHN 018994 08/02 3 AAS/SBCDO HIGHLAND (NWI) HLN 023325 12/02 5 AAS/SBCDO HIGHLAND PARK (NN) HIG 019933 06/02 6 AAS/SBCDO HINSDALE (FW) HIN 019967 08/02 5 AAS/SBCDO HOMEWOOD (SO) HOM 019999 10/02 5 AAS/SBCDO HYDE PARK (NEI) HPN 020020 08/02 3 AAS/SBCDO ILL QUAD CITIES RKI 021242 11/02 5 AAS/SBCDO IOWA QUAD CITIES DVP 026531 11/02 5 AAS/SBCDO JEFFERSON PARK (NEI) JPN 020042 08/02 3 AAS/SBCDO JOLIET+ (SW) JOL 020083 08/02 6 AAS/SBCDO KANKAKEE/MOMENCE KAN 020100 03/02 5 AAS/SBCDO LAGRANGE (NEW) LAG 020150 11/02 5 AAS/SBCDO LAKE FOREST (NN) LKF 020166 06/02 5 AAS/SBCDO LAKE VIEW (NEI) LWN 020170 08/02 3 AAS/SBCDO LANSING (CC) LAN 020180 12/02 5 AAS/SBCDO LASALLE LAS 020183 08/02 4 AAS/SBCDO LEMONT (SW) LEM 020216 06/02 5 AAS/SBCDO LIBERTYVILLE+ (FN) LIB 020250 04/02 6 AAS/SBCDO LINCOLN PARK (NEI) LPN 018997 08/02 3 AAS/SBCDO LINCOLN SQUARE (NEI) LNN 020270 08/02 3 AAS/SBCDO LOGAN SQUARE (NEI) LGN 020292 08/02 3 AAS/SBCDO LOGAN SQUARE-SPANISH (NEI) LSS 100407 08/02 3 AAS/SBCDO LOMBARD-VILLA PARK (FW) LOM 020297 08/02 5 AAS/SBCDO LOWELL-ST JOHN (NWI) LOW 023650 12/02 5 AAS/SBCDO MARENGO (MH) MAR 020333 10/02 4
12/21/2001 Agreement No. Aas-463-A Page 4 of 12 2002 DIRECTORY LIST SORTED BY CLIENT
REGION/ YP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE # COL - ---------------------------------------------------------------------------------- AAS/SBCDO MAYWOOD/WESTCHESTER (NEW) MAY 020433 11/02 5 AAS/SBCDO MCHENRY+ (MH) MCH 020450 10/02 4 AAS/SBCDO MORRIS (MR) MOR 020666 06/02 6 AAS/SBCDO MT VERNON MTV 020800 04/02 4 AAS/SBCDO NAPERVILLE (FW) NAP 020833 08/02 5 AAS/SBCDO NASHVILLE NAS 020850 07/02 2 AAS/SBCDO NORWOOD PARK (NEI) NRN 019003 08/02 3 AAS/SBCDO OAK PARK (NEW) OPK 020883 11/02 5 AAS/SBCDO OLIVE BRANCH (CR) OLI 020950 09/02 2 AAS/SBCDO ORLAND PARK (SO) ORL 020983 10/02 6 AAS/SBCDO PALATINE (NOW) PLA 021010 12/02 6 AAS/SBCDO PARK RIDGE PKR 021065 08/02 6 AAS/SBCDO PEORIA-PEKIN PEO 021115 05/02 5 AAS/SBCDO QUINCY QUI 021249 10/02 4 AAS/SBCDO RIVER GROVE (NEW) RGR 021315 11/02 6 AAS/SBCDO RIVERDALE (SO) RDL 021299 10/02 5 AAS/SBCDO ROCKFORD RKF 021382 04/02 4 AAS/SBCDO ROGERS PARK (NEI) RPN 021407 08/02 3 AAS/SBCDO ROSELAND (NEI) RLN 021408 08/02 3 AAS/SBCDO SCHAUMBURG (NOW) SMG 021516 12/02 5 AAS/SBCDO SENECA (MR) SEN 021532 06/02 4 AAS/SBCDO SKOKIE+ (NN) SKO 021582 06/02 6 AAS/SBCDO SOUTH SHORE (NEI) SSN 021691 08/02 3 AAS/SBCDO SPRINGFIELD SPR 021632 12/02 5 AAS/SBCDO STERLING STE 021665 03/02 4/5 AAS/SBCDO SUMMIT (SO) SUM 021715 10/02 5 AAS/SBCDO TINLEY PARK (SO) TNL 021765 10/02 5 AAS/SBCDO VANDALIA VAN 021815 04/02 4 AAS/SBCDO WATSEKA+ (WT) WAT 021923 03/02 4/5 AAS/SBCDO WAUKEGAN (FN) WKN 021931 04/02 5 AAS/SBCDO WILMINGTON (SW) WLM 021955 06/02 5 AAS/SBCDO WINNETKA (NN) WIN 021963 06/02 5
12/21/2001 Agreement No. Aas-463-A Page 5 of 12 2002 DIRECTORY LIST SORTED BY CLIENT
REGION/ YP NYPS BUSINESS DIRECTORY MARKET DIRECTORY DIRECTORY UNIT CODE CODE CODE ISSUE # COL - ------------------------------------------------------------------------------------------------------------------- AAS/SBCDO WOODSTOCK (MH) WOO 021971 10/02 4 AAS/SBCDO YORKVILLE (FV) YOR 021987 02/02 4 AAS/SBCDO ZION (FN) ZIO 021998 04/02 5 INDIANA AMERITECH (CROSS) ANDERSON, IN ADN 01/02 INDIANA AMERITECH (CROSS) ATTICA, IN 007 05/02 INDIANA AMERITECH (CROSS) AUBURN, IN 008 09/02 INDIANA AMERITECH (CROSS) BEDFORD, IN 009 11/02 INDIANA AMERITECH (CROSS) BLACKFORD CITY, IN 055 05/02 INDIANA AMERITECH (CROSS) BLOOMINGTON/NASHVLE, IN 011 11/02 INDIANA AMERITECH (CROSS) BLUFFTON, IN 012 09/02 INDIANA AMERITECH (CROSS) BUCK CREEK, IN 017 04/02 INDIANA AMERITECH (CROSS) CENTRAL IND BTB (INDIANPS) 137 10/02 INDIANA AMERITECH (CROSS) COLUMBUS, IN CLM 03/02 4 INDIANA AMERITECH (CROSS) CRAWFORDSVILLE, IN CFV 11/02 INDIANA AMERITECH (CROSS) CULVER, IN 032 04/02 INDIANA AMERITECH (CROSS) EVANSVILLE, IN & MIDI EVN 03/02 INDIANA AMERITECH (CROSS) FRANKFORT, IN FKF 03/02 INDIANA AMERITECH (CROSS) GREATER LAPORTE, IN 078 10/02 INDIANA AMERITECH (CROSS) HENRY CTY-NEW CASTLE, IN 092 01/02 INDIANA AMERITECH (CROSS) HUNTINGTON, IN HNT 09/02 INDIANA AMERITECH (CROSS) INDIANAPOLIS YP, IN 059 10/02 INDIANA AMERITECH (CROSS) INDIANPS EAST SUB, IN 052 10/02 INDIANA AMERITECH (CROSS) INDIANPS NORTH SUB, IN 020 10/02 INDIANA AMERITECH (CROSS) INDIANPS SOUTH SUB, IN INS 10/02 INDIANA AMERITECH (CROSS) INDIANPS WEST SUB, IN 104 10/02 INDIANA AMERITECH (CROSS) KENDALLVILLE, IN 082 09/02 INDIANA AMERITECH (CROSS) KOKOMO, IN & MIDI K0K 03/02 INDIANA AMERITECH (CROSS) LEBANON, IN 069 10/02 INDIANA AMERITECH (CROSS) LINTON, IN 070 12/02 INDIANA AMERITECH (CROSS) MARION, IN 072 03/02 INDIANA AMERITECH (CROSS) MARTINSVILLE, IN 074 11/02 INDIANA AMERITECH (CROSS) MICHIANA-S BEND, IN & MIDI SBD 05/02
12/21/2001 Agreement No. Aas-463-A Page 6 of 12 2002 DIRECTORY LIST SORTED BY CLIENT
REGION/ YP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE #COL - ----------------------------------------------------------------------------------------------------------------- INDIANA AMERITECH (CROSS) MOROCCO, IN 086 04/02 INDIANA AMERITECH (CROSS) MUNCIE, IN 089 01/02 INDIANA AMERITECH (CROSS) PERU, IN 103 08/02 INDIANA AMERITECH (CROSS) POSEY COUNTY, IN 101 03/02 INDIANA AMERITECH (CROSS) ROCKPORT, IN 105 12/02 INDIANA AMERITECH (CROSS) ROCKVILLE, IN 106 05/02 INDIANA AMERITECH (CROSS) S IN AREA-JEF/NEW ALBY, IN 061 08/02 INDIANA AMERITECH (CROSS) SHELBYVILLE, IN 113 08/02 INDIANA AMERITECH (CROSS) TELL CITY, IN TLC 12/02 INDIANA AMERITECH (CROSS) VINCENNES, IN 125 03/02 INDIANA AMERITECH (CROSS) VINCENNES, IN 125 09/02 INDIANA AMERITECH (CROSS) WARRICK COUNTY, IN 045 03/02 INDIANA AMERITECH (CROSS) WASHINGTON, IN WHT 03/02 INDIANA AMERITECH (CROSS) WASHINGTON, IN WHT 09/02 MICHIGAN AMERITECH (CROSS) ANN ARBOR, MI ANN 11/02 MICHIGAN AMERITECH (CROSS) BATTLE CREEK/MARSHALL, MI BTC 11/02 MICHIGAN AMERITECH (CROSS) BENTON HARBOR, MI BEN 12/02 MICHIGAN AMERITECH (CROSS) CHARLEVOIX, MI CHV 05/02 MICHIGAN AMERITECH (CROSS) CHEBOYGAN, MI CHB 10/02 MICHIGAN AMERITECH (CROSS) DETROIT MULTI-CULTURAL, MI DDN 12/02 MICHIGAN AMERITECH (CROSS) DETROIT, MI DET 12/02 MICHIGAN AMERITECH (CROSS) DOWNRIVER, MI DNR 06/02 MICHIGAN AMERITECH (CROSS) EAST, MI ETA 12/02 MICHIGAN AMERITECH (CROSS) EASTSIDE, MI ECG 12/02 MICHIGAN AMERITECH (CROSS) ESCANABA, MI ESC 05/02 MICHIGAN AMERITECH (CROSS) FARMINGTON, MI FMG 08/02 4 MICHIGAN AMERITECH (CROSS) FENTON, MI FNT 12/02 MICHIGAN AMERITECH (CROSS) GENESEE CITY (FLINT), MI & MIDI FLT 12/02 MICHIGAN AMERITECH (CROSS) GRAND RAPIDS, MI & MIDI GRR 12/02 MICHIGAN AMERITECH (CROSS) GRAND TRAVERSE, MI & MIDI GTB 05/02 MICHIGAN AMERITECH (CROSS) GREENVILLE, MI GNV 01/02 MICHIGAN AMERITECH (CROSS) HASTINGS, MI HAS 10/02
12/21/2001 Agreement No. Aas-463-A Page 7 of 12 2002 DIRECTORY LIST SORTED BY CLIENT
REGION/ YP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE #COL - ----------------------------------------------------------------------------------------------------------------- MICHIGAN AMERITECH (CROSS) HOLLAND, MI HOL 06/02 MICHIGAN AMERITECH (CROSS) HOPKINS, MI HMW 10/02 MICHIGAN AMERITECH (CROSS) IRON MOUNTAIN, MI IRM 06/02 MICHIGAN AMERITECH (CROSS) JACKSON, MI JKN 11/02 MICHIGAN AMERITECH (CROSS) KALAMAZOO, MI KZO 07/02 4 MICHIGAN AMERITECH (CROSS) LANSING, MI LSG 07/02 MICHIGAN AMERITECH (CROSS) LIVINGSTON CITY, MI LIV 09/02 MICHIGAN AMERITECH (CROSS) LIVONIA, MI LVN 06/02 MICHIGAN AMERITECH (CROSS) MARQUETTE, MI MRQ 10/02 MICHIGAN AMERITECH (CROSS) MT CLEMENS, MI MTC 12/02 MICHIGAN AMERITECH (CROSS) NEW BUFFALO, MI NBF 10/02 MICHIGAN AMERITECH (CROSS) NEWBERRY, MI NBY 02/02 MICHIGAN AMERITECH (CROSS) NILES, MI NIL 05/02 MICHIGAN AMERITECH (CROSS) NORTH OAKLAND, MI NOP 06/02 MICHIGAN AMERITECH (CROSS) NORTH WOODWARD, MI NWD 06/02 MICHIGAN AMERITECH (CROSS) NORTHERN MACOMB, MI NMC 12/02 MICHIGAN AMERITECH (CROSS) PLYMOUTH, MI PLY 06/02 MICHIGAN AMERITECH (CROSS) PORT HURON, MI PTH 08/02 4 MICHIGAN AMERITECH (CROSS) ROCHESTER, MI ROC 06/02 MICHIGAN AMERITECH (CROSS) SAGINAW, MI BCS 08/02 MICHIGAN AMERITECH (CROSS) SAULT STE MARIE, MI SSM 10/02 MICHIGAN AMERITECH (CROSS) SHORELINE, MI (GROSE PTES) GSP 12/02 MICHIGAN AMERITECH (CROSS) SOUTHEASTERN MI BTB (DETROIT) SEA 12/02 MICHIGAN AMERITECH (CROSS) SOUTHFIELD, MI STF 06/02 MICHIGAN AMERITECH (CROSS) STERLING HEIGHTS, MI SHT 12/02 4 MICHIGAN AMERITECH (CROSS) WEST MICH LAKESHORE, MI GRH 06/02 MICHIGAN AMERITECH (CROSS) WEST-NORTHWEST, MI WNW 06/02 OHIO AMERITECH (CROSS) AKRON, OH AKO 12/02 4 OHIO AMERITECH (CROSS) ALLIANCE, OH ALC 06/02 OHIO AMERITECH (CROSS) CANTON, OH CTO 06/02 4
12/21/2001 Agreement No. Aas-463-A Page 8 of 12 2002 DIRECTORY LIST SORTED BY CLIENT
REGION/ VP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE # COL - ---------------------------------------------------------------------------------------------------------------------- OHIO AMERITECH (CROSS) CHAGRIN, OH CHG 09/02 OHIO AMERITECH (CROSS) CLEVELAND YP, OH CLE 08/02 OHIO AMERITECH (CROSS) COLUMBUS NE, OH CNE 12/02 4 OHIO AMERITECH (CROSS) COLUMBUS NW, OH CUE 12/02 4 OHIO AMERITECH (CROSS) COLUMBUS SE, OH CSE 12/02 4 OHIO AMERITECH (CROSS) COLUMBUS SW, OH CSW 12/02 4 OHIO AMERITECH (CROSS) COLUMBUS WP/YP,OH CBS 08/02 OHIO AMERITECH (CROSS) DAYTON BTB, OH DCW 02/02 4 OHIO AMERITECH (CROSS) DAYTON, OH & MIDI DAY 02/02 OHIO AMERITECH (CROSS) EASTERN OHIO RIVER, OH EOR 10/02 OHIO AMERITECH (CROSS) EUCLID, OH EUC 09/02 OHIO AMERITECH (CROSS) GREATER SOUTHWEST, OH GSW 09/02 OHIO AMERITECH (CROSS) GREATER WESTERN, OH FAI 09/02 4 OHIO AMERITECH (CROSS) HEIGHTS/LYNDHURST, OH HEA 09/02 4 OHIO AMERITECH (CROSS) LAKE & GEAUGA COUNTIES, OH LCA 09/02 4 OHIO AMERITECH (CROSS) LANCASTER, OH LNT 12/02 OHIO AMERITECH (CROSS) MARIETTA/PARKERSBURG, OH MIE 10/02 4 OHIO AMERITECH (CROSS) MASSILLON, OH MAS 06/02 OHIO AMERITECH (CROSS) MIDDLETOWN, OH MDO 06/02 OHIO AMERITECH (CROSS) NELSONVILLE, OH NEL 09/02 OHIO AMERITECH (CROSS) NORTH DAYTON, OH DYN 09/02 OHIO AMERITECH (CROSS) NORTHEASTERN OH BTB CBB 06/02 4 OHIO AMERITECH (CROSS) PORTAGE CITY, OH KRV 12/02 4 OHIO AMERITECH (CROSS) RIPLEY, OH RIP 05/02 OHIO AMERITECH (CROSS) SANDUSKY, OH SDS 10/02 4 OHIO AMERITECH (CROSS) SOUTH DAYTON, OH DAS 09/02 OHIO AMERITECH (CROSS) SOUTHEAST, OH SAR 09/02 OHIO AMERITECH (CROSS) SPRINGFIELD, OH SFD 05/02 4 OHIO AMERITECH (CROSS) STEUBENVILLE/WEIRTON, OH STV 10/02 OHIO AMERITECH (CROSS) TOLEDO, OH & MIDI TOL 11/02 OHIO AMERITECH (CROSS) WASHINGTON COURTHOUSE, OH WSH 05/02 OHIO AMERITECH (CROSS) WINCHESTER, OH WIC 05/02
12/21/2001 Agreement No. Aas-463-A Page 9 of 12 2002 DIRECTORY LIST SORTED BY CLIENT
REGION/ YP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE # COL - ------------------------------------------------------------------------------------------------------------------------------------ OHIO AMERITECH (CROSS) XENIA, OH XEN 09/02 OHIO AMERITECH (CROSS) YOUNGSTOWN/WARREN, OH YNG 03/02 4 OHIO AMERITECH (CROSS) ZANESVILLE, OH ZNV 10/02 4 VERIZON-IL/IN (RECIP) ALEDO-HILLSDALE, IL ALD 10/02 VERIZON-IL/IN (RECIP) ANGOLA/STEUBN, IN ANG 09/02 VERIZON-IL/IN (RECIP) ANNA, IL ANA 12/02 VERIZON-IL/IN (RECIP) BLOOMINGTON, IL BLM 05/02 VERIZON-IL/IN (RECIP) BOURBON, IN BRB 10/02 VERIZON-IL/IN (RECIP) CARBONDALE, IL CBD 12/02 VERIZON-IL/IN (RECIP) CARMI, IL CMI 10/02 VERIZON-IL/IN (RECIP) CARROLLTON, IL CRR 07/02 VERIZON-IL/IN (RECIP) CASEY, IL CAS 06/02 VERIZON-IL/IN (RECIP) CHILLICOTHE, IL CCH 03/02 VERIZON-IL/IN (RECIP) CLINTON, IL CLI 09/02 VERIZON-IL/IN (RECIP) CONNERSVILLE, IN CON 10/02 VERIZON-IL/IN (RECIP) DEER CREEK, IL DER 08/02 VERIZON-IL/IN (RECIP) DEKALB-ROCHELLE, IL DEK 12/02 VERIZON-IL/IN (RECIP) DELPHI, IN DEL 06/02 VERIZON-IL/IN (RECIP) ELKHART, IN EHT 08/02 VERIZON-IL/IN (RECIP) FAIRFIELD, IL FAF 05/02 VERIZON-IL/IN (RECIP) FLORA, IL FLO 04/02 VERIZON-IL/IN (RECIP) FORT WAYNE, IN FWE 06/02 VERIZON-IL/IN (RECIP) FREEPORT-AW, IL FRP 07/02 VERIZON-IL/IN (RECIP) GOSHEN, IN GOS 08/02 VERIZON-IL/IN (RECIP) GRANVILLE, IL GVL 02/02 VERIZON-IL/IN (RECIP) GTR ST CLAIR CO, IL GSC 03/02 VERIZON-IL/IN (RECIP) HAMILTON, IL HMT 09/02 VERIZON-IL/IN (RECIP) HARRISBURG, IL HRB 12/02 VERIZON-IL/IN (RECIP) HARTSBURG, IL HRT 08/02 VERIZON-IL/IN (RECIP) HIGHLAND, IL HLA 08/02 VERIZON-IL/IN (RECIP) HOBART, IN HLS 08/02 VERIZON-IL/IN (RECIP) HOOPESTON/RSVL, IL HOO 12/02 VERIZON-IL/IN (RECIP) JACKSONVILLE, IL JAC 11/02 VERIZON-IL/IN (RECIP) KEWANEE, IL KEW 10/02
Agreement No. Aas-463-A Page 10 of 12 2002 DIRECTORY LIST SORTED BY CLIENT
REGION/ YP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE # COL - ------------------------------------------------------------------------------------------------- VERIZON-IL/IN (RECIP) LAFAYETTE, IN LFA 12/02 VERIZON-IL/IN (RECIP) LAPORTE/MICH, IN LPO 09/02 VERIZON-IL/IN (RECIP) LAWRENCEVILLE, IL LAW 04/02 VERIZON-IL/IN (RECIP) LINCOLN, IL LNI 08/02 VERIZON-IL/IN (RECIP) LOGANSPORT, IN LOG 03/02 VERIZON-IL/IN (RECIP) LTL WABASH RVR, IL LWR 04/02 VERIZON-IL/IN (RECIP) MACOMB AREA WD, IL MCB 03/02 VERIZON-IL/IN (RECIP) MARION, IL MRI 12/02 VERIZON-IL/IN (RECIP) MARSHALL, IL MSH 08/02 VERIZON-IL/IN (RECIP) MENDOTA, IL MDT 10/02 VERIZON-IL/IN (RECIP) METROPOLIS, IL MPL 12/02 VERIZON-IL/IN (RECIP) MINONK, IL MOK 11/02 VERIZON-IL/IN (RECIP) MONTICELLO, IL MCO 04/02 VERIZON-IL/IN (RECIP) MORTON, IL MRT 02/02 VERIZON-IL/IN (RECIP) MORTON, IL MRT 02/02 VERIZON-IL/IN (RECIP) MORTON, IL MRT 12/02 VERIZON-IL/IN (RECIP) MT CARMEL, IL MCA 08/02 VERIZON-IL/IN (RECIP) MT STERLING, IL MTS 02/02 VERIZON-IL/IN (RECIP) N MANCHESTER, IN NMH 10/02 VERIZON-IL/IN (RECIP) NEWTON, IL NEW 08/02 VERIZON-IL/IN (RECIP) NORRIS CITY, IL NRC 12/02 VERIZON-IL/IN (RECIP) OKAWVILLE/ST LIBORY, IL OSL 07/02 VERIZON-IL/IN (RECIP) OLNEY, IL OLN 05/02 VERIZON-IL/IN (RECIP) PARIS, IL PAS 06/02 VERIZON-IL/IN (RECIP) PAXTON, IL PAX 03/02 VERIZON-IL/IN (RECIP) PITTSFIELD, IL PTF 12/02 VERIZON-IL/IN (RECIP) PONTIAC/LVNGST, IL PON 10/02 VERIZON-IL/IN (RECIP) PORTAGE-VALPARAISO, IN VAL 09/02 VERIZON-IL/IN (RECIP) PRINCETON, IL PRI 03/02 VERIZON-IL/IN (RECIP) RANTOUL, IL RAN 12/02 VERIZON-IL/IN (RECIP) RICHMOND, IN RIC 10/02 VERIZON-IL/IN (RECIP) ROBINSON, IL ROB 05/02
12/21/2001 Agreement No. Aas-463-A Page 11 of 12 2002 DIRECTORY LIST SORTED BY CLIENT REGION/ YP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE # COL - ---------------------------- ----------------------------- ------- --------- --------- ----- VERIZON-IL/IN (RECIP) S ILLINOIS REG, IL SIR 12/02 VERIZON-IL/IN (RECIP) SHELDON, IL SHD 07/02 VERIZON-IL/IN (RECIP) SPARTA, IL SPA 12/02 VERIZON-IL/IN (RECIP) STREATOR, IL STO 06/02 VERIZON-IL/IN (RECIP) SULLIVAN, IL SUL 03/02 VERIZON-IL/IN (RECIP) TERRE HAUTE, IN TER 12/02 VERIZON-IL/IN (RECIP) TUSCOLA, IL TUS 11/02 VERIZON-IL/IN (RECIP) VIRDEN, IL VIR 10/02 VERIZON-IL/IN (RECIP) W FRANKFORT, IL WFK 12/02 VERIZON-IL/IN (RECIP) WABASH, IN WAB 06/02 VERIZON-IL/IN (RECIP) WASHINGTON, IL WAH 03/02 VERIZON-IL/IN (RECIP) WONDER LAKE, IL WNL 10/02 WISCONSIN AMERITECH (CROSS) ALGOMA, WI AGM 04/02 WISCONSIN AMERITECH (CROSS) BEAVER DAM, WI BVD 04/02 WISCONSIN AMERITECH (CROSS) BELOIT/S BELOIT, IL BLO 02/02 WISCONSIN AMERITECH (CROSS) BURLINGTON, WI BLN 07/02 WISCONSIN AMERITECH (CROSS) CEDARBURG, WI CDB 11/02 WISCONSIN AMERITECH (CROSS) EAU CLAIRE, WI ECL 09/02 WISCONSIN AMERITECH (CROSS) EVANSVILLE, WI EVS 01/02 WISCONSIN AMERITECH (CROSS) FOND DU LAC, WI FDL 03/02 WISCONSIN AMERITECH (CROSS) FOX CITIES, WI & MIDI APP 08/02 WISCONSIN AMERITECH (CROSS) FT ATKINSON, WI FTA 06/02 WISCONSIN AMERITECH (CROSS) GREATER WI BTB (MILWAUKEE) MWB 08/02 WISCONSIN AMERITECH (CROSS) GREEN BAY, WI & MIDI GNB 11/02 WISCONSIN AMERITECH (CROSS) HARTFORD, WI HTF 11/02 WISCONSIN AMERITECH (CROSS) HUDSON, WI HDS 11/02 WISCONSIN AMERITECH (CROSS) JANESVILLE, WI JVL 02/02 WISCONSIN AMERITECH (CROSS) KENOSHA, WI KNH 02/02 WISCONSIN AMERITECH (CROSS) LAKE GENEVA, WI LGV 07/02 WISCONSIN AMERITECH (CROSS) MADISON, WI & MIDI MDN 01/02 WISCONSIN AMERITECH (CROSS) MANITOWOC, WI MTW 03/02 WISCONSIN AMERITECH (CROSS) MAYVILLE, WI MVE 04/02
12/21/2001 Agreement No. Aas-463-A Page 12 of 12 2002 DIRECTORY LIST SORTED BY CLIENT
REGION/ YP NYPS BUSINESS MARKET DIRECTORY DIRECTORY UNIT DIRECTORY CODE CODE CODE ISSUE # CO - ------------------------------------------------------------------------------------------------------------------------ WISCONSIN AMERITECH (CROSS) MENOMONEE FALLS, WI MNF 11/02 WISCONSIN AMERITECH (CROSS) MENOMONIE, WI MNO 08/02 WISCONSIN AMERITECH (CROSS) MILWAUKEE WP, WI MWA 08/02 WISCONSIN AMERITECH (CROSS) MILWAUKEE YP, WI MWC 08/02 WISCONSIN AMERITECH (CROSS) OCONOMOWOC, WI OCN 11/02 WISCONSIN AMERITECH (CROSS) OSHKOSH, WI OSK 01/02 WISCONSIN AMERITECH (CROSS) PORT WASHINGTON, WI PWH 11/02 WISCONSIN AMERITECH (CROSS) RACINE, WI RCN 02/02 WISCONSIN AMERITECH (CROSS) SHEBOYGAN, WI SBY 01/02 WISCONSIN AMERITECH (CROSS) STEVENS POINT, WI SPT 05/02 4 WISCONSIN AMERITECH (CROSS) STOUGHTON, WI SGT 01/02 WISCONSIN AMERITECH (CROSS) STURGEON BAY, WI STB 04/02 WISCONSIN AMERITECH (CROSS) UNION GROVE, WI UGB 02/02 WISCONSIN AMERITECH (CROSS) WATERTOWN, WI WTW 06/02 WISCONSIN AMERITECH (CROSS) WAUKESHA, WI WKH 11/02 WISCONSIN AMERITECH (CROSS) WEST BEND, WI WTB 11/02 WISCONSIN AMERITECH (CROSS) WHITEWATER, WI WHW 08/02
Agreement No. Aas-463-A Page 1 of 2 ATTACHMENT 2 PRICING SCHEDULE - ------------------------------------------------------------------------------- BASE LINE 2002 VARIABLE RATE CATEGORY VOLUMES BASE UNIT PRICES PER UNIT - ------------------------------------------------------------------------------- SERVICE ORDER PROCESSING *** *** *** - Automated - Manual - TC - ------------------------------------------------------------------------------- CONTRACT PROCESSING *** *** *** (MANUAL INSERTIONS) - Local - National - Reciprocal - ------------------------------------------------------------------------------- COPY PROCESSING *** *** *** (COPYSHEETS) - Display - In-column - Process - ------------------------------------------------------------------------------- WHITE PAGE PROCESSING *** *** *** - BFO's - ------------------------------------------------------------------------------- PAGE PRODUCTION *** *** *** - Yellow Pages - Index Pages - ------------------------------------------------------------------------------- REVENUE ACCOUNTING *** *** *** (ACCOUNTS BILLED) - Local - National - ------------------------------------------------------------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Agreement No. Aas-463-A Page 2 of 2 ATTACHMENT 2 PRICING SCHEDULE The inclusion of the Base Unit Price in the above table is for informational purposes only and shall not be construed to suggest that, in the event the Parties mutually agree to modify this Agreement to eliminate certain of the specified services or to add additional volume to the specified Base Line Volumes, the Base Fee will be adjusted based upon the Base Unit Price specified herein. The Parties acknowledge that there are many factors, in addition to the stated Base Unit Price, that will affect pricing of any such modification of services or volumes. Any and all such modifications to services or volumes and related pricing adjustments are subject to the mutual agreement of the Parties at the time of such modifications. Other services included in base price: Sensitive Account Processing: Extra quality control procedures performed for certain ads to ensure that no problems occur (e.g. for ads with past problems, legal considerations, etc.) Trademark Control: For accounts/ads with past trademark issues, extra quality control procedures performed to ensure that no further problems or trademark violations occur. Reciprocal Copy Editing: For ads sold into Publisher's directories by publishers other than Publisher, editing of ads to ensure compliance with Publisher's standards. National Billing: Processing national bills, printing invoices, sending bills to Publisher for forwarding to CMR's, providing Publisher with invoice copies and performing other related National Billing activities. Specialized Billing: Billing for Street Address Directory and New Movers. Records Management: Imaging all necessary production documents (e.g. contracts, advertising orders, copy, credit applications/documents, proofs, etc.) digitally into a database or by microfilm for storage of this information to support any future requirements that may arise such as questions, claims, lawsuits, etc. Photo Monitoring: Photographs used in ads may be leased for various time periods and with certain restrictions. Monitoring the use of leased photos to ensure that terms of the leases are complied with. -----END PRIVACY-ENHANCED MESSAGE-----